BlueScope Steel Limited

Good morning and welcome to the Bluescope FY24 financial results presentation. I'm Mark Vassella and I'm joined this morning by David Fallew, our Chief Financial Officer. Together, David and I will take you through the results materials, after which we'll have time for Q&A. We're joining you today from Bluescope's head office in 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 people joining us today. Despite the volatile macro conditions in FY24, Bluescope delivered a resilient performance. Underlying EBIT of $1.34 billion and a return on invested capital of 11.9%. as strong contributions from Northstar and the downstream and value-add components of the business offset the impact of soft spreads in Asia on our steelmaking operations, particularly in the second half, as regional spreads dropped below the long-term bottom of the cycle level. Thanks to that resilience, we've delivered just under $550 million in shareholder returns in FY24 and finished the year with a $364 million net cash balance sheet. And today the board has approved a 30 cents per share dividend and an extension of the tenor of the existing buyback program to allow the remaining $270 million to be purchased over the next 12 months. This comes following the dividend review flagged in February, which I'll go into in a little more detail in a few moments. FY24 saw the ongoing execution of key projects across the footprint under our strategy of transform, grow and deliver that secure long-term sustainable earnings and growth. These include the approval and commencement of the North Star de-bottlenecking project, which will increase the capacity of our leading US mini mill by a further 10%. Continuation of the assessment of the value chain integration in the US and including updated phasing of investment to better match the capacity and capital cost with our growth expectations. Solid progress at the No. 6 blast furnace reline and MCL7 projects in Australia, securing the manufacturing future and growth for our Australian business. The New Zealand team is also making good headway on the new electric arc furnace, transforming the business to reduce its emissions by more than 45%. And we're continuing to work to take advantage of the significant value in our 1200 hectare land portfolio in Australia and New Zealand. I'll touch on these projects more shortly. We've also made great progress towards the commitments we made to decarbonisation several years ago. Two of the many highlights in the year were the achievement of a 12.2% reduction in our steelmaking emissions intensity, which aligns to our 2030 target level. This is a fantastic result for the business and was delivered through the expansion of our ultra-low emissions North Star mini mill and a range of optimisation initiatives at Port Kembla and Glenbrook Steelworks. And the commencement of our partnership agreement with Rio Tinto and BHP, building 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 Australia's hematite raw ores. In short, despite the cyclically soft macro environment, 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. Before we get into the detail of the financial result, I'll start with safety. Our performance in 2024 was frankly disappointing. The increase in our lagging safety indicators is unacceptable, with TRIFA again increasing to well above the long-term range. Whilst our commitment to safety has not wavered, we recognised that our current safety performance required an intervention. We remain committed to our evolved approach, which places a deep focus on engaging our people to design solutions that deliver effective controls and build capacity. This is the core of our people-centred approach and provides us a range of useful tools in understanding and managing risk. However, it's become clear that we need to refocus on the basics. To address this, we've initiated a global Refocus on Safety program. This initiative emphasises the fundamental practices that are essential for keeping our people safe, reinforcing the importance of doing the basics well. The refocus will involve... ensuring rigorous adherence to foundational safety practices, strengthening our controls and gaining insights through our continued risk control improvement program and learning teams, driving a culture where every employee understands and commits to the safety basics, and ensuring our frontline leaders have the resources they need, most importantly the time, to support their teams in the refocus. We also acknowledge the fatal injury of a customer's contractor driver in North America. Our thoughts are with everyone impacted by this tragic incident. Going forward, we will continue to report the leading indicators alongside our lag indicators. And whilst we're pleased with the progress made in building capability and capacity in our systems, our focus must turn to doing the basics well. To our financial highlights, as I noted earlier, FY24 underlying EBIT of $1.34 billion represents a solid result in the context of external macro conditions. Underlying EBIT in the second half of FY24 came in at $621 million, at the bottom end of the guidance range we provided in February. This was impacted by the rapid contraction of US spread late in the financial year at Northstar, the delay of one of Bluescope Property Group's sales, which has now closed in the last week, and a softer performance in New Zealand on tough macro conditions and operating challenges. In February, we flagged a review of the dividend, following which today the Board has announced its intention to increase the annual ordinary dividend level to a target $0.60 per share per annum. This increase was made in light of the increased scale and resilience of Bluescope's portfolio and the reduced share count as a result of the buyback program. Accordingly, the Board has approved a final dividend for FY24 of 30 cents per share. In addition, the Board has extended the tenor of the existing buyback program to allow the remaining $270 million to be purchased over the coming 12 months. Our continued success, including today's result, would not be possible without the ongoing hard work and dedication of the entire BlueScope team, and I again thank them for their support. David will take you through the business performance in detail in a moment. Our commitment to climate action remains at the forefront of our strategy, and in FY24, we have again made great progress in our decarbonisation journey. On our performance in 24, as I noted earlier, the business has achieved a 12.2% reduction in its steelmaking greenhouse gas intensity since FY18, aligned to our 2030 target level. This was driven by the ramp up of the North Star expansion and improvements at our Port Kembla and Glenbrook steelworks. We're continuing to work in pursuit of our non-steelmaking target. However, given the nature of the operations and available emissions reduction levers, the progress towards our target remains challenging and non-linear, which this year's performance demonstrates. Across the business, we're progressing a range of R&D initiatives that are critical to unlocking decarbonisation pathways for our business and industry. This includes... our collaboration with Rio Tinto and BHP to develop DRI ESF technology using the Pilbara ores, the installation of the EAF at New Zealand, which I mentioned earlier, and Project Iron Flame, our Australian DRI options study, which in the year refined multiple technical configurations across a range of locations for potential Australian DRI supply chains. Additionally, we're excited to release our second Climate Action Report in September, which will provide detailed insights into our progress and future plans. We're also continuing our important work across our broader key material sustainability topics. Whilst we've still work to do to better reflect the communities in which we operate, I'm pleased to say that we've hit a milestone, with women now making up a quarter of the Bluescope workforce. and we've continued our important work on sustainable supply chains. Our strategy to transform, grow, deliver alongside our financial framework continues to drive our decision-making in pursuit of our purpose. We're continuing our work transforming the business by positioning ourselves for a low-carbon world and how we're harnessing the opportunities from digital technologies. We've completed a significant body of work under the growth pillar of the strategy, and the benefits of these investments are only just starting to be seen in our earnings. And we remain focused on ensuring we remain a sustainable organisation with strong returns. And as I noted at the outset, we're reigniting our focus, ensuring a safe workplace. One example of the valuable opportunities we have within our existing business is the de-bottlenecking of Northstar, which will add a further 10% to our recently expanded capacity. We've talked to you previously about this project. It's incredibly capital efficient, taking advantage of the latent melt capacity from the expansion project. Following recent board approval, work's now underway across numerous projects, such as updates to the ladle aisle, the tunnel furnace, as well as cooling enhancements and a third downcoiler. Following completion of the feasibility study, the capital estimate has landed at US $130 million, and the final volume has been revised to 300,000 kilotons per annum, aligned to the most efficient configuration of the mill. Once at full run rate in financial year 28, the North Star Mini Mill will be producing nearly 60% more steel than it did in FY22, materially increasing our exposure to the consolidated and rationalised US steel industry and the robust steel spreads and returns it offers. We've also bolstered our raw material supply arrangements to support the further expansion. with the extension of the term and increase in volume of the HBI contract with Cliffs, along with the ongoing work at Bluescope Recycling to increase supply to 40% of Northstar's requirements and to optimise the scrap mix for its best possible value in use. Staying in the US, we progressed our feasibility study into the further integration of our US value chain, which presents a compelling medium to long-term opportunity for Bluescope. As previously noted, this project will connect Northstar with three BCP sites, capturing through-chain margins and underpinning the rollout of Colourbond in the US, with internal supply of paint line feed using our proprietary AM technology. Longer term, we continue to see the need for 550,000 tonnes of pickling, cold rolling and metal coating capacity. However, our recent work has refined how this will be phased over the next five to seven years. The first phase will look to install about 50% of that capacity with indicative commissioning expected in 2028. The remaining capacity will then be added as required following the first phase. This approach reduces the upfront capital to US $800 million across FY26 to 28. The feasibility study is continuing and will update you on our progress in the first half of the 2025 calendar year. And now to update you on the key projects underway in Australia and New Zealand. Having moved to execution 12 months ago, the number six blast furnace reline and upgrade project to secure iron making at Port Kembla is progressing to plan and on budget, with early works commenced and long lead time items ordered. Our new metal coating line in Western Sydney is also progressing well. We're expecting commissioning in FY26, which will support the ongoing growth in premium branded products in Australia. As I mentioned earlier, we're well underway in New Zealand with the EAF project, including the commencement of civil works and domestic scrap supply contracts being put in place. And we continue to work on our multi-decade opportunity to position our 1200 hectare land asset for maximum strategic value. Recently, we joined with the New South Wales government to create a whole of government working group to drive redevelopment at the Port Kembla and West Dapdo sites. In the near term, we're focusing on the opportunities, such as unlocking residential land supply from the West Apto site and progressing the SuperTAFE concept, as announced at our AGM last year. And we're also continuing our planning processes across the Western Port and Glenbrook sites. I'll now hand over to David, who will take you through the results in more detail.

Thanks, Mark, and good morning, everyone. Let's turn to the results across our region, starting with Australia on slide 14. The Australian business delivered an underlying EBIT of $377 million in FY24 and a return on invested capital of 10.3%. Second half underlying EBIT was $119 million, down on the first half as Asian steel spreads saw persistent weakness. Domestic dispatches softened in the half on the orderly pullback of activity levels across building and construction applications. This saw some softening in the half for sales of Calabon Steel. However, volumes remained at historically robust levels. The softer benchmark spread performance in second half 24 was further impacted by lower realised pricing as global freight rates contracted and by a lower contribution from export coke sales. Looking at the specific end-use segments for ASP on slide 15, across the board, we saw softer dispatches in the second half of 24, with all segments seeing a low point since the financial year 2020. What this chart does not show, however, is the mix improvement within the dispatch volumes as we increase the share of premium-branded and value-added products like Colourbond Steel, which you'll see on the next page. Whilst the activity in construction sectors was softer through FY24, we remain confident in the fundamentals supporting the medium-term outlook, with the ongoing shortage of housing stock combined with strong population growth. The conditions ASP observed in FY24 are a great reminder of why our steelmaking cost base and our focus to grow domestic value-added products is so important. The business continues to focus on our Australian steelmaking cost base with a necessary ambition for it to be cash break even, including sustained capex at the bottom of the cycle. In an Australian manufacturing environment of high and increasing electricity, gas and labour costs, this challenge requires ongoing optimisation of our cost base each and every year, particularly as we roll onto new energy contracts at less and less competitive rates. Likewise, the focus on domestic and value-added products shifts sales volume up the margin curve, with the chart on slide 16 showing the impressive and sustained volume growth across all key areas. These dynamics continue to maintain the business's margins at the post-restructure levels in FY24, even as spreads average bottom-of-the-cycle levels across the year. Our job is to continue to position ASP in the upper band of this chart, providing us the confidence to invest through the cycle within the ASP business and informs the rationale for replicating this model in the more favoured US market. Turning to the US, our North American business saw a broadly similar result in FY24, with an underlying EBIT of $935 million and a return on invested capital of 16.7%. Second half underlying EBIT was $518 million, an increase on the first half. The strength of the second half was driven by improved results at both North Star and BCP&A segments. At North Star, we saw strong spreads during the half, however, contracted sharply into the end of the half, impacting a portion of sales. Performance was also supported by increased volumes as the expansion ramp up was largely completed, delivering 340,000 tonnes in the second half. And at a building and coated products North America level, continued strength in volumes and margins in pre-engineered buildings and West Coast coated and painted products, along with an improved contribution from Blue Scope Properties Group with a completion of two project sales in the half. As Mark mentioned, another project that we expected to complete in the second half was deferred due to a delay of the purchaser's regulatory approvals. This was simply a timing issue with the transaction completing last week and all funds received. This was offset by continued underperformance in the blue-coated products business, which continues to work through the challenges of underutilisation. This was driven by ongoing low volumes from BCP's foundation customer and slower external business development limiting productivity gains on site. This is not where we need the performance to be, and the team is continuing to work to deliver the plan of bringing the business back into line with targeted post-acquisition performance, as well as working to evolve the business model to support the offering of packaged and branded products, including running successful Colourbond trials during the course of the year. Looking at activity levels across our North American end-use segments on slide 18, activity across key steel-consuming sectors remains solid. Non-residential construction activity remains at historically high levels with lead indicators again improving. Auto demand remains robust with the consumer preference shift to more steel-intensive vehicles continuing. and manufacturing activity remains stable. At an overall market level, we've seen less confidence and direction as we approach the election this year, but we expect fundamental activity levels to be supportive as the election resolves and the likely commencement of an easing interest rate environment. Our Asia businesses continue to improve, delivering an underlying EBIT of $160 million in FY24 and a return on invested capital of 16.1%. Second half underlying EBIT was $64 million, down on the first half largely due to typical seasonality in China. Another solid performance out of Southeast Asia was seen in the second half of 24, with slightly higher volumes across the region. Improved earnings were seen in Malaysia and Indonesia in the half, whilst Thailand delivered a record full-year result in FY24. China delivered a softer performance in the half, as noted on typical seasonality and softer dispatch volumes within our Indian business delivered a similar result to the first half of 24, as it continues to integrate volumes under the supply agreement with Tata Steel. The New Zealand and Pacific Islands business delivered an underlying EBIT of $44 million in FY24 and a return on invested capital of 5%. Second half underlying earnings was $18 million down on the first half. The softer performance in the half and full year in the NZPI business comes against a backdrop of soft macro economic conditions and lower levels of construction activity, which was compounded by elevated conversion costs and a weaker vanadium contribution. FY24 has been a challenging year for the business. However, we are confident that we have a solid business that can withstand the current external operating conditions and is poised to benefit from the macroeconomic recovery in New Zealand when it comes. Turning to the group underlying EBIT movements on slide 21. The year-on-year movement shows the benefit of our diversified operations with the impact of spread across Asia and the US broadly netted out. What is also clearly evident is the impact of inflation, with our cost saving initiatives of $30 million not enough to tame the $100 million in escalation and other conversion cost increases. The first half to second half walk forwards shows the strength of the US in offsetting lower Asian spread impacts, along with a similar tale of inflation impacts on costs. Turning now to the financial framework and key financial indicators and settings. The financial framework is integral to how we manage the BlueScope business through the cycle. You'll all be familiar with this guiding document, which provides enduring confidence in BlueScope's ability to not only weather industry and macroeconomic cycles, but also capitalise on them for long-term quality earnings and growth. You'll note that we have slightly updated the framework for a revision to our net debt target, which has been adjusted to now sit at $400 to $800 million following a review. This reflects the change in Bluescope's business model and earnings power seen in recent years and remains comfortably in line with our goal of retaining a strong balance sheet and credit metrics. The group delivered a return on invested capital of 11.9% over the past 12 months, with robust contributions from North America and Asia. Our ROIC was delivered on an increased invested capital base as we invest to sustain and grow the business for the long term. Cash generation was again robust, despite slight working capital builds and elevated capital investment spend on growth and sustained projects. Turning to our capital structure, the balance sheet remains strong with $364 million of net cash at 30 June. As noted, we have increased our net debt target range to $400 to $800 million, and as at 30 June, we have a healthy buffer to this target level, which partially de-risks our capital pipeline, particularly in volatile operating environments. And we have ample liquidity of over $3 billion with maintenance of our investment grade credit ratings from both Moody's and S&P. As noted on the slide in July, with the support of our banking partners, we increased and repriced our core bilateral loan facilities to $1.5 billion from $1.3 billion, providing longer term, more cost effective liquidity. On capital expenditure, in the second half of 24, we continued to progress a range of initiatives, including the MCL7 coating line project, the New Zealand EAF project and the Blast Furnace 6 reline project. In FY25, we're expecting a broadly similar sustained spend and a progressive step up in spend on the range of projects Mark mentioned at the outset of the presentation. More information on the capital spend profile for these projects is included in the analyst support materials available on our website. Turning to shareholder returns, as Mark mentioned, following the review of our annual target dividend level, the board's intention is to increase the annual ordinary dividend level to target $0.60 per share per annum, given the increased scale and resilience of BlueScope's portfolio, as well as the reduced share count. Aligned to this revised target, Blue Scopes aim to distribute at least 50% of free cash flow to shareholders. The board has approved the payment of a fully frank final dividend of 30 cents per share and an extension of the share buyback program to allow the remaining amount of up to $270 million to be bought over the next 12 months. The buyback remains an important component of our capital management strategy, particularly given the EPS accretion that comes from a materially reduced share count with over 150 million shares bought back and cancelled since 2017. With that, I'll hand back to Mark to take you through the current operating conditions, the first half earnings guidance and the regional outlook commentary.

Thanks, David. At the start of the first half of FY25, we're seeing a convergence of near-term headwinds across Bluescope's footprint. The ongoing softness in Asian steel spreads has been clear over the last 12 months, driven by high regional steel production and exports, affecting both steel prices and raw material costs. This is having an impact on our steelmaking business in Australia, as spreads remain at historical bottom-of-the-cycle cash break-even levels. Across global economies, we're seeing inflationary pressures which are compounding the softer industry conditions, particularly in Australia, which includes higher electricity costs. And in the US, spot pricing visibility and channel purchasing behaviour saw spreads plummet to post-pandemic bottom-of-the-cycle levels, despite demand in still-consuming sectors remaining stable. These challenges across our two biggest regions reinforce the relevance and the importance of BlueScope's strategy to maintain globally competitive steelmaking costs and the ongoing shift to domestic value-added products to support our margins. In response to these challenges, we're increasing our focus on cost and revenue performance across the businesses. We have great experience in knowing where and how we can flex our cost base. As we've seen these challenges emerge in real time, work's well underway on executing that remediation plan. This is driving an outlook that's materially higher than what the pre-2017 business model would have delivered. In particular, given the level of Chinese exports, we're reviewing what adjustments we may need to make to ensure the ongoing resilience of the Australian business in a potentially sustained low-spread environment. This involves looking at where we can get fit, including offsetting inflationary cost headwinds such as energy. Again, we have the demonstrated capability to execute on this. It's important to note that this is about ensuring our ability to sustain solid performance in the context of potential structural changes in the external environment, rather than the existential crises we've seen in the past where we had to fix the underlying model. And lastly, to ensure that the competition for capital between growth and shareholder returns remains balanced, we're reviewing the prioritisation and timing of capital expenditures. Now turning to the group outlook. Underlying EBIT in first half FY25 is expected to be in the range of $350 to $420 million. The underlying assumptions for this guidance are set out on the page. We're guiding to a result in North America around half that of the second half of FY24, on materially lower spreads at Northstar and continued easing of margins at building and coated products. In Australia, we're expecting a moderately softer result to the last half, as stronger benchmark spreads are offset by weaker realised pricing and higher costs, including the impact of the reset in electricity contracts, with a similar level of domestic dispatches. From our Asian businesses, we expect a result approaching 50% higher than the prior half on typical seasonality in the China business with stability in the Southeast Asian and Indian businesses. For New Zealand and Pacific Islands, we expect a result approaching double that of the second half FY24 on improved domestic volumes and improved cost performance. And finally, we're expecting a slightly improved performance on intersegment corporate and group costs. Before we take your questions, I'd like to step back and talk for a moment about BlueScope's resilience and capacity to grow and deliver through the cycle. As we know, recent years have been marked by a cyclically stronger macro environment, resulting in very strong results, which we've used to deliver shareholder returns and invest for sustainable earnings and growth. In contrast, right now, we're seeing almost the exact opposite of this as we enter FY25 with a convergence of near-term challenges. Whilst these challenges are a headwind to earnings in the short term, they also demonstrate the resilience that we know exists within the business, which is underpinned by our operating and regional diversification. This resilience is not only our suite of high-quality assets, leading brands, robust balance sheet, but also the capability and institutional expertise we have in managing it. That's the depth of the bench strength we have in our world-class BlueScope team. This capability enables us to quickly respond to the dynamic environment we operate in across the global and regional steel industries and in the service of our customers in the construction, automotive, manufacturing and agriculture sectors. And what's particularly exciting for me and actually quite unique is the scale of the growth opportunities available to Bluescope within its core business. There's a lot happening in this space as we drive improved margins, volumes and resilience across the businesses, 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 the pursuit of our purpose and our bond. Thank you for your time this morning. And with that, I'll now turn it over to Q&A.