BlueScope Steel Limited

Good morning and welcome to the Bluescope first half FY24 financial results presentation. I'm Mark Vassella and I'm joined this morning by David Fallew for his first results presentation as Bluescope CFO. Welcome, David. In a moment, we'll take you through the results before we take your questions. David and I are joining you today from Melbourne, part of the Eastern Kulin Nation, and I'd like to acknowledge the traditional custodians of this land, the Wiradjuri peoples. We pay our respects to Elders past, present and emerging, and to all First Nations peoples joining us today. Before we get into the details, I'd like to take a step back and put the first half FY24 result into the context of BlueScope's business model. The last decade has seen us take action to drive resilience in our business model. Resilience that allows us to deliver results through all points of the cycle. As we know, recent years have been marked by cyclically high demand levels and spreads resulting in very strong results. Current volatility is showing softer conditions. However, it is also helping prove the resilience that we know exists in the business. That resilience is underpinned by our diversification. With quality steelmaking businesses and a suite of margin enhancing premium branded products in the United States, Australia, New Zealand and throughout Asia. Our footprint of quality assets and the strength of our balance sheet are the key enablers for our through cycle performance, all supported by our 16,500 strong dedicated team. On bench strength in the organisation, recent changes at the ELT are setting us up well to continue to deliver on our strategy, with high quality executives such as David and Sam Shaman joining us. Our next generation leaders in Tanya, Christy and Peter are relishing their new roles. And Mark Cicluna, who you met at the last half, has joined Christy as CFO in America. I'm very fortunate to be surrounded by such management talent and depth. What is exciting and quite unique is the scale of the growth opportunities available to BlueScope within its core business. We're progressing a range of projects in this space to improve margins, volumes and resilience. all leveraging our core capabilities. And we're securing our longer-term future with our comprehensive decarbonisation program and broader approach to sustainability, all in pursuit of our purpose and our bond. Getting into the detail, BlueScope again performed well in the first half of FY24 against what was a volatile backdrop. As I just noted, the result demonstrates the through-cycle resilience of our diversified business model. which also saw us retain a strong balance sheet and continue to deliver returns to shareholders. Aligned with our strategy of transform, grow and deliver, first half FY24 saw key projects executed across the footprint that secure our long-term sustainable earnings and growth. These include the North Star ramp up and de-bottlenecking, integration of the new US recycling and coil painting businesses, the Port Kembla Reline and Western Sydney Metal Coating Line, all of which underpin our future resilience and success. Our strategy to shift volumes towards premium branded products continues to enhance through cycle margins, enabled by our experience in producing high quality, premium branded steel building products for over half a century. Leveraging this capability, we're exploring the opportunity to further integrate our US value chain, building a platform for future growth in coated and painted products in that large and growing market. And lastly, we're progressing a body of work aimed at unlocking our significant portfolio of land in Australia and New Zealand, an exciting multi-decade opportunity. The commitment we made to decarbonisation several years ago is allowing us to explore a pathway that positions the business for a low-carbon future, Two significant highlights in the half were the recently announced partnership, BHP and Rio Tinto, which builds on a body of work we've been undertaking for a couple of years now. Work that's critical to the development of low emissions iron making technologies, utilising hematite ores. And in New Zealand, the landmark EAF project to almost halve our emissions has commenced and is progressing well. This is an exciting time for BlueScope as we reap the rewards of the hard work done in years gone by and continue to lay the foundations for the future. First to safety. Our integrated health, safety and environment strategy continued in the half, especially as we progressed the rollout of our culture and approach to our recently acquired businesses in the United States. We were proud to be recognised by World Steel for our integrated strategy, And we played a key role as the founding sponsor of the Global Safety Innovation Summit held in Wollongong just last week, which brought leading companies and experts together to further our collective efforts to keep our people safe. To the lead indicators, we identified 271 risk control projects for completion in FY24, all of which will improve our management of material risks and reduce the likelihood of life-changing events. At the end of the half, over 1,800 of our leaders had participated in global HSE risk management programs, and 374 of our people were involved in business-led learning programs. On our lagging metrics, with the inclusion of the recent scrap and coil painting acquisitions, TRIFA increased marginally to 7.6, above the top end of the long-term range of 5 to 7, and potential severity saw an increase. with seven injuries having the potential to be a fatal incident. We continue to work hard to improve our safety performance. To our financial highlights, underlying EBIT in first half FY24 came in slightly ahead of our guidance range at $718 million and broadly in line with the second half of FY23, despite some wild swings in steel spreads and macroeconomic drivers. Again, demonstrating the benefit of our diversified model. The business delivered a return on capital of 13.4% and the balance sheet remains strong with net cash of $614 million. The strength of our balance sheet and cash generation underpins our confidence to continue to pursue key investments through the steel industry cycle. And the board today has approved a fully franked interim dividend of 25 cents per share and an increase in the buyback to $400 million to be brought back over the coming 12 months. Now, this result has been made possible by the dedication of our 16,500 strong team, who I'd like to thank for their ongoing dedication and support. David will take you through the detailed business performance, but you can again see the significant contribution from North America. As I look across these regional results, I'm encouraged by the earnings power of the business and excited by the opportunities for growth within our core business. The business continues to pursue our purpose and deliver on our bond as we embed sustainability in all that we do. On climate, highlights include the progress on our DRI options study, deepening of our technology collaborations with leading global steelmakers, and progress on our optimisation projects in pursuit of our medium-term goals. Femart representation continues to be a key focus as we progress initiatives to better reflect the communities in which we operate. We've seen solid improvement over the last few years, and the total percentage of women in Bluescape's workforce remained stable at 24% in the first half. On sustainable supply chain, just under 150 assessments were completed during the half, with four on-site audits conducted. And as previously flagged, Bluescape has appealed the findings made by the Federal Court in relation to the civil proceeding bought by the ACCC. The payment of the penalty has been made and is reflected in our accounts. As I mentioned earlier, just a week or so ago, we signed an agreement with Rio Tinto and BHP to collaborate on a project that aims to accelerate the decarbonisation of steelmaking. We've agreed to work together to develop a pilot facility focused on direct reduced iron and electric smelting technology, leveraging the natural advantages of Australia, namely our hematite iron ore resources, and the potential for abundant renewable energy. Those of you who are familiar with our climate and sustainability reporting will know that a hydrogen DRI process has the potential to reduce emissions intensity by over 80%. However, this requires a number of enablers to be in place. Given the current limitations of using Pilbara ores in the DRI process, this project is key to unlocking one of those enablers. by cracking the code for Pilbara ores in low emission intensity ironmaking. We're excited to contribute our unique experience of operating the only electric smelting furnace processing DRI in the world at our operations in New Zealand, which we've been doing for nearly 60 years. I'm also pleased to report work on the EAF at New Zealand Steel is underway. Co-funded by the New Zealand Government, This project will almost halve the business's emissions and contribute meaningfully to New Zealand's emissions reduction. Construction equipment supply contracts have commenced and importantly, a domestic scraps supply chain is in place. Rio Tinto BHP agreement and the New Zealand EAF project are just two examples of how we're pursuing our purpose and our strategy. We're also transforming our business through the increased use of digital technology. We're only just starting to see the benefits of the growth investments that we've made in recent years, and they're adding to our earnings profile. And we remain focused on delivering a safe workplace and an adaptable organisation with strong returns. To update the key projects in North America, the North Star expansion is progressing well, with 320,000 extra tonnes produced during the half, and we're now looking to the de-bottlenecking opportunities. The recycling business has exceeded our expectations, delivering significant value to the Northstar business. Through sophisticated value-in-use assessments, BRM and Northstar can optimise the quality and mix of scrap. We continue to work towards a greater level of self-sufficiency through a range of equipment and digital opportunities. At Blue Scope Coated Products, the acquisition of seven underutilised paint lines for below replacement costs It accelerated the execution of and provided options for our US coated and painted strategy. A program of work is underway to address near-term underutilization in the business and to progress the single bill offer and color bond market strategy. Now, whilst the business we acquired is not performing as we'd hoped, we remain confident of the medium to longer-term growth opportunity these assets give us. Expanding on this medium to longer-term opportunity, we've commenced a feasibility study into the further integration of our US value chain. As our US footprint covers each end of the value chain, with hot rolled at North Star and painted coil at BCP's paint lines, the opportunity exists for cold rolling and metal coating. Our study is focused on a cold rolling and metal coating facility in the Midwest, providing a reliable supply of high quality metal coated feed, which will be critical in delivering our US growth ambitions as we take our core DNA in coating and painting into the large and growing US market. We're initially looking at the addition of 550,000 tonnes of pickling, cold rolling and a two-stage metal coating capacity add to be delivered through 2030. This approach allows us the ability to grow in a modular fashion and maintain optionality. A high level capital estimate for the total project is up to US $1.2 billion, which would be spread over the next six years should the project be fully executed. To the key projects in Australia and New Zealand. Having moved to execution last August, the number six blast furnace realign and upgrade project to secure iron making at Port Kembla is progressing to plan with early works commenced and long lead time items advanced. Project timing and capital estimates remain on budget, noting the recent award of $104 million from the Australian Government to provide some offset to the total cost. And the new metal coating line in Western Sydney is progressing to plan. We're expecting commissioning by the end of 2025, which supports the ongoing shift towards premium branded products in Australia. An enduring initiative in Australia has been the continued shift in production towards premium branded products like Colourbond and value adding solutions like Truecore. This growth delivers enhanced margins for the ASP business, reducing our exposure to export markets and domestic commodity pricing and remains a key through cycle growth opportunity. The shift towards these premium products has grown at levels in excess of the broader market, which has been achieved through meeting customer demand preferences, leveraging the inherent attributes and advantages of our products, continued efforts to innovate and increase the applicability of our products across building applications such as cladding, facades and light gauge framing, and investment in customer-centric initiatives that have driven demand through the steel value chain. What's most exciting is that the strong growth seen in this space is expected to continue with the success of our ongoing efforts enhanced by a range of supportive macro trends. At our AGM in November last year, we shared with you an update on the master planning work for roughly 200 hectares of land adjacent to the Port Kembla steelworks. In addition to this land, Bluescap has three other plots of adjacent land holdings, totalling 1,200 hectares. This includes around 450 hectares of land adjacent to our Western Port facility in Victoria, approximately 400 hectares adjacent to our Glenbrook site in New Zealand, and a 200 hectare parcel of land not far from Port Kembla in West Apto. This represents a significant opportunity for BlueScope. We're reviewing this opportunity to position the land for maximum strategic value. This includes running master planning processes with due consideration to our existing operations and looking at potential uses and related planning requirements. noting a broad range of opportunities existing across each parcel. And we're progressing a body of work focused on developing our execution model, which will be centrally coordinated in the corporate function. I'll now hand over to David, who'll take you through the more detailed financial data.

Thanks, Mark. Good morning, everyone. And it's been great working with the teams across the business over the last half. So let's turn to the results on slide 20. The Australian business delivered a similar result to the second half of FY23, with underlying EBIT of $258 million. Underlying demand remains robust, including for Calabond. However, softer volumes were observed towards the end of the half. Pleasingly, January and February daily sales remained stable at consistent levels to a year ago. Higher spreads were largely offset by higher costs on timing of maintenance and escalation pressures. with a similar export coke performance to that of the prior half. Looking at specific end-use segments for ASP, across the board we saw slightly softer dispatches in the first half of FY24 relative to the prior half, which was observed broadly towards the end of the half. Sales into the residential construction sector remained supported by a solid pipeline of work during the half. Non-residential construction, manufacturing, agriculture and mining were the sectors that drove a slightly lower result, which was experienced towards the end of the half. Given current Asian steel spread levels are at a historically low level, I thought it was important that we take a step back to look at the cost and margin position the business is in, given we're now eight years on from the major restructure through FY15 to 16. After resetting the steelmaking cost base to be cash break even, including sustaining capex at the bottom of the cycle, the business has done an excellent job at maintaining this position despite a high inflationary environment. I do note that the shift towards premium branded products has increased costs. However, we need to keep in mind this has been more than offset by increased revenue and therefore enhancing margins. The combination of both these dynamics is that the margin reset has been maintained at the higher level, which materially improves the downside risks, even at points below the historic bottom of the cycle. You can see this clearly on the analysis set out on the chart on the right-hand side of slide 22. We're confident that we'll be able to have ASP continue to position itself in the upper band of this chart And it's this performance that enables us to invest through the cycle within the ASP business and drives us to replicate its downstream success in the US. Turning to the US, our North American businesses saw a moderately softer performance in the first half of 24 with an underlying EBIT of $417 million. This was driven by softer results at both North Star and Building and Coding Products North America. At Northstar, we saw softer spreads for the majority of the half on the back of the UAW strike. Pleasingly, there was a noted rebound at the end of the half following the strike's resolution. And the period softness was also partially offset by higher volumes from the ongoing expansion ramp up, which is progressing well. And at Buildings and Coated Products North America, the softer performance at the BlueScope Coated Products business, as Mark has mentioned earlier, combined with slightly lower margins in the buildings and West Coast businesses. Looking at activity levels across our North American end-use segments, the key takeaway here is the economy in North America continues to perform at a better level than what was expected in the half, with non-residential activity setting new records and automotive sales and manufacturing activity remaining resilient. Our Asian businesses continued their upward trajectory with an underlying EBIT of $96 million. A solid performance out of Southeast Asia on stronger margins, combined with the benefit of a favourable seasonality in China, along with continued strong performance in Thailand, more than offsetting softer India results as the Indian business integrates volumes from the recently signed supply agreement with Tata Steel. On slide 26, the New Zealand and Pacific Islands business delivered an underlying EBIT of $26 million. This result was impacted by elevated conversion costs, a softer vanadium contribution and softer steel prices, in addition to softer volumes, particularly towards the end of the half. Turning to the group underlying EBIT movements. The first half to first half movement shows the volatility seen in both steel pricing and raw materials, which largely offset to see a step down in performance. Costs remained under pressure across the group, whilst volumes remained broadly stable. The second half to first half walk forward tells a broadly similar story, albeit with less volatility and a greater level of offset in the steel price and raw material costs. Turning now to the financial framework and key financial indicators and settings. The financial framework remains unchanged and is integral to BlueScope's success in managing the business through the cycle. You'll all be familiar with this guiding document, but I would like to reiterate that we are holding a level of balance sheet capacity to de-risk the large pipeline of capital investment for growth and major projects in the short to medium term. The group delivered a return on invested capital of 13.4% over the past 12 months with robust contributions from North America and Asia. Importantly, this return was delivered on an increased invested capital level as we see earnings being delivered from the historical investments. Cash flows remained robust in the first half of 24, however, were impacted by a slight working capital build and higher tax expenses. Turning to our capital structure, the balance sheet remains strong with $614 million of net cash at the end of the half. We have ample liquidity of over $3 billion and have maintained our investment grade ratings from both Moody's and S&P. This clearly puts us in a position to invest appropriately in the business during periods of volatility and set the business up for long-term growth. On capital expenditure, In the first half of FY24, we continue to progress a range of foundation and growth initiatives, including the MCL7 project, the New Zealand EAF project and the Realign project, which you can see called out separately on the chart. In the second half of 24, we're expecting a slightly higher sustaining spend of around $240 million, with a step up in spend on the range of projects Mark mentioned at the outset of the presentation. Turning to shareholder returns, aligned to the target annual dividend level of 50 cents per share, the Board today approved a 25 cent per share fully franked interim dividend. In addition, the Board has approved an increase in the scale of the buyback program to allow up to $400 million to be bought over the next 12 months. Given the number of shares bought back and cancelled over the last seven years, we will review the annual ordinary dividend target level in 2024. This will also consider the growth and resilience of BlueScope's business over recent years and the medium term macroeconomic and industry outlook. Finally, I'll run through the outlook across the regions before handing back to Mark to cover the group outlook. In Australia, we're expecting a result less than half that of first half 24 on weaker benchmark spreads and unfavourable pricing with similar levels of domestic demand. We're guiding to a significantly higher result in North America. North Star is expected to deliver a result approaching double that of the first half of 24 on stronger spreads, increased volume and lower conversion costs. And Building and Coded Products North America is set to deliver a result slightly below that of the first half of 24 as elevated margins continue to unwind, partly offset by expected BPG project sales. From our Asian businesses, we expect a result around three quarters of the first half of 24, driven by typical seasonality in China and stability in Southeast Asia and India. For the New Zealand and Pacific Islands, we expect a result approaching double that of the first half of 24 on the non-repeat of one-off higher conversion costs and higher domestic volumes. And finally, a non-repeat of profit in stock benefit from the first half of 24 is expected to lead to unfavourable intersegment corporate and group costs. With that, I'll hand back to Mark.

Thanks, David. Turning to the group outlook. Underlying EBIT for the second half of FY24 is expected to be in the range of $620 to $690 million, slightly down on the first half of FY24. In the context of the spreads you can see on the slide, this outlook again demonstrates the benefit of Bluescope's diversified business model, with weakness in ASP offset by strength in the US. Of course, our expectations are subject to spread, foreign exchange and market conditions. So in summary, Bluescope remains a resilient business that's well positioned to grow and deliver through the cycle. As I noted at the outset and throughout the presentation today, Our diversified business model delivers quality through cycle earnings enabled by our leading steelmaking businesses and a broad suite of margin enhancing premium branded products. These quality earnings are underpinned by a footprint of quality assets, a strong balance sheet, a disciplined approach to managing capital and our outstanding people. And it's only going to get better for Bluescope with a range of attractive growth opportunities within our core business. with a particular focus on continuing our shift towards premium branded products in Australia and New Zealand and leveraging our new growth platform in the US. And we remain steadfast in our work to secure a sustainable future for our business and the communities in which we operate in pursuit of our purpose. So thanks for your time this morning. And with that, I'll turn it over to Q&A.