Analyst Introduction to Steel Division
Paul Zuckerman - Chief Executive Fletcher Building Steel Division
Steel Division – March 2009 1 Disclaimer
This presentation contains not only a review of operations, but also some forward looking statements about Fletcher Building and the environment in which the company operates. Because these statements are forward looking, Fletcher Building’s actual results could differ materially. Media releases, management commentary and analysts presentations, including those relating to the February 2009 half year results, are all available on the company’s website and contain additional information about matters which could cause Fletcher Building’s performance to differ from any forward looking statements in this presentation. Please read this presentation in the wider context of material previously published by Fletcher Building.
Steel Division – March 2009 2 A brief history of steelmaking in New Zealand
Pacific Steel Group, Auckland - EAF New Zealand Steel, Glenbrook – Integrated Steelworks • Ingot casting started in 1962. 3 strand ROKOP concaster installed 1979 • Commenced in 1968 processing imported coil on a galvanising line • Wire mill operations also commenced in 1962 as GKN • Pioneering ironsand based steel making facilities • 2nd hand Lamberton cross-country rolling mill installed added in the 1970’s 1962 • Owned by the NZ government in 1980’s • New Krupp 50 tonne EAF installed 1972 • 110MW cogeneration capacity added in 1998 • Price control removed 1985, but briefly continued for NZS • In the 1990’s, BHP takes control of the facility
• 42% owned by NZ Steel in 1986, who then supplied some • Now positioned to realise its competitive advantage billet based on its unique process under BSL ownership.
• Sims scrap JV commenced December 1992 on adjacent site with the existing Fletcher shredder
• New Danieli rod & bar mill installed 1997
Fletcher Steel Engineering Company , Wellington, 1965. View looking west toward airport and city. Quarantine facility is on Somes Island in centre
Steel Division – March 2009 3 The Steel Division’s breadth of operations is unique
Scrap Collecting Rebar Reinforcing Painted Coil End Use, Coating on Armco Safety Tower Merchant Te Apiti Wind Plate Cutting Wire Mesh Coil Kauri Cliffs Railing at Wednesday Steel Farm, Tararua Peak
Long Steel Coated Steel Steel Distribution
Business Sims JV Pacific Coilcoaters Fletcher Easysteel Pacific Steel Group Dimond CSP Coating Systems Fletcher Reinforcing Stramit Cyclone Fiji Rolling
Operations Scrap collection Paints coiled steel Steel stockist and distributor Bar and wire rod making Rollformed roofing & cladding Galvanising services Reinforcing fabrication Other rolled products Fencing and wire products Mesh Australia and NZ
Markets Construction industry Residential building NZ construction & manufacturing Infrastructure Commercial construction Infrastructure Infrastructure Rural and vineyards
Steel Division – March 2009 4 Long Steel provides 100% recycled product to the market
Scrap. Benchmark is at BilletWire Rod Rebar Bright Drawn Reo placingMesh Sky Tower ~US$480/t cfr Korea Laying Head Wire
• 15 year old JV with Sims • Commenced operations in 1962 • Major NZ reinforcing fabricator Group, the world’s leading • Only long steel maker in NZ • Cuts, bends and places steel metals recycling business • 300,000 tonne plant • Makes and sells mesh • NZ’s largest national scrap • Recently upgraded capacity • Eight sites across NZ operation • Wire making and galvanising • Operates NZ’s only shredders • Focussed domestically • Shreds 110,000 cars p.a. • Australian exports • Major customer is Pacific Steel, • Seismic rated product range adjacent to the recycling operation Sims Shredders • Exports ferrous and non- ferrous Pacific Steel Group Fletcher Reinforcing
Steel Division – March 2009 5 Long Steel Drivers – a mix of global and local influences
NZD:USD FX Rate East Asia Import HMS Scrap ($/t)
100 500
80 400
60 300
40 200
20 100 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Oct 03 Oct 04 Oct 05 Oct 06 Oct 07
Asia Rebar Price (US$/t) NZ Construction Index
800 160
600 135
400 110
200 85
0 60 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08
Note/Source: The NZ Construction Index is an equal weighting of Infometrics real gross fixed capital formation in Residential, Non-residential, and Other Construction.
Steel Division – March 2009 6 Coated Steel – Premium construction products & services
Painted Steel Coil PCC Coil on Kauri Cliffs Westpac Stadium Long Span Commercial Gold Coast Convention Corrugate House Roof Cladding and Roof Roof and Purlins Centre, QLD
• Part of Fletchers since 1988 • Part of Fletchers since 1988 • One of Australia’s leading rollformers • One of two coil painters in NZ from Winstone • Stramit purchased from Amatek in 2005 • Domestically focussed • Operates across NZ • 27 customer centres across Australia • Strong brand recognition • Rollformed roofing and wall • Growing downstream w/ FDHS acquisition cladding products • Roller Door production in Victoria • Commercial & Residential • Rollformed roofing and wall cladding construction focus • Commercial & Residential construction • Light structural sections • Light structural sections
“Moving towards wider supply of the metal building package, reducing supply chain complexity”
Steel Division – March 2009 7 Coated Steel Drivers – regional construction activity
Australian Real Non-res. Work Done (A$b p.a.) Australian Residential Approvals (,000 p.a.)
30 225
25 200
20 175
15 150
10 125
5 100 2000 2001 2002 2003 2004 2005 2006 2007 '08F '09F '10F '11F 2000 2001 2002 2003 2004 2005 2006 2007 '08F '09F '10F '11F
Deflated NZ Monthly Non Residential Value Monthly NZ New Residential Consents Cold Rolled Coil Price (US$/t)
400 4000 800
300 3000 600
200 2000
400 100 1000
0 0 200 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Sources: NZ data is Infometrics. Australian data is BIS Shrapnel.
Steel Division – March 2009 8 Steel Distribution – servicing our customer’s needs
Dipping WireSmall Parts Engineering Rounds Pipes into Rural HC Bar Coil Processing Line Wire Staples
• Two sites – AKL and CHCH • Leading stockist/distributor of long and flat steel • Fencing products • Biggest zinc bath in NZ • 13 nationwide locations, servicing 10,000 customers •Staples • Closely tied to customers • New Auckland plate profiling centre – Jan 2008 • Coiled wire • Wide range of steel products • Servicing the rural market
Fletcher Easysteel
CSP Coating Systems
Cyclone
Steel Division – March 2009 9 The Australasian steel industry structure is improving
Long Steel Coated Steel Steel Distribution
Australia OneSteel Smorgon merger BlueScope Steel OneSteel, BlueScope BestBar/Tata - reinforcing Lysaght, Stramit, Metroll, Southern Steel, CMC ATM, Orrcon - pipe/tube/rhs Steeline, Fielders, Stratco, others others
New Zealand Pacific Steel BlueScope/New Zealand Steel Fletcher EasySteel Fletcher Reo, S&T, United Ind, Dimond, Pacific Coil Coaters, Steel & Tube (50% OST) others S&T, Metalcraft, SteelPlus others Vulcan
Major Imports Asian rod, bar, pipe, beams Coated steels from Asia Focus on major projects
Steel Division – March 2009 10 Steel continues to grow and invest for the future
Improved geographic coverage, New Plymouth branch. New plate profiling equipment.
Acquired Fair Dinkum, Garage World and Eziform. Aligned into Fletcher Easysteel for Significant investment in regional plants, equipment. customer and logistics synergies. New modern, efficient site in Melbourne.
New chemical processes. Large investment in new curing ovens and coil cleaning unit. Exited Technology business.
New rollforming facility in Christchurch.
New Auckland high capacity shredder and processor installed January 2008. Container handling equipment installed.
Steel Plant capacity upgrade to 300,000 tonnes Jan 2008. New Sims Pacific Metals Auckland Ferrous Shredder
Steel Division – March 2009 11 NZ steel consumption has risen steadily
MAIN SEGMENTS
1,200,000 20,000 • Residential Construction
18,000 1,000,000 • Commercial/Industrial
16,000
800,000 • Manufacturing Sector 14,000 • Heavy Buildings 600,000 12,000 (GFCF $m) (GFCF
Consumption (tonnes) Consumption • Infrastructure and 10,000 400,000 Engineering
8,000 • Rural and Specialty 200,000 6,000
0 4,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
NZ Consumption (tonnes) Total Real Gross Fixed Capital Formation (annual running total $m)
Steel Division – March 2009 12 The NZ residential market
• Housing activity is currently depressed with modest price declines
Other • Pressed and stone coated steel tiles 12% service 1/4 of the roofing market
Longrun Steel 39% • Sector revenue is estimated at ~NZ$180m Concrete 24% • Estimated 30,000 steel tonnes
• Many rollformers, 3 with national presence
Tile Steel 25% • Concrete tiles are a less significant roofing product in New Zealand than in Australia.
Steel Division – March 2009 13 A forecast drop in residential activity is becoming reality
35,000 30
Forecast 25 30,000
Consents (LH scale) 20 25,000
15
20,000 New Zealand’s first State House at Miramar in Wellington. Built by the Fletcher Construction 10 Company in 1937.
15,000
5
10,000 0
5,000 Nominal House Price % Change (RH scale) -5
0 -10 F83 F84 F85 F86 F87 F88 F89 F90 F91 F92 F93 F94 F95 F96 F97 F98 F99 F00 F01 F02 F03 F04 F05 F06 F07 F08 F09 F10 F11 F12 F13
New house built by Fletcher Residential in Auckland, 2007
Source: Infometrics
Steel Division – March 2009 14 The NZ commercial & industrial building market
• Very strong steel share
• Membranes are more significant than in the residential sector Delegat's winery, Blenheim
• Sector revenue is estimated at ~NZ$220m
• Estimated 75,000 steel tonnes
Other 12% Concrete 4% Tile Steel 4%
Longrun Steel Roofing 80%
Steel Division – March 2009 15 Commercial building activity is forecast to soften as well
Non-residential activity at 1995 - 96 prices. Gross fixed capital formation ($m)
5,000 Forecast
4,500
4,000
3,500 Installing steel plant cladding at Pacific Steel in 1962. This building housed ingot casting until 1979. 3,000
2,500
2,000 Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Infometrics 88 metre long Dimond sheets, Palmerston North 2008.
Steel Division – March 2009 16 Manufacturing has moved off shore and spending is down
7% 0.90
Forecast 6% 0.80 • GDP and FX rate are fundamental drivers. 5% 0.70
4% 0.60 • Circa 300,000 tonnes are
3% 0.50 consumed: flat, merchant, special
US$ FX steels, etc Percent 2% 0.40
1% 0.30 • There has been some migration of
0% 0.20 manufacturing to non-OECD 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 countries. An example is Fisher and -1% 0.10 Paykel to Thailand -2% 0.00
Real GDP Change March Year (precent) US$:NZ$ Exchange Rate • A slump in profitability heralds a potential sharp pull-back in capex
Source: Infometrics
Steel Division – March 2009 17 Heavy construction projects continue to hold up the market
Activity at 1995-1996 prices. Gross fixed capital formation ($m)
5,000 Forecast • GDP growth went into negative territory 4,500 in Q1 2008, but genuine recession likely began in Q2 4,000 • Circa 300,000 tonnes consumption p.a., 3,500 Non Residential principally reinforcing, merchant bar,
3,000 structural sections, and beams
All Other Non Residential 2,500 • Stadia: Rugby World Cup in 2011: Eden Park, AMI Christchurch, Carisbrook 2,000 Dunedin Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec Sep Dec 00 01 02 03 04 05 06 07 08 09 10 11 12 13 • Solid backlog of private and Government work - hospitals, education, prisons, etc.
Auckland Hospital extension Wellington Hospital
Steel Division – March 2009 18 Large scale infrastructure and engineering projects continue
• Fueled by government spending
• Significant participants are Downer, Fletchers, Mainzeal, and Multiplex
• Serviced by large regional fabricators
• Steel usage of 150,000+ tonnes per annum
• Upgrades to transportation - Manukau harbour crossing, New Lynn railway, Waterview trench, Tauranga Harbour link, Victoria Park
• Development of Power Generation – Windfarms and geothermal
Steel Division – March 2009 19 Investment in power generation is forecast to be strong
• 3% of NZ’s electricity is from wind but its share is growing fast
• 20% effective capacity share in Denmark, which is less windy
• Medium term expectation for wind is for vicinity 1200 MW, which would consume about 25,000 tonnes of steel just in the foundations
• Makara farm is 62 turbines for total 140 MW
• Typically EU-made blades, gears and generator. Rolled tower sections are 12mm to 30mm G300 plate.
• Current max scale is 100m rotor with 5MW generator
48 tonnes of steel in each 15m base of the 112m high Makara turbines
Steel Division – March 2009 20 Beyond our control but must be monitored…
• Kiwi/USD and AUD/USD exchange rates NZD USD Exchange Rate 1991-2008
0.9 • Export economics – dairy, seafood, beef, timber, aluminium, etc. 0.8
• Banking/credit crisis 0.7
0.6
• Change in government policy toward NZ$:US$ spending 0.5 • Global steel demand as US and EU 0.4 consume less
0.3 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08
• Iron ore/scrap costs and output pricing Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
• Ocean freight rates
Steel Division – March 2009 21 Steel Division - Summary
• Fletcher Steel is a NZ$1.5B business • Holds a unique and significant position in the Australasian region • History of growth and performance • We continue to invest for the future • Solid brands with a reputation for service and innovation
Steel Division – March 2009 22