Bluescope Steel Limited · ASX:BSL
Bluescope Steel — H1 FY2016 Earnings Presentation
67 slides from Bluescope Steel's earnings presentation, Feb 22, 2016
Slide 1: 1H FY2016 Financial Results Presentation
For personal use only 1H FY2016 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 22 February 2016 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: In August 2015 we communicated our renewed strategy
In August 2015 we communicated our renewed strategy 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 Australia &
Slide 6: 1H FY2016 results summary
1H FY2016 results summary Best half yearly underlying profit since 2H FY2010 For personal use only Underlying EBIT Return on invested capital1 $230.1M 35% vs 1H FY2015 7.8% from 6.9% Up $101.7M on 2H FY2015 Underlying net profit after tax Interim dividend – fully franked $119.0M 47% vs 1H FY2015 3.0
Slide 7: Segment underlying EBIT summary
Segment underlying EBIT summary Strong improvement in Australia and Asia For personal use only Australian Steel Products New Zealand & Pacific Steel $173.6M 163% ($47.1)M ($49.7)M • Strong benefit from early delivery of cost savings • Lower regional steel prices and iron ore prices • Growth in domes
Slide 8: Australia and New Zealand cost savings
Australia and New Zealand cost savings Australian target now $270M for FY2017; New Zealand target NZ$50M For personal use only Australia (inc Distribution) New Zealand 1H FY2016 achieved $95M NZ$13M 2H FY2016 target $110-120M NZ$20-25M FY2016 target $205-215M NZ$33-38M FY2017 target $270M At least N
Slide 9: Australian Steel Products
Australian Steel Products Best 1H result for seven years – underlying EBIT up significantly to $173.6M on cost savings in a weaker spread environment For personal use only Underlying EBIT ($M) Comments on 1H FY2016 173.6 • Higher building product (COLORBOND® steel and ZINCALUME® steel) and pipe & tu
Slide 10: Australian Steel Products: spreads and international industry
Australian Steel Products At current spreads, much of the international industry is relying on debt to fund losses for continued production 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 a
Slide 11: Australian demand: improving customer engagement
Australian Steel Products Australian demand: improving customer engagement is making a difference For personal use only Total Australian external despatch volumes (Kt) 1H FY11 2H FY11 1H FY12 2H FY12 1H FY13 2H FY13 1H FY14 2H FY14 1H FY15 2H FY15 1H FY16 67% Total construction % shown in red 1,200
Slide 12: New Zealand & Pacific Steel
New Zealand & Pacific Steel Softer result on weaker iron ore and steel prices and volumes For personal use only Underlying EBIT ($M) Comments on 1H FY2016 2.6 • Lower realised iron sands and steel pricing partially mitigated by a weaker NZD:USD • Higher steel and iron sands inventory NRV provision d
Slide 13: Taharoa
Taharoa Commenced sale process For personal use only Management • Sale process has commenced strategy • Growth capex being reviewed 2H FY2016 volume • 1.8Mt expected Underlying EBIT • Expect FY2016 EBIT loss of NZ$25-30M1 (incl NRV) at US$41/t index price2 in 2H FY2016 – At US$35/t index price in 2H
Slide 14: Building Products ASEAN, North America and India
Building Products ASEAN, North America and India EBIT up 37% with better performance across most businesses; 33% pa compound earnings growth over past four years For personal use only Underlying EBIT ($M) Comments on 1H FY2016 65.4 • Overall: earnings growth in all businesses except 50.5 Thailand 47
Slide 15: Thailand growth initiatives
Building Products ASEAN, North America and India Thailand growth initiatives For personal use only Home appliance • VIEWKOTE® sales increasing steels update • SUPERDYMA® dual-pot metal coating line now commissioned • Customer accreditation process underway, and on-track for sales commitments around
Slide 16: BlueScope Buildings
BlueScope Buildings 77% EBIT lift on Buildings Asia improvement and continued U.S. growth Underlying EBIT ($M) Comments on 1H FY2016 For personal use only 34.2 • Engineered Buildings North America: Engineered Buildings 12.7 China & SE Asia – Improved pricing driving positive margin performance on hi
Slide 17: BlueScope Buildings: North America earnings growth
BlueScope Buildings Steady progress in North America earnings growth. Volumes moderated in 1H FY2016 but good potential remains For personal use only Underlying EBIT of Buildings North America ($M) Buildings North America – volumes 500 1H FY16 vol 122.8kt, 450 cf 140.1kt in 1H FY15 42.6 400 Includes
Slide 18: Progressing China Buildings restructure
BlueScope Buildings Progressing China Buildings restructure For personal use only • Asia Buildings improved to $0.8M EBIT loss in 1H FY2016. Executing turnaround plan – Addresses manufacturing productivity, variable cost reduction and revenue and margin improvement Underlying EBIT / (loss) of Buildi
Slide 19: Hot Rolled Products North America
Hot Rolled Products North America Strong operating performance continued; 100% consolidation from 30 Oct Comments on 1H FY2016 Segment underlying EBIT ($M) For personal use only • North Star: 67.1 – Acquisition of remaining 50% on 30 October 2015 – Softer spread due to U.S. Midwest HRC steel prices
Slide 20: Group Financials
For personal use only GROUP FINANCIALS
Slide 21: Underlying EBIT variances
Conversion & other costs: Volume / lower per unit costs 24 Underlying EBIT variances Cost improvement initiatives Escalation 98 (26) Timing, one-off & other 7 For personal use only (10.9) 230.1 Net spread decrease $27.5M (21.6) 15.8 171.0 103.3 (79.8) Raw material costs: Coal 6 Iron ore 44 220.8 Scr
Slide 22: Review of non-current asset carrying values
Review of non-current asset carrying values For personal use only North Star write-up • Accounting carrying value write-up of $700.8 million (pre-tax) of the existing 50% interest in North Star BlueScope Steel that it already owned • Brought about by the requirement to revalue this asset when 100% o
Slide 23: Reconciliation between reported NPAT and underlying NPAT
Reconciliation between reported NPAT and underlying NPAT1 For personal use only 1H FY2016 NPAT $M Reported net profit after tax 200.1 Underlying adjustments Impact of acquiring a controlling interest in North Star (702.9) Asset impairments 533.9 Restructuring & redundancy costs 57.4 Asset sales (34.
Slide 24: Cash flow
Cash flow $M 1H FY15 2H FY15 1H FY16 Primarily the net gain in revaluation of existing 50% share of North Star Reported EBITDA 349.9 289.7 515.8 following acquisition of Cargill’s 50% share in Oct 2015 For personal use only Adjust for other cash profit items (8.9) 23.7 (202.3) Cash from operations 3
Slide 25: Balance sheet: gearing increased on North Star purchase
Balance sheet Gearing increased on North Star purchase Net debt / Underlying For personal use only Net debt ($M) EBITDA Gearing (ND/ND+E) 1 1,373 21.7% 21 1,330 1.6x 4 83 (44) 8.0% 0.4x 5.5% Jun-15 Dec-15 Dec-14 Jun-15 Jun-15 1,057 Liquidity (undrawn facilities and cash, $M) 1,591.0 1,350.3 1,276.3
Slide 26: Deleveraging to 1.0x net debt to EBITDA remains our target
Balance sheet Deleveraging to 1.0x net debt to EBITDA remains our target For personal use only Leverage of global steel companies – net debt to EBITDA 7.5x Upstream Midstream and downstream 5.8x 5.7x 4.7x 4.1x 3.8x 3.6x 3.2x 3.2x 3.1x 2.8x 2.6x 2.6x 2.6x 2.6x 2.5x 2.3x 2.3x 2.3x 2.0x 2.0x 1.6x 1.5x
Slide 27: Progressing refinancing and deleveraging
Balance sheet Progressing refinancing and deleveraging For personal use only Debt refinancing • Refinanced $350M of North Star acquisition funding in Dec 2015 – increased syndicated bank facilities in size and term • Established $250M receivables securitisation ($94M drawn at 31 December) Deleveragi
Slide 28: Capital and investment expenditure
Capital and investment expenditure For personal use only $105M in 1H, $151M in 1H, $215M in 2H $233M in 2H 384 Pacific Steel - Largest growth projects: 47 integration & billet caster • Painting and coating capacity 320 in Building Products (incl. SuperDyma®) 293 • Pacific Steel – finalisation of 79
Slide 29: Outlook & Summary
For personal use only OUTLOOK & SUMMARY
Slide 30: Summary: progress being made on key priorities
Summary: in line with our strategic focus, progress is being made on key priorities For personal use only Coated & Painted Building Solutions North Star Australia & NZ Balance Sheet Products BlueScope Steelmaking Drive growth in Drive growth in North Maximise value Deliver value from Maintain strong
Slide 31: 2H FY2016 outlook: segment comments
2H FY2016 outlook Segment comments1 For personal use only Australian Steel Products New Zealand & Pacific Steel • Weaker pricing with impact of lagged regional steel • 2H performance expected to improve on 1H prices from late CY2015 • Benefit of billet caster economics from 4Q • Typical seasonality
Slide 32: 2H FY2016 outlook: group summary
2H FY2016 outlook Group summary For personal use only • Notwithstanding a challenging macroeconomic environment, due to the significant cost reductions and process improvements we are implementing, we expect 2H FY2016 underlying EBIT to be up to 60% higher than 2H FY2015 • Based on assumptions of av
Slide 33: Questions & Answers
For personal use only QUESTIONS & ANSWERS
Slide 34: Additional Information – Group-Level Material
For personal use only ADDITIONAL INFORMATION – GROUP-LEVEL MATERIAL
Slide 35: Financial headlines
Financial headlines SIX MONTHS ENDED For personal use only $M (unless marked) 31 DEC 2014 31 DEC 2015 1H FY16 vs 1H FY15 Total revenue 4,361.8 4,438.8 External despatches of steel products 3,132.9 3,221.6 EBITDA Underlying 1 335.3 417.8 EBIT Reported 185.6 324.9 Underlying 1 171.0 230.
Slide 36: Underlying earnings
Underlying earnings For personal use only $M 1H FY2015 2H FY2015 1H FY2016 Significant EBIT growth Underlying EBIT 171.0 130.8 230.1 Underlying borrowing costs (35.5) (35.7) (40.1) Higher largely due to higher drawn debt Interest revenue 3.7 0.6 2.5 balance following 50% North Star acquisition Profi
Slide 37: Summary of financial items by segment
Summary of financial items by segment For personal use only Sales revenue Total steel despatches $M 1H15 2H15 FY15 1H16 '000 tonnes 1H15 2H15 FY15 1H16 Australian Steel Products 2,459.0 2,333.1 4,792.1 2,302.1 Australian Steel Products 1,414.8 1,478.9 2,893.7 1,408.1 New Zealand and Pacific Steel 48
Slide 38: Balance sheet
Balance sheet $M 31 Dec 2014 30 Jun 2015 31 Dec 2015 For personal use only Assets Cash 390.3 518.6 488.0 Receivables * 1,091.1 1,123.6 1,108.1 Inventory * 1,687.1 1,560.7 1,656.2 Property, Plant & Equipment 3,652.8 3,732.6 3,878.8 Intangible Assets 493.7 515.3 1,783.3 Other Assets 416.2 426.7 298.0
Slide 39: Net working capital
Net working capital 1,462.0 For personal use only 1,419.6 18.8 51.5 1,357.9 1,327.9 95.5 1,273.3 1,269.3 (15.5) $M Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Receivables 1 Inventory Payables Deferred Dec-2015 income % of sales 17.8% 17.0% 16.6% 16.8% 14.8% 16.0% (based on 6 Consolidation of only 2
Slide 40: Inventory movement
Inventory movement For personal use only RM $252.6M RM $338.7M WIP 585.6 WIP 535.3 FG 549.9 FG 584.6 Other 172.6 Other 197.6 $95.5M decrease comprised of segmental movements: 264.0 26.5 0.7 1,656.2 1,560.7 (195.6) HRPNA – due to consolidation 109.7 $M Building Products – mainly Thailand due to inven
Slide 41: Debt facilities maturity profile at December 2015
Debt facilities maturity profile at 31 December 2015 For personal use only Receivables securitisation program: 642 In addition to debt facilities, BSL has a BSL Syndicated Bank Facility $150M securitisation program (fully 120 550 NS BlueScope JV facilities (100%) drawn at 31 December 2015), and a
Slide 42: Committed debt facilities as at December 2015
Committed debt facilities as at 31 December 2015 Committed Drawn For personal use only Maturity Local currency A$M A$M Syndicated Bank Facility - Tranche 1 Nov 2016 A$120M A$120M A$96M - Tranche 2 Nov 2017 A$240M A$240M A$234M - Tranche 3 Nov 2019 A$240M A$240M A$0M - Tranche 4 Dec 2018 A$250M A$250
Slide 43: Indicative EBIT sensitivities for 2H FY2016
Indicative EBIT sensitivities for 2H FY20161 Australian Steel Products segment New Zealand Steel & Pacific Steel segment For personal use only +/- US$10/t move in average benchmark hot rolled coil price +/- US$10/t move in benchmark steel prices (HRC and rebar) - direct sensitivity2 +/- $7-8M - dire
Slide 44: Additional Information – Segment Material
For personal use only ADDITIONAL INFORMATION – SEGMENT MATERIAL
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 1H15 2H15 FY15 1H16 '000 tonnes 1H15 2H15 FY15 1H16 Revenue 2,459.0 2,333.1 4,792.1 2,302.1 Hot rolled coil 216.7 216.9 433.6 236.5 Underlying EBITDA 157
Slide 46: Australian Steel Products: underlying EBIT variance
Australian Steel Products Underlying EBIT variance 173.6 3.0 For personal use only 8.6 Conversion & other costs: Net spread decrease $19.5M Volume / lower per unit costs 40 115.4 Cost improvement initiatives 78 Escalation (8) 66.1 Timing, one-off costs & other 4 (57.6) Raw material costs: Coal 6 108
Slide 47: Australian Steel Products: despatch mix
Australian Steel Products Despatch mix (Mt) For personal use only 1.48 1.41 1.41 1H FY2016 Product Mix 0.34 0.46 0.31 Export Export Domestic - 0.09 0.14 externally sourced 0.12 HRC Metal Coated Plate Painted CRC Other inc ext sourced Domestic - BSL 1.01 0.93 0.90 manufactured Domestic 1H FY2015 2H F
Slide 48: Australian Steel Products: revenue and underlying costs
Australian Steel Products Revenue and underlying costs 1H FY2016 For personal use only Revenue Underlying costs (to EBIT line) A$2,302m A$2,128m Non-steel business costs Non-steel business relate to: Conversion & Overhead Non-steel business • Export coke sales Components (in order costs • Cold ferro
Slide 49: 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 F’casts (Oct 2015) * Annual % Change Annual % Change Annual % Chang
Slide 50: Detached house approvals continue to lift
Australian Steel Products Detached house approvals continue to lift in most regions of Australia in FY2016, except WA; A&A approvals now showing strong uplift For personal use only Construction approvals of houses by region – rolling last 12 months Approvals of alterations & additions (value >$10k)
Slide 51: Approvals have lifted strongly in last 24 months
Australian Steel Products Approvals have lifted strongly in the last 24 months For personal use only Australian residential construction approvals Change in Australian residential construction approvals (private sector) – ‘000 units (private sector) – ‘000 units 16 120 116 112 14 Other 110 Houses 10
Slide 52: Commencements lag approvals, surge to record levels
Australian Steel Products Commencements lag approvals, and have continued to surge ahead to record levels. Further, BSL despatches lag commencements (eg roof, gutter and fence installation) For personal use only Australian residential construction commencements Change in Australian residential const
Slide 53: Non-residential construction approvals showing signs of bottoming
Australian Steel Products Australian non-residential construction approvals showing signs of having bottomed For personal use only Rolling 12 month value of work approved (public & private) – nominal A$M 45,000 Total Commercial & industrial Social & institutional 40,000 35,000 30,000 25,000 20,000 1
Slide 54: Australian Performance of Construction (PCI) index
Australian Steel Products Australian Performance of Construction (PCI®) index For personal use only 70 65 60 Expansion 55 50 45 Contraction 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 Jul 15 Jan 16 Note:
Slide 55: NZ construction and manufacturing activity momentum
New Zealand & Pacific Steel NZ construction and manufacturing activity maintaining strong momentum For personal use only Residential building consents – maintaining momentum Non-residential construction consents – strong growth ‘000 units, Cal Yrs 3,000 6.0 Moving annual total of value of consents (
Slide 56: 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 1H15 2H15 FY15 1H16 '000 tonnes 1H15 2H15 FY15 1H16 Revenue 489.9 482.2 972.1 451.5 Domestic despatches 131.7 128.9 260.6 132.6 Underlying EBITDA 31.4 (4.6)
Slide 57: New Zealand & Pacific Steel: underlying EBIT variance
New Zealand & Pacific Steel Underlying EBIT variance For personal use only 2.6 Net spread decrease $48.8M (37.4) (7.9) (3.5) 3.0 (3.9) 0 (47.1) 1H FY2015 Export prices Domestic prices Raw material Conversion Volume & mix FX translation1 1H FY2016 costs & other costs & other Net spread decrease $12.0
Slide 58: New Zealand Steel despatch mix
New Zealand & Pacific Steel New Zealand Steel (flat products) despatch mix (kt) – excludes Pacific Steel For personal use only 1H FY2016 Product Mix 269.2 251.1 244.8 Export 140.3 Export 119.4 112.2 HRC CRC Painted Plate Metal Coated Other Domestic 131.7 128.9 132.6 Domestic 1H FY2015 2H FY2015 1H F
Slide 59: Pacific Steel despatch mix
New Zealand & Pacific Steel Pacific Steel (long products) despatch mix (kt) For personal use only 1H FY2016 Product Mix 135.9 126.4 121.0 Export Export 49.4 39.9 42.0 Reinforcing steel Mesh feed (rod) Wire Domestic 86.5 86.5 79.0 Domestic 1H FY2015 2H FY2015 1H FY2016 59
Slide 60: East Asian rebar price influences long product pricing
New Zealand & Pacific Steel The East Asian rebar price influences domestic and export long product pricing For personal use only SBB East Asian rebar price (US$/t) $800 $700 $600 $500 $400 $300 $200 $100 $0 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 Ju
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 unless marked 1H15 2H15 FY15 1H16 '000 tonnes 1H15 2H15 FY15 1H16 Revenue 898.6 892.2 1,790.8 878.6 Thailand 171.6 178.7 350.3 151.1 Underlying EBITDA 74.0 79.
Slide 62: Building Products: underlying EBIT variance
Building Products ASEAN, North America & India Underlying EBIT variance Net margin increase $16.6M 65.4 For personal use only (4.2) 7.2 47.8 (6.4) 4.4 (1.0) 96.0 (78.4) 1H FY2015 Export prices Domestic Raw material Conversion Volume & mix TBSL (India) FX translation 1 1H FY2016 prices costs & other
Slide 63: BlueScope Buildings: financial and despatches summary
BlueScope Buildings Financial and despatches summary For personal use only Key segment financial items Despatches by business $M unless marked 1H15 2H15 FY15 1H16 '000 tonnes 1H15 2H15 FY15 1H16 Revenue 785.4 752.7 1,538.1 889.8 Engineered Buildings North America 140.1 110.7 251.0 122.8 Underlying E
Slide 64: BlueScope Buildings: underlying EBIT variance
BlueScope Buildings Underlying EBIT variance For personal use only Net margin increase $18.4M (5.8) 34.2 (9.2) 5.7 19.3 54.6 (30.4) 1H FY2015 Prices Raw material costs Conversion & Volume & mix FX translation 1H FY2016 other costs & other 34.2 Net margin decrease $18.4M 0.9 24.5 Seasonality in North
Slide 65: North Star BlueScope Steel: EBITDA variance
North Star BlueScope Steel US$M underlying EBITDA variance on 100% ownership / consolidated basis For personal use only 131.3 Spread decrease $89.9M 64.8 23.8 (0.4) 0 (231.5) 141.6 1H FY2015 Prices Raw material costs Conversion & Volume & mix FX translation 1H FY2016 other costs & other 74.2 Spread
Slide 66: North Star: earnings relatively consistent through the cycle
North Star BlueScope Steel Earnings relatively consistent through the cycle, noting annual variability For personal use only EBITDA and spread1 EBITDA (US$m) U.S. mini-mill spread (US$/t) 180 400 160 160 152 350 140 131 300 114 250 120 106 107 100 102 200 100 85 78 81 150 80 74 66 65 100 60 50 50 40
Slide 67: 1H FY2016 Financial Results Presentation
For personal use only 1H FY2016 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 22 February 2016 BlueScope Steel Limited. ASX Code: BSL