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BLUESCOPE STEEL LIMITED (BSL)

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BLUESCOPE STEEL LIMITED (BSL) Events

Company (Stock Code)	Date/Time	Event	Timezone: Australia/NSW
BLUESCOPE STEEL LIMITED (BSL)	Mon, 18 Aug 2008 10:00AM	BSL - Full Year Results - Mr Paul O'Malley, MD and CEO
BLUESCOPE STEEL LIMITED (BSL)	Thu, 13 Nov 2008 05:00PM 02:00PM Australia/West	Annual General Meeting Wesley Conference Centre, 220 Pitt Street, Sydney, NSW
BLUESCOPE STEEL LIMITED (BSL)	Wed, 22 Oct 2008 01:00AM	Date Payable
BLUESCOPE STEEL LIMITED (BSL)	Tue, 14 Oct 2008	Full Year Results
BLUESCOPE STEEL LIMITED (BSL)	Tue, 26 Aug 2008	Record Date
BLUESCOPE STEEL LIMITED (BSL)	Fri, 22 Aug 2008	Ex Div Date
BLUESCOPE STEEL LIMITED (BSL)	Tue, 1 Apr 2008 01:00AM	Date Payable
BLUESCOPE STEEL LIMITED (BSL)	Wed, 5 Mar 2008	Record Date
BLUESCOPE STEEL LIMITED (BSL)	Thu, 28 Feb 2008	Ex Div Date
BLUESCOPE STEEL LIMITED (BSL)	Mon, 25 Feb 2008	Interim Results
BLUESCOPE STEEL LIMITED (BSL)	Wed, 14 Nov 2007 02:00PM 02:00PM Australia/Victoria	Annual General Meeting Palladium Ballroom, Crown Towers, 8 Whiteman Street, Southbank, Melbourne, VIC
BLUESCOPE STEEL LIMITED (BSL)	Tue, 23 Oct 2007	Date Payable
BLUESCOPE STEEL LIMITED (BSL)	Fri, 28 Sep 2007	Record Date
BLUESCOPE STEEL LIMITED (BSL)	Mon, 24 Sep 2007	Ex Div Date
BLUESCOPE STEEL LIMITED (BSL)	Mon, 20 Aug 2007	Full Year Results
BLUESCOPE STEEL LIMITED (BSL)	Mon, 2 Apr 2007	Date Payable
BLUESCOPE STEEL LIMITED (BSL)	Wed, 7 Mar 2007	Record Date
BLUESCOPE STEEL LIMITED (BSL)	Thu, 1 Mar 2007	Ex Div Date
BLUESCOPE STEEL LIMITED (BSL)	Mon, 26 Feb 2007	Interim Results
BLUESCOPE STEEL LIMITED (BSL)	Wed, 15 Nov 2006 12:00PM	Annual General Meeting
BLUESCOPE STEEL LIMITED (BSL)	Tue, 24 Oct 2006	Date Payable
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BLUESCOPE STEEL LIMITED (BSL)

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PRESENTATION BY PAUL O’MALLEY, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER OF BLUESCOPE STEEL LIMITED (BSL)

“BSL - Full Year Results”

http://www.brr.com.au/event/49369

 

MONDAY, AUGUST 18, 2008, 10:00 AM.

 

            BSL     Good morning everyone and thanks for coming along to BlueScope Steel’s Full Year Results presentation. To those of you who have had access to the

10                    Internet, we have published our results this morning obviously and did an ASX release. There are copies in the room of both the presentation and also the ASX release.

 

                        Just to introduce the team that is here today, we have got Charlie Elias up on

15                    the podium, our Chief Financial Officer, and most of the management team of BlueScope Steel in the front here as well. So during the Q&A, I will be trying to flick as many questions to the team as possible.

 

                        In terms of an introduction, we have had a very strong year in fiscal year

20                    2008. Basically off the back of good steel demand both in export markets and in our domestic markets, and I will talk about that in a little bit more detail. Just to give a sense, we are entering fiscal year 2009 in a similar manner to the one we came out of fiscal year 2008, so still strong demand and continued good performance.

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                        We always focus on safety at BlueScope Steel and the charts continue to demonstrate that that focus on safety is improving our safety performance. During the last 12 months though, we had a contractor fatality at Port Kembla Steelworks. That was a very challenging time for the family of the contractor

30                    killed, but also for all of the employees and contractors at the Steelworks. We had stopped for safety across all of our sites globally. We continue to try and focus so we continue to focus on being as safe as possible with our goal of Zero Harm continuing to be what we are driving towards.

 

35                    We had a number of acquisitions during the year, two major acquisitions and a smaller one. That has changed the mix of sites that we now have in the business. In the chart, you have got up here on the slide, you can see that -- if you look at the BlueScope Steel performance of the incumbent businesses, about 0.6 LTIFR and 4 for MTIFR, the acquired businesses coming to the

40                    portfolio with a very different safety record, and that is not uncommon given our very strong performance. When we buy businesses, they come with a very different perspective on safety. So one of the first things we do is we put a significant investment in the form of safety professionals, experienced operators and investments into those sites to bring down those safety -- well

45                    basically to improve the safety performance.

 

                        We have increased our employees by 25%, we are up to 21,000 employees, and we increased dramatically the number of sites. We have people now who are interacting with steel a lot more in the distribution business but in also the downstream businesses that we acquired in the United States. As a company, we will continue to focus on Zero Harm. It is our number one priority.

 

5                      Sustainability is very important for us as a company. It is obviously very important for Australia. It is a real focus in Australia. It is a focus in Asia and a focus in our US operations as well.

 

                        Water conservation is very important, freshwater, with the drought in

10                    Australia. We have halved our freshwater usage in our operations at Port Kembla. We have got a project underway to reduce dramatically our freshwater usage at Western Port in Victoria. There is a lot more information on that in the supporting information. We have talked about this in the past.

 

15                    Greenhouse gas emissions are fundamentally important. Back in 1995, we put a cogeneration facility into the steelworks in New Zealand and that reduced by half the amount of external electricity we needed to support that facility. We are looking at a significant project in Port Kembla Steelworks, the steam cogeneration project I will talk about in a moment. But just to

20                    summarize where we are at with BlueScope Steel in greenhouse gases, we produced about 12.5 million tonnes of CO2 or CO2 equivalents a year. Eighty percent of those emissions come from the steel-making process, and it does not matter whether you make that steel in Australia or overseas. Those CO2 emissions will be released into the atmosphere. We are as efficient or as

25                    good as any steelmaker in the world in producing steel and minimizing our CO2 equivalent emissions.

 

                        So ultimately a policy coming out, the Green Paper for greenhouse gas emissions and what is now the carbon pollution reduction scheme, we believe

30                    needs to address emissions intensive, which is BlueScope, and trade exposed, which is BlueScope. We have certainly been put in that category in the Green Paper which has a good outcome. What is important though is that post-2020 that the emissions-intensive trade exposed-perspective continues and that it is not assumed that everything will be all right come 2020, which is

35                    one of the issues in the Green Paper at the moment.

 

                        Of that 12.5 million tonnes of CO2 emissions, if you took the Green Paper, about 90% of those would be allocated free permits. We do not know what the trajectory is yet, but we are working closely within the government

40                    processes to ensure that the government has all of the information they need to make an informed decision when it comes to BlueScope as an emissions-intensive trade-exposed business.

 

                        To the group results, the headlines, revenue up 18%, basically very strong

45                    demand, but also the acquisitions. EBITDA on an underlying basis up 19%. We have all of the reported numbers in here as well and Charlie will work through a reconciliation of reported to underlying, but that is all very clearly spelled out in the ASX release. EBIT is up 20%. Net profit after tax on an underlying basis up 27%. EPS up 23%. It has been a very good year. Very pleasingly, gearing is down to 30.4% so just a bit of a track record there. After the IMSA acquisition in February, we touched 40% in gearing. Since February, we have taken 10 percentage points out of that gearing, a very strong focus on cash management. Of that 18% increase in revenue, we

5                      have actually released working capital. So our working capital efficiency has improved dramatically. The Board made a decision to increase the final dividend by 1 cent, so in total, our year-on-year dividends are up 2 cents.

 

                        Where we are focused going forward is on three aspects of our business,

10                    what is the underlying cash generation and part of that will be a very continued, very strong focus on working capital. The second one is the capital program. Reinvestment in the business and growth. The third one is maintaining the integrity of our balance sheet, which is something that we intend to continue a very robust focus on.

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                        The cash flow slide, and Charlie will talk to cash in a little bit more detail, but what I like about this slide is the fact that we had the substantial increase in revenues and we have had a net working capital release. There are not too many organizations who can talk to that. The management team, our

20                    employees at steelworks in particular and our Australian operations have really focused on key working capital metrics. We are not where we wanted to be over the next couple of years, but we are certainly well down the path on improving those key metrics. We have made the comment in November of last year that we were going to improve our working capital by $200 million.

25                    We used a set of metrics internally to measure that. If you look at a working capital release on a big increase in revenues, we have more than done that, but what we are basically saying from the scorecard perspective is that we have delivered half of the $200 million of working capital reductions. We have got 100 million to go. We are ahead of schedule and we expect that we will

30                    nail that target.

 

                        Basically, to summarize the major headlines, very strong domestic and export demand. That certainly was the case through the second half of last fiscal year and it is the case as we stand here today. The way the business is

35                    operating at the moment, whether it be in Australia in our export markets or in the United States, is that we still have very strong demand. The markets that were strong or the areas of domestic industry or US industry for that matter that we have been selling into that have been strong for the last six months continue to be strong today. Spreads, one of the things we have faced is

40                    increased cost, and we are seeing increased costs into this year as well particularly around raw materials. Export pricing in particular has been able to cover those cost increases. When you have strong demand, something that you absolutely need to focus on is production. We have had record production across many or most of our facilities. Basically, the team at

45                    BlueScope has been doing everything it can to meet that market demand, and I will talk to that in a moment. In our Asian businesses, across the board, we have had improvements. We have had better yields. We have had better productivity. We have had better styles. We have had improvements in our tier 1 sales. So the Asian performance, and particularly by the three key businesses there, Thailand, Malaysia and Indonesia, is going well. China, we are continuing to turn around the business in China. We are starting to see some benefit from that. Notwithstanding all of the doom and gloom in the United States, our businesses in the US are doing well. So we have been

5                      particularly pleased by the acquisitions that we have made in the United States.

 

                        I will talk to the dividends. You understand that our Board and our management team continue to be very focused on getting cash back to the

10                    shareholders and that is the focus that will continue. Despatches are up over 8 million tonnes from 7.5 million two years ago. Obviously, the distribution/acquisition in Australia has increased our flowthrough of product. But basically, as I probably said this five times already, demand has been good.

15

                        In terms of the segments in Australia that we are selling into, the building and construction, which is the green parts of the chart, are up to 62% of our despatches from 59%. We are still seeing increased demand particularly in the industrial, commercial and mining space. Residential demand is still flat,

20                    but it has been flat for some time. We think that there is probably a million dwelling units in Australia that need to be built over the next five years. We are not seeing them being built at the moment. But at BlueScope Steel at the moment, we have record production, we have got record demand and we have got that flattest housing environment we have had on the east coast

25                    ever. So if you look at our portfolio of opportunity, if there was to be an increase in residential demand, and I am not forecasting it at any time soon, but I am telling you that it is needed, then we will get some benefit through that at the moment but that is not reflected in our results.

 

30                    On the manufacturing sector, a point to note there is that if you look at our pre-existing BlueScope business before the Smorgon distribution/acquisition, our manufacturing percentage of our despatches was about 14%. It remains at 14%. The increase in 5 percentage points to 19% is a result of the broader product mix that we get through the BlueScope distribution business. So

35                    again, things continue to be robust in the domestic marketplace.

 

                        I will talk to the Blueprint in a moment.

 

                        Just to focus on the acquisitions, in 2004, we bought the Butler business. It is

40                    performing way beyond our expectations today. In the last 12 months, we bought the IMSA business in the United States. Steelscape, in particular, our business that produced only 5 million bucks of EBIT in the six months before we bought it, has increased its EBIT by over $30 million in the past five months, over that 5 million, half of it as a result of market conditions, half of it

45                    is as a result of decisions we made on where to move products in the US market that have not been made before our ownership. So there has already been a better than expected outcome there and we see some significant opportunities in cost reductions and efficiency improvement as we bring the Varco Pruden and Butler Buildings businesses together.

 

                        I will talk to the global steel industry in a moment, but I think it is good news as I talk to that.

 

5                      In terms of the blueprint, I think you have seen this slide before. Basically, the metrics that we are managing our business at the moment are very clean and clear within the business. We are compensating our people around those metrics. I would tell you as we started measuring the metrics and backdating them about 12 months ago to where we are today, just in metric

10                    improvement, there is about a 60 million EBIT improvement as we focused on those metrics. Some of that you would have already expected in the results. But we are seeing some better granularity of management within the business as a result of that very clear and concise focus on metrics and as a result of the fact that our bonuses are being tied to performance against those

15                    metrics. There is information here about what we are doing within the blueprint and the rigor around the project management office, and I have mentioned that we have already delivered $100 million of the working capital reductions.

 

20                    So moving forward, it is all about continued focus on the core value drivers of the business, whether that be in Australia, the United States or our Asian businesses. Where we go to next with the blueprint is the focus on the growth and how to be more specific about our growth opportunities. So we will talk to you about that over the coming months.

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                        On the 12th of May, we gave you a very detailed briefing on the market. To put the results in context today, we have probably done a little bit better than we expected in May, and that is because demand was perhaps a bit stronger than we expected and the export pricing was probably a little bit more robust

30                    than we expected as well. So I think we have kept you, the market, pretty well informed of our performance, probably done a little bit better than we expected.

 

                        Just to break the results up, the fiscal year 2007 EBIT at 1 billion and 57

35                    million. The coated and industrial products market segment, which is the old hot rolled products, Australia, an awesome business, has performed better year-on-year. The distribution and solutions business has done well. New Zealand steel is a bit flat. I will talk to that in a moment, but basically slightly softer residential demand in New Zealand, much stronger agricultural

40                    demand with the strong agricultural segment over there. Basically, with exports in New Zealand, we can sell everything that we can make and it is a pity we do not have some more capacity there. The Australian business, as I mentioned, every single segment, every single business in Australia is improving year-on-year, which is good. North American hot rolled products, it

45                    is all about the spread coming out of (inaudible) (0:14:57) and electricity prices. So the spread came down in fiscal year 2008 relative to fiscal year 2007, but we are seeing pretty strong spreads at the moment in North America. The coated and building products business in North America, that is an outstanding performance from the Butler business. It is also the IMSA acquisition. The corporate and group results, my colleagues gave me a hard time with that corporate cost, but it is actually around the inventory that we sell at our Port Kembla Steelworks to Steelscape in the United States. Before we acquired Steelscape, we booked the profit at the moment -- we basically

5                      realized the profit when the product was dispatched from Port Kembla to head to North America. Now that we own the Steelscape business and we have increased the sales to our Steelscape business, the profit can actually be booked until the despatches leave Steelscape. So there is a period of a one-off adjustment basically in product that now stays within our business

10                    longer as with any more product to Steelscape, and up to 1.2 billion in terms of EBIT.

 

                        If we actually deconstruct that performance and understand what sits behind the improvement, if you look at the spread for our businesses, it has improved

15                    by about $350 million. Three components to spread: Export pricing up by $450 million. BlueScope Steel is an outstanding exporter. We can sell, as I mentioned, all of the products that we can make. We are driving record production and our export customers in particular are screaming for more product. We cannot meet their demand at the moment, but we will do

20                    everything we can to improve production. Domestic prices only up a little bit year-on-year. Raw material costs have increased. As you can see, 2007 to 2008, iron ore costs went up. Coal costs actually came down. Scrap and alloy costs were on the increase. As we move from 2008 to 2009, our raw material costs, specifically coal and iron ore, will go up by about $1.2 billion. Our total

25                    raw material costs, when you take alloys and scrap into account, will increase by about $1.6 billion. The pricing environment in the global steel market at the moment is offsetting those cost increases.

 

                        So in essence, if I were to summarize it, there is very strong steel demand

30                    globally that is driving a very strong demand for raw materials, so both of the prices are going up. In the export market, you are basically offsetting each other. A little bit more challenging in the domestic market, but the export market has been very good. In terms of North Star BlueScope, as I mentioned, that is the spread. Cost escalation is a challenge across the entire

35                    business. Labour costs are going up. Electricity costs are going up, not just in Australia but globally, so we continue to work on cost reductions, but productivity improvement is a really important part of our business as well. Freight is a big cost increase at the moment. Exchange rates, we went from an exchange rate in the 70 cents to high 80 cents from 2008 to 2009, up to 98

40                    cents not so long ago, back down to the 80-cent range at the moment. Charlie will talk to the sensitivity to the exchange rates, but we will get some benefit by the drop in exchange rate over the past couple of weeks.

 

                        So basically, in summary, the engine room of the business is doing well. We

45                    have got to manage our costs. We see demand continuing to be quite robust.

 

                        Specifically, if I just highlight some of the segment performance, I mentioned the production records at Port Kembla Steelworks, slab, hot rolled coil, plate, metal coating, all working well. I need to thank the team for their wonderful performance.

 

                        The domestic demand, the mix of our products has improved over the past 12

5                      months as well. As part of the blueprint, we wanted to focus on our customers, we wanted to meet their demands, we wanted to be responsive to their requirements. What we have seen over the past 12 months is a bit of a structural shift that you would have seen two slides earlier. The mix of sales has moved more to the value added, which is a good thing for our business.

10                    So metal coated product in particular but also very strong demand for plate.

 

                        Just on the cogeneration project that I mentioned earlier, we have given you our previous view that the cost of that project would be between $700 million and $1 billion. It has been in feasibility for some time. It is pretty much a

15                    completed feasibility, but we have a big question mark as to what the scope of that project should be. We will not know how to scope that project until we have certainty around the carbon pollution reduction scheme. The way to think about that now is we have actually deconstructed it from a single project, in essence, to a number of subcomponents. There is a component of

20                    that project that is absolutely about replacing equipment that needs to be replaced, the boilers and the like. There is a part about adding a cogen facility which would make BlueScope Steel energy or electricity self-sufficient within our Australian facilities. There is a third part which is about capturing all of the CO2 equivalent emissions and using that in the cogeneration facility. As we

25                    look at the scope of that project today relative to the guidance we have previously given you on cost, it is now over $1 billion because of cost increases but also scope changes. What we are basically going to say though is that the Board is not going to approve that project until we have certainty around the carbon pollution reduction scheme. We will do the project within

30                    our ordinary capital expenditure profile over the next five years. But we have committed to some long lead-time items, particularly around boilers, and we will be making some financial commitments this year. But basically, what you need to put in your model is the cost of around $1 billion if not a little bit higher, but I cannot give you definitive view or scope until we understand how

35                    the CPRS is going to operate.

 

                        Some information on this slide on raw material cost increases. It tracks fines, coking coal and semi-soft coal prices. You can see the unit price increases, and in the supporting information, we have given you details of our actual

40                    volumes of consumption. So you can work out all of the maps on specific costs for our company.

 

                        The Australian distribution and solutions business, we had a really tough first half, we had a better second half. As I mentioned, it has certainly helped us

45                    get better insight into the market, having that business. We see some cost reduction opportunities which we have been working through around our sheet and coil processing, particularly in South Australia at this stage, but I think a very good finish to the year in that business.

 

                        In New Zealand, as I mentioned, the residential market is a little bit soft. The industrial and agriculture segments are doing fine. Exports are good. We did put out a release to the market in July. We had a technical problem with the melter in the front-end of that business. We lost about 20,000 tonnes of

5                      production. The details are at the bottom left of the slide. But that is basically going to take about $15 million of EBIT out of the New Zealand results for this year. As you look at the last two years’ results, 2007 and 2008, 90 million in 2007 and 85 million in 2008, basically our coal cost increases have knocked us on the head there a bit. At the moment, we are in the process of

10                    renegotiating our arrangements with our coal suppliers. Cost escalation in mining is actually going to flow through to our coal cost in 2009.

 

                        In terms of Asia, an EBIT of $76 million. It is an improvement on last year, our second half. It is a good improvement on the first half. The Thailand business

15                    is going well as are all of them. But basically, it is around stronger demand and better quality product request by our customers. So if I look to Thailand, the stability in the politics there with the elected government, they have actually been able to spark some infrastructure improvement. Our Lysaght business has been able to sell plating into some new rail stations on some rail

20                    lines that are being built. Politics in Thailand is always fluid, so there are still some ups and downs there at the moment, but the business is doing well. Indonesia, we are selling about 170,000 to 180,000 tonnes of products there out of our Indonesian business that has a nameplate capacity of 100,000 tonnes and is producing at 110,000 tonnes. We are bringing products from

25                    our Vietnam business to help meet our market demand in Indonesia. So the MCL2 expansion is an investment decision, I think, that will pay dividends. The Indonesian business, like Indonesia, is still growing and demand is strong. The Malaysian business is performing well. Vietnam is an interesting one. We are actually making profits out of Vietnam. We made the impairment

30                    on Vietnam. We made the impairment at the metal coated facility in China. The performance of the business at the moment is at expectation, so there is no risk of any further impairment there. Inflation is very strong in Vietnam, but we are still seeing foreign direct business investment coming in. We are still selling some product into that, which is good. In China, the PEB business is

35                    plugging along, still challenging in the coated business. The Lysaght business, which we did a good job a year-and-a-half ago or two years ago of running into the ground, we are still working on turning that around. That will pay off over the next year or two, but it is going to take a little bit of time to rebuild customer relationships there. China is tracking on record. India is still

40                    very strong downstream demand. The metal coating line is still being under construction, probably taking a little bit longer than we expected. I think that is the nature of JV sometimes. But the demand for steel in India is very strong. It is an interesting market though at the moment, with government price caps. It is making it hard. Basically, India should be a net importer of steel at the

45                    moment because they cannot meet their own internal demand. The government has put restrictions on exports, but they have also put price caps on domestic sales, which is making it hard for exporters to send products to India at the moment. So I am not sure how that is going to play out, but we still see strong demand, just an interesting one as to what is happening in the Indian market at the moment.

 

                        Hot rolled products in North America, I have spoken to that. That is basically

5                      about spreads. I would mention at the Castrip business, Nucor is into development of its second line and its first Castrip line is producing products and selling it at a profit. So we are looking at the Castrip joint venture as something that we really need to turn up the heat in terms of commercialising that technology.

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                        The coated and building product business in North America. Just to highlight, the Butler business was a good acquisition. I think the IMSA business is going to turn out to be a very good acquisition as well. The products that we are selling into the market still have strong demand. The cost base gives us

15                    opportunity to rationalize, and we are actually learning from the integration as we speak. So there are some opportunities that we have seen coming out of the businesses in North America as we put them together that we are actually going to move across to Asia as well, so a very exciting opportunity.

 

20                    We are the biggest PEB provider or steel pre-engineered buildings provider globally at the moment. Just to put the US market in perspective, we probably got about a 30% share of the metal buildings market in the United States. But the metal buildings market is really not a market. The metal building sales is around $3 billion to $4 billion a year. But metal buildings compete against tilt-

25                    up concrete and other structures in a market of $16 billion to $20 billion a year. So we are a very small component of the big market and we see an opportunity to take share as we lower our cost base, improve our product as we take it to market, leveraging off the capabilities of both Butler and Varco Pruden. We see a real opportunity there and we expect that we will absolutely

30                    deliver on the synergies that we have committed to.

 

                        In terms of the global steel industry, I know there are concerns in the market at the moment about China, whether it is for Olympics or whether it is more structural. There were some strong exports out of China in July. We basically

35                    see there may well be some slower growth in China, but the demand for steel still continues to be very, very strong. The demand for steel in India, Russia, and Brazil is actually increasing. The way that demand has been met over the last three or four years has been by new production capacity coming on in China. The increase in production capacity in China is slowing and demand

40                    for steel continues to be very, very strong. So we (inaudible) (0:28:16) the demand-supply dynamic as remaining quite tight. There may well be some short-term changes in supply-demand, but I think if one looks through the next 6 or 12 months and the next three to five years, there is absolutely no reason why the steel demand will not stay strong given the growth of the

45                    BRIC economies. So any concern about the July gross exports I think is a hiccup rather than a trend.

 

                        In terms of the importance of the developing economies, just to kind of reinforce that point, what this slide basically highlights between 1995 and 2005 is that GDP has increased from 34,000 billion to 45,000 billion and the developing economies have moved from 41% of that 34,000 billion pie to 47% of a bigger pie, and in 2015 expected to be over 55% of an even bigger pie. Understanding the demand in the developing world for steel is core in

5                      determining what is going to happen to steel prices. China has been the swing producer to meet that increasing demand. Bringing on steel plants in Brazil, Russia and India is much slower than China. With the production slowdown or the increase in production capacity in China, that is fundamentally why I think that the tightness will stay in place. To the extent

10                    that there is a post-Olympic effect in China, which is something that one worries about, it has certainly happened in Sydney, it happened in Seoul in South Korea, you still got Brazil, Russia, and India going flat out, so just to put that in perspective.

 

15                    I would now like to hand over to Charlie just to take you through the financial results.

 

            BSL     Thanks, Paul, and welcome, all. Paul has gone through the results on a segment-by-segment basis and we (inaudible) (0:30:14) full update on May

20                    12th and include it in the pack as well, some facts on the key highlights and some of the drivers of the earnings. BlueScope has a history of solid earnings performance and the earnings are leveraged to steel price spreads. Underlying net profit after tax is up 27% on 2007 delivering an earnings per share of just under $1.10. The revenues in 2008 are up 19% or just under

25                    $1.6 billion, a result of three factors predominantly, increased prices for our exports, the acquisitions of IMSA, BlueScope distribution and HCI and increased volumes across all our regions. Pleasingly, our second half performance in 2008 is up 60% on the first half providing a momentum into the first half of 2009.

30

                        Turning to a reconciliation of reported to underlying EBIT, the second significant reconciling items include asset impairments of 251 million, the majority of which we reported at the half year and again on May 12th. These impairments relate predominantly to the China or Vietnam coating lines and

35                    Lysaght Australia, 128 million on the profit on sale of Smorgon distribution shares, restructuring and redundancy costs of (inaudible) (0:31:32) of 32 million and 62 million relating to the integration costs and the elimination of profit in stock of IMSA and BlueScope distribution. Full details of the reconciling items are included in today’s ASX earnings release and again in

40                    the supporting information attached. Further details are actually on this next slide, with respect to both net profit after tax and earnings per share.

 

                        BlueScope generates strong operating cash flows as Paul indicated, and historically, operating cash flows have been either reinvested into the

45                    business and applied to maintaining a target capital structure. 2008 has been no exception. A very strong operations results have seen operating cash flow increase by 16% to 1.65 billion with over 1 billion generated in the second half alone. Further, working capital has reduced, notwithstanding a 1.6 billion increase in revenue, consolidation of the acquisitions and the challenges of rising steel prices and raw material costs. Pleasingly, year-end gearing is up only 2% on fiscal year 2007, although 2 billion was reinvested in the acquisition growth and capital expenditure of the 2 billion, 1.6 billion related to M&A growth.

5

                        The balance sheet is extremely strong and capital management continues to be a solid focus of BlueScope. Gearing is 30%. It is at the low end of our target range of 30% to 35%, notwithstanding the M&A acquisition growth. Gearing started the year at 28% and rose to 40% post the IMSA acquisition in

10                    February 2008. Gearing has reduced 10 percentage points on the back of strong operating cash flows and working capital management in the last five months.

 

                        BlueScope generated positive working capital despite the addition of the

15                    acquisitions, the higher steel prices and rising raw material costs. We remained focused on driving working capital improvement but driving efficiency in the physical supply chain, increasing efficiency in the financial supply chain by focusing on the key KPIs of days outstanding, the receivables, payables and inventory, and monetising surplus assets,

20                    particularly surplus property.

 

                        Today, as part of the blueprint initiatives, we have released over $100 million in working capital out of a target improvement of 200 million, 12 months ahead of plan.

25

                        Paul highlighted a number of our potential capital expenditure programs, including the steam cogeneration plant. We have actually further highlighted these in the Appendix in the attached supporting information. We will manage our total capital expenditure going forward, including the steam cogeneration

30                    plant within the continued focus of maintaining a strong balance sheet and solid capital structure. A strong balance sheet is not only vital in the current credit market environment, but gives BlueScope the financial flexibility to be opportunistic with respect to acquisitions should they arise.

 

35                    Specifically turning to our debt position and refinancing. During the year, we successfully extended our debt maturity profile with the 650 million extension of the one- and three-year Loan Note Facility, a US$325 million private placement issue with maturity profile of 7 to 12 years. As you can see from the graph from the top right-hand corner, we have a significant refinancing

40                    task in 2008. We not only were able to refinance the debt but extended the maturity profile, and as per the graphic in the bottom left half of the slide, significantly reduced future refinancing risk. Pleasingly, liquidity is extremely strong at year-end, standing at over 1.2 billion, and the underlying EBITDA interest coverage ratio is over 12 times, again a positive in the uncertain

45                    credit environment.

 

                        EBIT remains sensitive to realized hot rolled coil prices, raw materials and the exchange rate. As we have done historically, we again provide an update as to the estimated EBIT impact of key assumptions. From the graph attached, you will note the following changes. In 2009, a US$25 per tonne movement in the average realized hot rolled coil prices has a $65 million potential impact on EBIT or about $20 million less than the 2008 number. The reduced sensitivity is due to the No. 5 Blast Furnace reline project that Paul mentioned

5                      in the second half of 2009, which results in reduced export slab and hot rolled coil export sales. The 1-cent movement in these exchange rates changes the sensitivity to 5 million EBIT from 14 million in 2008. Again, lower US dollar export sales are forecasted in 2009 as a result of reline. A $10 per tonne movement in iron ore costs due to low iron ore purchases in the second half

10                    changes the sensitivity to 74 million from the 90 million in 2008. Full details of the impact of the reline in the second half 2009 were discussed with the analysts at the Port Kembla site visit earlier this year and the full details included on our web site and the supporting information attached to the presentation.

15

                        I will now hand it back to Paul to summarize and provide an outlook for fiscal year 2009.

 

            BSL     Thanks very much, Charlie. I did not talk a lot about blast furnace reline. It is

20                    a big factor in the second half. The team had done all of the planning that one could ask of them. They continue to monitor the operations at the blast furnace. But it will impact our despatches in the second half.

 

                        So just to summarize fiscal year 2008, a very strong financial performance,

25                    excellent operation performance, record output across many facilities, very strong demand for our product in both domestic and export markets, continued tightness of supply and demand in steel, gearing at the bottom end of our optimal range, the acquisition is on track, and blueprint projects very much a focus of where we are going to go in the business.

30

                        In terms of the outlook for fiscal year 2009, or first half in particular, we have started the first half probably better than we finished the fourth quarter of last year. We expect that the margins in the first quarter will be slightly up on the fourth quarter of last year, predominantly because the inventory benefit of

35                    having product of low raw material costs but also the pricing environment, our realized prices in the first quarter, given the way to price increases in the export markets in parti