BlueScope’s BluePrint for the future – a focus on Execution Excellence Paul O’Malley, Managing Director & Chief Executive Officer
29 November 2007
ASX Code: BSL Important Notice
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. RELIANCE SHOULD NOT BE PLACED ON INFORMATION OR OPINIONS CONTAINED IN THIS PRESENTATION AND, SUBJECT ONLY TO ANY LEGAL OBLIGATION TO DO SO, BLUESCOPE STEEL DOES NOT ACCEPT ANY OBLIGATION TO CORRECT OR UPDATE THEM. THIS PRESENTATION DOES NOT TAKE INTO CONSIDERATION THE INVESTMENT OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY PARTICULAR INVESTOR.
TO THE FULLEST EXTENT PERMITTED BY LAW, BLUESCOPE STEEL AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, ACCEPT NO RESPONSIBILITY FOR ANY INFORMATION PROVIDED IN THIS PRESENTATION, INCLUDING ANY FORWARD LOOKING INFORMATION, AND DISCLAIM ANY LIABILITY WHATSOEVER (INCLUDING FOR NEGLIGENCE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS PRESENTATION OR RELIANCE ON ANYTHING CONTAINED IN OR OMITTED FROM IT OR OTHERWISE ARISING IN CONNECTION WITH THIS.
2 Agenda
1. Introduction
2. “Test and Refresh” process and outcomes
3. Safety, communities and sustainability
4. Global Steel Industry
5. “Test and Refresh” initiatives
¾ Building & Construction
¾ Execution & Manufacturing Excellence
¾ Balance Sheet & Capital Management Review – Noel Cornish
6. Australian Distribution & Solutions – Mark Vassella
7. Strategy
8. Current Business Update
9. Summary 3 Introduction
y Purpose – inform the market of the direction and my approach to doing business at BlueScope y “Test and Refresh” project has confirmed 1. we have world class assets and capabilities 2. AND have significant opportunities to improve our competitiveness and market offer, particularly in Australia 3. WITH further opportunities to monetise non-core assets on our balance sheet y We are further developing our capability to grasp new growth opportunities y And we will ¾ continue our clear focus on safety ¾ increase our focus on sustainability; and ¾ “continue to reward shareholders as we grow” • This is a work in progress update
4 The process we have undertaken to date to develop our BluePrint
COMMENCING AUGUST 21 Weeks: 1 – 4 5 – 7 8 – 11 12 – 14 Years 1 –3
y Scope “test & y Evaluate industry outlook y Define organisation and y Implementation refresh” process staff levels 1 & 2 y Evaluate market of the BluePrint y Staff review performance y Deliver BluePrint work teams plan and confirm next y Identify customer steps: y Develop improvement improvement opportunities y Refine Business unit hypotheses implementation plans y Evaluate supply chain & and develop where y Continue productivity performance gaps exist integration of Smorgon y Review opportunities to y Refine performance distribution monetise non core metrics and adjust assets incentives where y Refine plan and timetable appropriate to deliver minerals projects in New Zealand
5 “Test and Refresh” has sharpened our strategic areas of focus and identified more than 200 potential initiatives to significantly improve shareholder value
1. Reinvigorate our Australian and New Zealand businesses What we will Areas of 2. Continue the improvement process across our Asia do … focus and North America businesses Categories of Initiatives 3. Grow, or acquire, new businesses that build on our • Grow domestic markets distinct competitive advantage and steel penetration • Drive manufacturing How we will 1. Increasing customer and market focus do it … excellence Execution 2. Improving productivity year on year excellence 3. Optimising return on capital • Enhance the supply chain • Continue focus on productivity 4. Building an integrated BlueScope operating system Business 5. Further develop organisational capability • Procurement optimisation essentials • Improve capital planning and execution
What we will be Safety Sustainability Shareholder value • Monetise surplus assets known for … 6. Improve on our 7. Become a 8. Increasing • Disciplined growth world class safety recognised leader shareholder value performance in sustainability
6 To re-iterate the BluePrint focus over the next 3 years…
Build on our existing capabilities: Australia and New Zealand y Continue focus on our key market segments, in particular Building & Construction; and y Business and market excellence
Improve our businesses: Asia and North America y Continue focus on Building & Construction; and y Business and market excellence
Strategy and Growth: y Existing geographies y Across the value chain y Brownfields and M&A rather than greenfield y NZ minerals
7 And we have reorganised the business to focus on our strategic priorities and execution
Managing Director and CEO Legal (Michael Barron) CFO (TBA) Paul O’Malley People and Organisational Performance (Ian Cummin)
Aus/NZ Steel Australian Coated Australian Corporate Strategy Manufacturing and Industrial Distribution and and Innovation; Asia China Businesses Markets Solutions North America,
Noel Cornish Paul O’Keefe Mark Vassella Brian Kruger Kathryn Fagg Bob Moore
Oversees all Customer oriented Combines Oversees North Responsible for leading Direct CEO report for manufacturing facilities business responsible for responsibility for American businesses ASEAN businesses China to provide top in Aus/NZ; NZS; all Australia sales, Australian downstream with particular and Indian joint venture management focus on responsible for driving exports (other than businesses (Lysaght, emphasis on growth, turnaround effort safety, process downstream), Distribution, Service as well as leading excellence and key account centres, Water and corporate strategy and meeting production management, supply Butler Buildings) innovation schedule at lowest cost chain, strategic pricing and setting the production mix for manufacturing
8 Our focus on capital management continues – we will continue to “reward our shareholders as we grow”
Share Buybacks – Public listing to 30 June 2007 Purchased and cancelled 116m shares Total return to shareholders since BSL’s ¾ on market – 90m shares public listing (July 2002): ¾ off market – 26m shares Share buybacks $ 707m Average price paid $6.10 per share Dividends paid $ 1,621m Shares on issue $ 2,328m As at 27 November 2007 742 million $3.15 per share or 77% payout ratio (NPAT) Dividend reinvestment scheme Effective from and including final FY2006 ordinary dividend Dividends – All fully franked (ordinary / special) 50 47 / 0¢ 45 42 / 20¢ 44 / 0¢ 40 35 26 30 / 10¢ 24 30 24 25 22 / 7¢ 20 18 15 13 10 18 20 20 21 12 5 9 7 10 0 FY2003 FY2004 FY2005 FY2006 FY2007
Interim Final Special 9 SafetySafety CommunitiesCommunities SustainabilitySustainability
10 Zero harm is our goal for our team and communities
Lost Time Injury Frequency Rate Medically Treated Injury Frequency Rate 18 70 16 NSW Manufacturing 16 60 27.9 in 2005 60 14 14 52 50 47 12
Reported performance for 40 10 IISIReported member companiesperformance for 8.0 (employeesIISI member & contractors) companies 29 8 (employees & contractors) 30 22 22 6 4.8 4.1 20 17
Lost time injuries per million man-hours worked man-hours million per injuries time Lost 3.5 3.5 4 2.8 12 Medically treated injuries per million man-hours worked man-hours million per injuries treated Medically 9.4 8.0 9.3 1.8 1.5 10 6.5 6.4 2 0.9 0.8 0.4 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Includes Contractor performance from 1996 Includes Contractor performance from 2004 Includes Butler performance from May 2004 Includes Butler performance from May 2004 18,000 Employees, 91 manufacturing sites, 17 countries 11 Our Communities - BlueScope tank a day challenge helping Australians conserve water
• Donates 200 rainwater tanks over a year at Australian primary schools • A kick start to their water conservation and an education program • 1850 schools registered - 28% of all primary schools • Involves 525,000 students • 85 tanks allocated to date
www.tankaday.com.au 12 Water conservation – clear focus on further reducing fresh water consumption
Port Kembla Steel Works Western Port Operation
Total Water Use (ml/day) for process and cooling y $21.5 million water recycling project with South East Water, including funding from Victorian Fresh Water Waste Water Government. 2% 2% y Project expected to be competed in 2009.
Salt Water 96%
50% REDUCTION IN FRESHWATER CONSUMPTION PLANNED 60% REDUCTION IN FRESHWATER USAGE
13 New Zealand Steel and sustainability – benefits of cogeneration
NZ STEEL – EXTERNALLY PURCHASED AND INTERNALLY COGENERATED ELECTRICITY 1200
1000
800
Internal GWh 600 Cogeneration
400
Purchased 200 Energy
0 1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 2004/05 2006/07 Apr-Mar Year y $200 million already spent to reduce energy demand. For example: ¾ 60% of our New Zealand operations electricity needs produced on-site by co-generation from captured process gasses. y Other sustainability initiatives include: ¾ 100% of metallic scrap and slag material is recycled. ¾ Funding research in lower carbon steel technology. 14 PKSW Cogeneration plant – technology led solution that will displace greenhouse gas emissions…
Proposed Port Kembla Steelworks Surplus process gas Co-Generation Plant from iron & steel making y 12 months feasibility study underway
y Reduce approximately 800,000 tpa CO2 equivalent Port Kembla y Largest Greenhouse Gas reduction Steelworks project in Australia equivalent to taking Co-Generation 185,000 cars off the road Plant y Total investment in the range of $700m - $1,000m y A workable Government policy for trade exposed industries is a critical part of Process Electricity assessing this major investment Steam Up to 220MW y We will continue to look for projects that will reduce CO2 emissions
15 It is all about supply & demand
“CHINA & EMERGING “POST WAR INDUSTRIALISATION” “OIL SHOCKS” ECONOMIES” 1,200,000,000 World steel demand 1,000,000,000
800,000,000 “5% 600,000,000 “5-8% GROWTH” “NO GROWTH” GROWTH”100,000 400,000,000 DEMAND 200,000,000 90,000 120 0 1944 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 200002 0480,00006 2008 70,000 100 GlobalGlobal SteelSteel IndustryIndustry 80 60,000
50,000 Crude Steel Production (MT) 60 Revenue (US$m) 40,000
Industry 30,000 40 Consolidation 20,000 SUPPLY
20 10,000 0 0 teel teel teel ittal JFE vraz CSN ucor rupp cope uhan S E erdau N W aosteel G POSCO + Ipsco + everstal aanshan US B lueS hi naS S M B C orus + Tata i ppon S C N rcelor + M + rcelor SSAB Thyssen K A 16 Chinese growth is driving the current steel super cycle
Global steel consumption CAGR 2000–07 Mt Percent 1,400 World 1,200 5.0 Average
1,000 17.0 China 800
600 8.0 Other developing** 400
200 Developed* 0.5
0 1980 1985 1990 1995 2000 2005
*Western Europe, NAFTA, Japan, South-Korea, Taiwan, Australia **ASEAN, India, MEND, South America, Africa, Central Europe 17 Source: John F King; IISI Previous super cycle (fuelled by Japan’s industrialisation) resulted in 30 years of 5-8% growth in demand
Historic world steel production evolution* World steel demand Tonne Industrialisation fuelled by Japan Post industrialisation Chinese growth era 1,200,000,000 1,000,000,000 800,000,000 600,000,000 “5% Growth” “5-8% Growth” “No Growth” 400,000,000 200,000,000 0 1944 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 200002 04 06 2008 Steel production growth Percent 8 7 6 5 4 3 2 1 0 1945–54 55–64 1965–1974 75–94 95–2000 2001–2007 First oil price shock Second oil price shock (1974) (1980) * World steel production as taken from the numbers recorded in USGS Mineral Year Book 1945–2000 18 Source: USGS; BSL China is at a very early stage in steel intensity providing significant upside potential…
Crude steel intensity Kg/capita Taiwan (1970-2006) 1200
South Korea (1970-2006) 1000
800
600 Japan (1955-2006)
China (1970-2006) 400 USA (1900-2006)
200
0 0 5000 10000 15000 20000 25000 30000 35000 40000 US$ GDP at 2000 Purchase Price India (1994-2005) Developing Asia (1994-2005) Parity/capita Source: Global Insight, IMF, OECD, IISI, USGS, John F King, BSL 19 …and it should reach peak in crude steel intensity at earliest in 10 years time
Crude steel intensity Kg/capita 850 China following Japan 800 intensity curve 750 700 650 600 550 China following slope of US intensity curve 500 China reaches 450 maximum steel intensity by 2024 400 350 China reaches 300 maximum 250 steel intensity by 2017 200 150 100 50 0 0 5000 10000 15000 20000 25000 30000 35000 GDP at 2000 PPP/capita USD/capita Source: Global Insight, IMF, OECD, IISI, USGS, John F King, BSL 20 China’s continued urbanisation and industrialisation are the key enablers for continued steel demand growth
Real GDP growth Urbanisation Industry and service output Annual GDP growth rate Urbanisation rate GDP structure % Agri- 8 11 culture 51.5% 51 54 Industry 43.9%
10.7% 7.7% 38 38 Service
2006 2012 2006 2012 2006 2012 Rationale Rationale Rationale • China GDP will continue to • Urbanisation is driven by • Urbanisation will drive industry and grow at a high CAGR in the GDP growth service GDP to occupy a larger next 5 years • More 2–3 tier cities will portion of total GDP at the • Percentage increase rate develop expense of agriculture expected to decrease as the • 100 million people will • Industrialisation will continue to central government intends to urbanise by 2012 and 300 increase the share of industry in avoid overheating million by 2020 (current USA the GDP, while the service sector population) will grow with GDP
Source: Global Insight; NPC planning; BSL 21 … and during periods of demand growth, healthy spreads have prevailed, noting spreads are not at historic highs in real terms
Historic global steel spreads** over raw materials
** Industrialisation fuelled by Japan Post industrialisation China growth Real spreads 180 1945 = 100 160
140
120
100
80 Once demand growth slowed 60 abruptly in the 70s the industry experienced a long 40 period of decline in spreads as capacity additions failed 20 to forsee the sustained demand slowdown 0 1945 1955 1965 1975 1985 1995 2000 2005
First oil Second oil price shock price shock (1974) (1980) * Un weighted average ** HRC Prices (Western Europe Export FOB) less raw materials (Iron ore & coal) indexed to 1945 prices 22 Source: USGS; BSL Steel supply - global steel industry consolidation continues
120 100,000
Europe 90,000 / Americas Crude Steel Production (MT) 100 Europe / Asia Revenue (US$m) 80,000 70,000 Asia 80 60,000 Australia, Asia, Americas 60 50,000
40,000 Europe 40 30,000 Americas 20,000 20 10,000
0 0 JFE CSN Evraz Nucor Wuhan Gerdau POSCO Baosteel US Steel Severstal Maanshan ChinaSteel BlueScope Corus + Tata + Corus Nippon Steel SSAB + Ipsco + SSAB Thyssen Krupp Arcelor + Mittal
Note: Above analysis completed for calendar year 2006 23 Sources: IISI, company reports In summary – the outlook is
China Rest of World • Steel demand remains strong • Consolidation to continue • Raw steel production growth • Continued production discipline slowing • Russian economy using more • Evidence of higher spot raw steel material costs making some • Middle East demand strong provincial steel plants uneconomic • China’s industrialisation process steaming ahead
Raw material outlook a concern. Steel prices are reacting. High freight costs. 24 ““TestTest && RefreshRefresh”” initiativesinitiatives BuildingBuilding && ConstructionConstruction
25 BlueScope Steel will continue its focus on the Building and Construction Markets whilst concurrently looking after all of its customers in all segments
y Residential and commercial construction is a large and growing market for BlueScope. y However, there is a high degree of variability of overall steel penetration (and BSL’s market share) across those countries in which BlueScope has a presence. y BlueScope will focus on the key themes of organic growth (increase in share, steel penetration and overall market development) and inorganic growth through acquisition, principally within its current global footprint.
26 BlueScope’s primary market sector focus will continue to be the attractive building and construction sector
The building and construction sector is the largest … with steel intensity / capita and flat steel penetration sector for which BlueScope has differentiated varying by market leading to different opportunities for capability … BlueScope in each market
Global Global = high concentration Flat steel Flat steel penetration of Total building market size quality flat Customer intensity1 building materials 2007E materials 2007E US$ Billions steel 2007E concentra- Kg/capita Percent of spending US$ Billion Sector 2007E US$ Billions tion US 36 Non residential 7 157 Automotive 2,042 420 Residential 3 233
Oil and gas 1,046 125-165 Australia 53 Non residential 24 4 Machinery 598 60-80 Residential 8 13
Construction 3,996 75 - 85 China 10 Non residential 4 159 Ship building 146 20-25 Residential 1 65 White/brown goods 45 10-15
ASEAN 4 Non residential 19 17 Packaging 225 10 Residential 10 15
1. Construction sector metallic coated and painted flat steel intensity
Source: UK National statistics; Bank of Thailand; MPMA; Global Insight, BSL 27 In Australia BlueScope has further opportunity to increase steel penetration in the very large building and construction market
2006/2007 Australian building market size, A$ billions
The Australian Building & … and the opportunity for BlueScope Construction segment is large…… is also significant 94 33 5.4 1.6
3.8 1.6 THE 61 15 OPPORTUNITY
28
0.4 1.8
18 13
5
Total AU Non Building Building Other*** Contractors Raw Currently Building Building Non-steel Steel Market Long Imports BSL Share Market* and and Materials viewed as materials material products Products Construction Construction non costs costs ** addressable * from Global insights report stated in US$83B; assumes FX rate of 0.88 ** includes prefabricated buildings, non building construction materials, small construction items *** Includes administration, machinery, overhead equipment, infrastructure 28 Source: IBIS reports; BSL Australia - Residential framing is one opportunity to increase steel penetration
Framing and roofing can pull through …and will make a step-change in overall most tonnes (2007E)… steel penetration per home (2007E) • Residential Building Potential tonnes/home Steel usage on new detached homes remains an attractive end Tonnes/home market for BlueScope Framing 2.7 7 • Organisation aligned to Roofing 1.5 6 this segment 5 Main difference in the Fencing 0.8 top quartile is framing • Strategic marketing 4 function now created Rain Water goods 0.2 3 • Investment in channel Garage doors 0.2 development planned 2 Avg= 2 tonnes / home
Water tank 0.1 1 Total 0 Percent of 100 potential 5.5 tonnes/home homes
Source: BlueScope Estimates 29 Increasing steel penetration in commercial buildings is another opportunity and has successfully occurred in other markets
Steel penetration in structural framing of commercial multistorey buildings, percent • Steel penetration in Steel penetration Evolution of steel penetration in UK the Commercial 2005 (%) Driver commercial multi-storey buildings (%) Building sector is higher where local steel companies UK 70 • Market invest in market development development from local steel Netherlands 33 companies • Design/construct & fabrication capability were key to UK success Germany ~10 • Local cement companies are more influential Australia ~7-10 • Steel market channels relatively immature
Source: European Convention for Constructional Steelwork 2006 Report Source: Corus UK 30 Flat steel penetration across the Asia building and construction markets varies presenting different opportunities by country
Total Building Materials1 within the Construction Markets (2007E) US$ Billions 250 225 Non Residential Residential 200 China - large market with low flat steel penetration. Inter-material 150 160 growth opportunity
100 Indonesia - flat steel share of non- residential relatively low. Inter- 50 65 4 material growth opportunity 12 8 4 2 4 8 4 9 5 4 0 2 China Indonesia Thailand Malaysia Vietnam Thailand - flat steel penetration is high. 50% Opportunity to grow share Flat Steel2 as a Percent of Total Building Materials (2007E) Malaysia - strong penetration in non 40% Non Residential residential. Opportunity to Residential grow market share 30%
30% 20% Vietnam - market size is small although 20% steel penetration is 9% 26% reasonable. Opportunity to
10% 17% grow with the market China Indonesia11% Thailand13% Malaysia Vietnam 4% 0% 1% 3%
1. Total Construction Market less Civil, non material, labour, overheads etc. Based on Global Insights construction data 2. Includes flat steel in target segments, and some long steel used in PEBs 31 Source: Global Insights, BSL But India and China’s relative consumption of steel in construction is low
Total steel and cement consumption, 2004 Percent y India’s total cement and construction steel consumption has been far below China y Tata BlueScope Steel joint venture - an early mover in a very attractive growing market in India y China uses approx 1 billion Cement 92% 90% 71% 63% tonnes of cement vs approx. 100 million tonnes of steel in construction 37% y Korea and Japan - higher share of 29% steel products vs cement compared to China
Steel 8% 10% India China Korea Japan
Source: James F. King, Cemnet, 32 … and being a global leader in steel product innovation will greatly enhance our growth opportunities. We will invest more in this area…
• CASTRIP® LYSAGHT TRIMDEK® – Is a technology that allows steel – Is a modern ribbed roofing makers to produce thin flat- profile with subtle fluting in the rolled products in far fewer pans to provide strength and process steps, saving money on long spanning capabilities both capital outlay and operating expenses
– Is a specially designed pre- – Is a pre-painted zinc/aluminium – Is a world leading brand for Pre- – Is a specially design residential painted steel with a unique paint alloy-coated steel developed for Engineered steel building framing product with protective system designed to resist tropical low cost applications and interior systems and components zinc/aluminium coating and staining panels designed for the non-residential blue resin surface finish construction industry
33 …and innovation is not just new product development
Description
Involves the introduction of goods or services that are new Product/Service or substantially improved. This might include improvements in functional characteristics, technical abilities, ease of use or any other dimension, e.g. Clean COLORBOND®
Process/Technology Involves the implementation of a new or significantly improved production or delivery method, e.g. Castrip®
Marketing The development of new marketing methods with improvement in product design or packaging, product promotion or pricing, e.g. TruecoreTM
Business Model Fundamental shift in the way a product or service goes to market, e.g. SURELINE®
34 Using innovation and with an increasing focus on our customer service, we will match customers’ needs with steel solutions
Complete frame, From customer’s needs Manufacturing Installation to design floor, facade & roof EXAMPLES…
Customers Needs Customer Concerns BlueScope Solution Customer Outcome • Shorten construction time • Fast construction • Steel supply chain can be • Lysaght Design and • Remove risk related to complex and hard to Construct to manage the • Improved safety interfaces between manage compared to entire steel supply chain different work phases and • Reduced risk to overall concrete • Design services to improve parties project delivery buildings use of steel • Delivery method does not • Project management to • Improve working safety at fit with hi-rise construction deliver large, rapid, site • Modularise and move • Industry experience by efficient construction work from site to controlled customers is lacking • Manufacture of modules off site factory • More steel based projects under construction
35 ““TestTest && RefreshRefresh”” initiativesinitiatives ExecutionExecution && ManufacturingManufacturing ExcellenceExcellence
36 “Manufacturing excellence” - BSL will execute against key manufacturing outcomes at all operations
BlueScope’s Operating System Key Outcomes
• Improve total cost per tonne produced Management • Decrease variable costs infrastructure • Increase uptime Technical system • Optimise changeovers Mindsets and • Optimise inventory behaviours • Grow ESVA
All three dimensions of the operating system need to be addressed to sustain improvements
37 Source PMO, BSL As an example, there is further opportunity to improve uptime performance even relative to internal best practice…
BSL has significantly lifted its production levels … with further potential to meet benchmark uptime over time … performance
Indexed production (Australian manufacturing facilities) 86 Product 1 124 76 125 86 117 120 86 Product 2 60 115 111 111 60 110 110 86 104 Product 3 53 105 53
100 100 90 Product 4 76 95 83 90 90 85 Product 5 64 78 2003 2004 2005 2006 2007
Product 1 Product 4 External benchmark Product 1 Product 5 BSL average Product 3 Product 6 BSL benchmark 38 Source: BSL. …and we have already identified areas to improve uptime, e.g. reducing unscheduled breakdowns…
Average losses (BlueScope’s Australian manufacturing facilities), percent of • A reduction in total time breakdowns presents 100% an improvement opportunity X
Improvement • Even relative to our opportunity Y Z own internal best practice • Our new Chief Manufacturing Officer function, along with line managers will drive this Technical Idle time/Schedule Available Break- Change- Speed Net Quality Process Actual improvement limit external delays time downs overs loss/slow operation losses scrap production delays running time
39 Improving our delivery performance will better position us to improve cost efficiency100 and customer service… 90
Customers80 note “delivery performance as the second most important reason for switching to imports”
Weekly DP (Business A) 70 Percentage 60
50
40
30
20 Week 15, Week 37, 2005 2007 40 …and we will support this supply chain improvement, using more comprehensive processes and performance metrics…
Currently assessed performance metrics across 2 of our businesses • An Integrated Planning and Control Measure Indicative Business Unit Business Unit process capability Benchmark 1 2 will be developed Delivery Performance 95% • New Australia/New (to first promise, date and quantity) Zealand wide supply Aggregate Demand Plan -/+ 5% & operations (Sales Tonnes by Family) planning function will Master Schedule Performance 95% be accountable for driving this Manufacturing Schedule 95% improvement Performance • Metrics will be Supplier Delivery Performance 95% refined to better measure and Item Master Data Accuracy 95% improve supply chain performance Inventory Record Accuracy 95% (Correct Quantity, Location, Batch ID) Good Improvement opportunity Not yet fully measured
Source: BSL. 41 ““TestTest && RefreshRefresh”” initiativesinitiatives BalanceBalance SheetSheet && CapitalCapital InvestmentInvestment ReviewReview
42 Balance sheet –we have identified a number of initiatives to free up cash and maintain a lean balance sheet
As at A$ Millions 31 December 2006 30 June 2007 Assets Cash 58 36 Receivables 1,207 1,269 Inventory 1,409 1,271 Other Assets 1,143 1,259 Net Fixed Assets 3,736 3,671 Total Assets 7,553 7,506
Liabilities Creditors 833 881 Interest Bearing Liabilities 1,983 1,538 Provisions & other Liabilities 1,249 1,222 Total Liabilities 4,065 3,641 Net Assets 3,488 3,865
Net Debt / (Net Debt + Equity) 35.6% 28.0%
43 …particular areas of opportunity are…
Assessment Potential opportunities
• BlueScope has an extensive • Sale, lease or development of under Property property portfolio associated with its utilised or not required properties manufacturing locations which has not been optimised for value
• Large amounts of cash invested in • Extension of existing processes to Working working capital on the BlueScope minimise levels of working capital Capital balance sheet
• Over time some contracts have • Improve contractual positions Contracts have become ineffective with through improved contract implications on operational security, management processes flexibility and/or cost structure
44 Current future major capital projects focused on stay in business capital
PROJECTS Total Est. Actual to All in A$million Capex / Cost 30/6/07 FY2008 FY2009 FY2010 Projects completed Thailand – Coating expansion 80 80 - - -
Vietnam – Coating / Painting 136 136 - - - China - Coating and Painting Facility 274 274 - - - - Guangzhou Butler / Lysaght 33 33 - - - India - Butler / Lysaght facilities (50% interest) 44 41 3 - - Australia Port Kembla (PKSW) - HSM expansion 102 102 - - - - Sinter Plant Emissions 100 100 - - - WA Service Centre 21 21 - - - Western Sydney Colorbond® 150 147 3 - - Projects to be completed India - Coating / Painting (50% interest) 135 5 82 39 9
Indonesia – Coating / Painting 134 14 71 43 6
PKSW – Blast Furnace No. 5 Reline 330 106 51 168 5 – Sinter plant upgrade 134 11 50 71 2
INVESTMENTS Smorgon Steel’s Distribution business (1) (2) 700 319 253 - - Butler Manufacturing 277 277 - - - Lysaght and water acquisitions - - 110 129 - Total capital spending(4) 2,760 1,795 513 321 22
Notes: (1) Cost of 19.98% holding in Smorgon Steel (SSX). (2) Net cost to BlueScope on sale of SSX shares excluding tax payable on sale of SSX shares. Gross cost of $700M less pre-tax profit on SSX shares of $128M leaves $572M. (3) US$190M (A$226M) recovered following the sale of Vistawall in June 2007. 45 (4) In addition, a Cogeneration feasibility study being undertaken over next 12 months and the capital cost of the project, will likely be in the range of A$700 – 1,000M. Major capital and investment projects – Blast Furnace No. 5 reline and cogeneration plant
1. Blast Furnace No. 5 Reline (CURRENT EXPECTATION) • Total capital cost A$330m ($106m spent by end of FY2007). Depreciated over 20 years • The project will take approx. 100 days, commencing in March 2009 and finishing June 2009 • Expected lost slab production (shutdown and ramp up) is approx 680kt, reflecting part offset from increased BF No. 6 production and higher scrap use in basic oxygen steelmaking • At this stage a number of export customers will be affected during this exercise. Have contacted our customers who will make alternative arrangements during the reline project. • Domestic external sales are not expected to be materially affected • Major raw materials impact: ¾ expect to purchase approx 700kt less iron ore (principally fines and pellets) than the 7,700kt purchased in 2007 and expected in 2008; ¾ approx 65kt of additional scrap purchased; and ¾ present intention is not to change coal consumption and to export excess coke (approx 240kt). However, if coke margins don’t meet our requirements at the time then we would reduce our coking coal purchases by up to 300kt.
2. Co-generation plant • Feasibility study continues
46 We continue to invest in our businesses - Port Kembla Steelworks - Blast Furnace No. 5 reline
47 Major capital and investment projects – Sinter Plant Upgrade
3. Sinter Plant Upgrade (CURRENT EXPECTATIONS) Sinter y Main shutdown planned for April – May 2009 (approx. 35 days) y Coincide with BF No. 5 reline, when demand for sinter is reduced. y Total capital cost A$134m. y What is planned? Principally: ¾ lengthen & deepen the strand, refurbish cooler ¾ install new strand feed device, ignition furnace ¾ install 2 new raw material conveyor sequences Sinter is an agglomeration of fine ores, fluxes y Where? On No. 3 sinter machine at PKSW (limestone and sand) and fuels fused together by heat. ¾ is single source of 5.3mtpa of sinter for BF’s No. 5 & No. 6 ¾ currently the typical blast furnace burden mix is: − 57% sinter (fines based); 25% pellets; 18% lump y Outcome post upgrade:
¾ increased sinter production by 1.1 mtpa to 6.6mtpa (capacity is expected to be 5.5mtpa by end CY 2008) ¾ this will require + 1.1 mpta of fines BUT would displace 1.0 mtpa of pellets (in FY07 the fines to pellet price differential was approx US$30/t). ¾ Increased Pulverized Coal injection rates (cost saving as use more thermal and less coking coal) due to blast furnace permeability being improved by higher quality sinter.
48 Port Kembla Steel Works – Sinter Plant upgrade
Exit End Entry End • Rebuild cooler • New Ignition Furnace • Increase Width • New Strand Feeding Device • Increase Fan Power • Relocate Lowering wheel and extend building • New cooler feed chute
Precipitators • Refurbish zones 2, 3 & 4 - R&M Strand • New Zone 1 • Increase Height • Modern Electrics • Increase Length
SINTER : AGGLOMERATION OF FINE ORES, FLUXES (LIMESTONE AND SAND) AND FUELS FUSED TOGETHER BY HEAT.
49 NZ Iron Sands feasibility studies underway, project teams are revitalised
Glenbrook Taharoa • The abundant iron sand resource at New Zealand Steel is an increasingly valuable asset in the BlueScope Steel portfolio • There are a number of “brownfield” opportunities to better exploit this strategic resource to increase the production of: ¾ slab and / or pig iron; ¾ vanadium bearing slag / vanadium pentoxide; ¾ ironsand exports;and ¾ new products such as titania slag and zircon • 2 projects currently in feasibility stage of the approval process (Vanadium converter and Taharoa iron sands expansion) • 4 projects in concept or pre-feasibility phases (Vanadium pentoxide, Titania, Iron Make, Pig Iron)
50 AustralianAustralian DistributionDistribution andand SolutionsSolutions MarkMark VassellaVassella
51 The outlook for Distribution and Solutions
Organisation agenda: – Smorgon Steel Distribution integration – Distribution & Solutions – Significant market facing businesses • Approximately 150 sites • Different challenges - defence to growing pains!
Market agenda: – Developing our competitiveness in distribution and channels to market – Value-adding growth
52 The key messages coming out of “Test & Refresh” for Distribution and Solutions
y Downstream focus has been on integration activities: ¾ Customer reaction to structure change y Key issues to be addressed in the Downstream “Test & Refresh” process: ¾ Re brand to BlueScope Distribution ¾ Steel penetration, market share and competitive with imports ¾ Broaden products, solutions, processes, brands, footprint, geographies ¾ Sales force effectiveness – customer & product profitability ¾ Operational Efficiency - cost, working capital ¾ Customer satisfaction
53 Key facts and the trends in Distribution and Solutions - Customer Satisfaction
100%
95%
90%
85%
80%
Distribution - DIFOT Service Centres - DP Lysaght - DP
Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-0754 Sep-07 Oct-07 Key risks and uncertainties for Distribution and Solutions that we will manage
y Strength of AUD & impact of imports - margins, channel
y Imported fabricated steel
y Underlying economic growth
y Labour - skills shortages
y Decline in Manufacturing & Auto demand
y Systems platform & capability
55 The next steps for Distribution and Solutions
y Interim Structure put in place
¾ Integration of Distribution & Solutions
y Strategic Review – next round
¾ Key issues
y Organisation design & strategy
¾ Quarter 1 2008
56 StrategyStrategy
57 Strategy for longer term earnings growth
y Reinvigorate our position in the Australian/NZ markets, through ongoing focus on strengthening our customer relationships, product and service innovation and driving operational efficiency. y Continue to improve our position in select geographies in Asia and North America where we can develop a sustainable competitive advantage through a focus on profitable differentiated products and solutions for the Building & Construction sector ¾ As in Australia, we will strengthen our market offers, improve our operations and supply chain, build our downstream businesses, support growth in Indonesia and India, in particular, and focus on improving the capability of our organisation y Evaluate further growth opportunities with priority on: ¾ Brownfield capacity expansions and M&A rather than greenfield ¾ Expand presence in North America building products and solution markets ¾ Expanding our downstream capability in Australia and Asia ¾ New Zealand minerals development ¾ Target growth opportunities − across our total value chain − within our current geographic footprint ¾ New products and solutions with a focus on sustainability.
58 CurrentCurrent BusinessBusiness UpdateUpdate
59 Business update – solid first four months
Another strong operations performance at all facilities
UPSTREAM MID & DOWNSTREAM y North America y Australia ¾ HRC price to scrap cost spread ¾ increased customer focus narrowed relative to previous year y Asia ¾ evidence of price increases from ¾ Stable, with opportunities to improve December • Thailand – election called for 23 y Australia December ¾ steel prices stable • China – midstream margin ¾ strong plate demand squeeze and intense competition, ¾ net increase in raw materials costs improving downstream in FY2007 y North America y New Zealand ¾ Continued strong performance even ¾ higher coal costs following sale of “Vistawall”. (+A$20m in FY08)
STRONGER AUSTRALIAN DOLLAR 60 Second Half FY 2008
y Opportunities and risks for the second half will have a major bearing on our FY 2008 result
Opportunities Risks
¾ Stronger global steel prices ¾ Continued strengthening of A$ ¾ Improved domestic sales ¾ Zinc cost volatility
y Will further update market at the Half Year in February 2008.
61 EBIT remains sensitive to realised hot rolled coil prices, raw material costs and US$ movements
Estimated impact on forecast EBIT (A$mil) Assumption FY08 FY07 (current) (previous) +/– US$25 / tonne movement in BlueScope’s average realised export 85 86 HRC price (1) +/– 1¢ movement in Australian dollar / US dollar exchange rate(2) 14 10 +/– US$10 / tonne movement in NSBSL HRC price to scrap spread 11 12 +/– 2% movement in slab production in Australia, New Zealand & USA 28 17 +/– US$10 / tonne movement in coal costs (3) 45 50 +/– US$10 / tonne movement in iron ore costs (3) 90 100 (1) The change in export HRC price assumes proportional effect on export slab, and flow on to domestic pipe and tube market and to other export products. This does not include the potential impact on Australian domestic coated product prices, as the flow on effect in the short term is less certain. (2) The movement in the Australian dollar/US dollar exchange rate includes the restatement of US dollar denominated receivables and payables and the impact of translating the earnings of offshore operations to A$. (3) Coal and iron ore US dollar prices are predominantly locked in for FY2008. 62 BluePrint Summary
y Execution excellence within existing businesses y Improved customer focus across all of our market segments y Innovation y Disciplined growth y Continuing our focus on ¾ Safety ¾ Sustainability ¾ Our communities ¾ Shareholder value & capital management
y Next update in February 2008.
63 QuestionsQuestions && AnswersAnswers
64 SupportingSupporting InformationInformation
65 External reporting business segments have not changed
Corporate / Group
Australia New Zealand Asia North America
Hot Rolled Coated & New Zealand & Coated & Hot Rolled Coated & Products Building Pacific Islands Building Products Building Australia Products Products Products Asia North America Products Australia North America
y Pre-eminent global y Leading supplier of flat y Largest supplier of y Only fully integrated y Pre-eminent seller of y 50:50 joint venture with steel in Australia metallic coated and flat steel maker in branded steel in Asia Cargill Inc. designer / supplier Pre-engineered y Global scale painted steel in New Zealand y Lower cost “backward y Again voted no. 1 flat buildings Australia y Leading domestic integration” growth rolled steel supplier in y Leading market strategy North America y No 2 position in ¾Port Kembla market share of flat North America and Steelworks shares in most key products (Jacobson Survey) products ¾Indonesian, Malaysian, no. 1 in China ¾Glenbrook, NZ Thailand and ¾Delta, Ohio ¾ Vietnamese operations ¾Butler buildings Western Port ¾Pacific Islands ¾Springhill ¾China, including Butler ¾North American and ¾Lysaght Australia ¾Lysaght Asia European Export ¾India – Tata BlueScope ¾Service Centres Trading Offices JV ¾Smorgon Distribution 66 Leadership team – background
Noel Cornish Brian Kruger Australia & New Zealand Manufacturing Corporate Strategy/Innovation; North America • previously President Port Kembla Steelworks and • previously President Coated Australia and CFO New Zealand • involved in Butler acquisition • prior to that President of the Australia Coated • based in USA for 4 years and had financial business, including Springhill & Western Port. responsibility during construction phase of North Star BlueScope Steel
Paul O’Keefe Kathryn Fagg Australian Sales & Marketing Asia • worked in steel industry for approx 20 years • previously responsible for these businesses • experience in a broad range of commercial & • moved support team from Sydney to Singapore financial roles to be closer to the business • acting General Manager of Smorgon’s Newcastle business prior to his move to BSL. Mark Vassella Bob Moore Australian Distribution & Solutions China • previously responsible for Smorgon’s distribution • previously President Lysaght Australia, President business and Tube Mills OneSteel Distribution and 11 years in Executive • long experience in the steel industry in many leadership roles at BHP Steel prior to that. roles • wealth of sales and commercial experience 67 Unique production footprint in the world’s fastest growing regions
Asia China 24 Lysaght and MC 250kt PEB Sites Painting 150kt • Coated and Building Products India North America Metal Coating 250kt Vietnam • North Star BlueScope JV Painting 150kt MC 125kt Hot Rolling 1.80mt (100%) Painting 50kt • Castrip JV w Nucor
Thailand Cold Rolling 350kt Brisbane Metal Coating 375kt Painting 90kt Painting 90kt Port Kembla/Illawara Malaysia Raw Steel 5.2mt Metal Coating 150kt Hot Rolling 2.8mt Painting 60kt Indonesia Plate 360kt Metal Coating 100kt (+165kt) Cold Rolling 960kt (240kt)(1) Painting 40kt (+120kt) MC (3 lines) 750kt PL (2 lines) 207kt Australia 7 Service Centres 41 Lysaght Sites New Zealand/Pacific 7 BlueScope Water Iron Sand Mining 90 Distribution Sites Raw Steel 625kt Western Port Hot Rolling 750kt Hot Rollling 1.43mt Sydney Cold Rolling 360kt Cold Rolling 1.0mt Paint Line (1 Line) 120kt Metal Coating 230kt MC (3 lines) 830kt Painting 60kt Painting (2 lines) 330kt Hollow Sections 45kt 68 (1) CRC from packaging cold mill Pacific Roll forming sites 3 BlueScope Steel China footprint
FY 2007 REVENUE: A$407M EBITDA: (A$7M) EMPLOYEES: 1,810 INVESTED CAPITAL: A$405M
SUZHOU
BlueScope Steel in China 1 Metal Coating/Painting Line Facility 4 Lysaght Manufacturing Facilities 2 Butler PEB Manufacturing Facilities 60 Butler/CSC Sales Offices 24 Butler District Offices/Sales Office GUANGZHOU 69 BlueScope Steel North American sites
FY 2007 REVENUE: A$1,354 M EBITDA: A$231M EMPLOYEES: 2,403 incl. North Star INVESTED CAPITAL: A$295M All Include BSL’s 50% interest in North Star BlueScope Steel
HCI Steel Building Systems Inc
MANUFACTURING CASTRIP® PLANTS BlueScope Steel in North America 1 Regional Office 4 BlueScope Steel Sales Office 2 Joint Ventures 7 Butler Manufacturing Plants 12 Butler Sales/Engineering Offices 70 North America – acquisition of HCI Steel Building Systems, Inc y On 1 November 2007 BlueScope acquired privately owned HCI Steel Building Systems Inc. (a pre-engineered steel buildings business) ¾ HCI designs & manufactures steel PEB’s for heavy industry, commercial and community segments ¾ Generated sales revenue approx US$40m in FY 2007. ¾ Regional focus – northwest USA and western Canada, which strengthens Butler’s position in the region y An excellent fit for our PEB business in North America.
Truck Service Centre Dawson Building – Skeleton Steel Dawson Office Building 71 Coated Australia – Project update
y West Sydney Colorbond Facility ¾Plant handed over to manufacturing team and paint on strip August 2007 ¾Capital cost $150m (including land, buildings and processing equipment) ¾Nameplate capacity up to 120,000 tpa − technical ramp up is expected to take 2 years but will also be subject to the market. ¾Capability to meet 24hr delivering orders vs typically longer lead times at Springhill. y Service Centre Paint Line (Port Kembla) closure ¾To be clear, this is not the Springhill paint line but a second line in Port Kembla ¾Oldest and most cost inefficient paint line in BSL network ¾Adopted a staged approach to closure, ie. over 12-24 months. ¾Initially change from 7 to 5 days continuous production. ¾Approx 90 employees will be affected.
72 Coated & Building Products Australia – new West Sydney Colorbond Facility
73 Indicative FY2008 Zinc and Aluminium usage vs FY2007
Tonnes Zinc Aluminium FY2008(E) FY2007 FY2008(E) FY2007 AUSTRALIA Springhill 21,423 22,787 11,281 10,632 Western Port 22,261 21,800 11,284 10,900 Sub-total 43,684 44,587 22,565 21,532
NEW ZEALAND 7,300 6,800 3,700 3,500
ASIA 19,814 14,888 18,094 13,092
TOTAL 70,798 66,275 44,359 38,124
Note: (1 ) In future years BSL Asia’s usage will increase as new mid-stream projects ramp-up to full capacity (2 ) Av FY 2007 Zinc price was US$3,728 per tonne vs av YTD FY 2008 price of US$3,693 per tonne, with current spot price of US$2,385 per tonne. Nov 27, 2007. 74 BlueScope’s BluePrint for the future – a focus on Execution Excellence Paul O’Malley, Managing Director & Chief Executive Officer
29 November 2007
ASX Code: BSL