BlueScope Steel Limited

Good morning and welcome to Bluescope's first half FY25 financial results presentation. I'm Mark Vassella and I'm joined this morning by David Fallew, our Chief Financial Officer. 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. I'd like to acknowledge the traditional custodians of this land, the Wurundjeri peoples. We pay our respects to elders, past, present and emerging, and all First Nations people joining us today. Now to the highlights. Despite the challenging macroeconomic environment and bottom of the cycle conditions in the first half of FY25, Bluescape remained profitable, demonstrating our business model's resilience. The business produced an underlying EBIT of $309 million, and a return on invested capital of 8.1% against these challenging macro conditions. During the half, we delivered $162 million in shareholder returns and finished with an $88 million net cash balance sheet. Critically, we're ensuring we're balancing near-term performance with longer-term growth. I'll touch on this in more detail shortly, but in short, We're well underway on our $200 million cost and productivity program and are actively identifying additional opportunities to bolster performance. And we have an exciting pipeline of growth opportunities that we're working through. Together, this will deliver a target $500 million in incremental annual EBIT by 2030. We're also maximising cash generation through a re-sequencing of capital expenditure and a refocus on working capital. An example of this is the work we're doing to expedite the realisation of cash from our land portfolio in West Apto and the work underway to position the balance of our adjacent land holdings. But first, to start with safety. Over the last six months, the team has done a fantastic job in responding to the call to action we made in our global refocus on safety program. As I noted at our FY24 results and on our ESG webinar last September, this program is designed to leverage our culture of learning and our people-centered approach, whilst refocusing on the basics of our foundational safety practices. Across the business, I've been pleased to hear of the work being done to recommit to our safety basics, seeing our leaders on the shop floor supporting their teams, and the business and site-specific approaches to operationalising this refocus. On the lead indicators, we've identified nearly 200 risk control projects for the year and continue to build capability through training and development. The lag indicators tell a bit of a mixed story. TRIFA has reduced to 8.0, but remains above our long-term range. And the potential severity measure has increased slightly. This refocus and our work to improve our safety performance more broadly is an ongoing program, and we'll continue our efforts into the second half of FY25 and beyond. To our financial headlines, as I noted earlier, first half FY25 EBIT of $309 million represents a solid result in the context of the external macro conditions and is at the top end of the guidance range we provided in October. This was impacted by continued bottom-of-the-cycle Asian steel spreads and materially weaker benchmark spreads in North America, a challenging operating environment with continued cost inflation pressures, and a significantly lower performance in New Zealand, which is facing very tough macro conditions. In August, the Board announced its intention to increase the annual ordinary dividend level to a target $0.60 per share per annum. Accordingly, the Board has approved a fully franked interim dividend for the first half of FY25 of $0.30 per share and has extended the tenor of the existing buyback program. Our continued success, including today's result, would not be possible without the ongoing hard work and capability of the entire BlueScope team, who I again thank for their dedication and support. David will take you through the individual performance in detail shortly. We're continuing our important work across our broader key material sustainability topics. Our commitment to climate action remains at the forefront of our approach. And in the half, we continue to advance our climate strategy. We released our second climate action report in September 24, which enhanced our disclosures and has been well received by our broad stakeholder group. We've continued to progress the collaboration with Rio Tinto and BHP, selecting Kwinana near Perth as the location for the ESF pilot plant and welcoming Woodside Energy into the partnership. And we continued our work on a range of projects across the business, such as the electric arc furnace project in Glenbrook, New Zealand, and our Australian DRI options study. Representation of women at Bluescope held stable at 25% during the half, and the company continued its efforts in strengthening its supply chain oversight. Now turning to the group outlook. Underlying EBIT in the second half of FY25 is expected to be in the range of $360 to $430 million. This improvement on the first half of FY25 is being driven by improved spreads in the US, stronger domestic volumes in Australia, and benefits from the group-wide cost and productivity program. The assumptions we've used are set out on this page. Before David takes you through the results in detail, I wanted to step back for a few minutes and talk about how we're positioning BlueScope for near-term success and how our initiatives and our investments are going to deliver growth through to 2030. Our strategy to transform, grow and deliver alongside our financial framework continue to drive our decision making in pursuit of our purpose. Across the group, our people work hard every day to execute on this strategy, which has built our resilience and earnings power over the last decade. As a result, we expect this work to deliver earnings growth in excess of $700 million over the next five years. We've commenced work on our $200 million cost and productivity improvement program to be delivered over FY26, and we're now reviewing opportunities for further improvements. Whilst balancing the need for near-term productivity benefits, in the medium term, we're working on a range of initiatives and investments to deliver a targeted $500 million of additional earnings contribution by 2030. And this is net of the upside we see from our 1200 hectare portfolio of surplus and adjacent land holdings, which we're positioning for strategic value realisation, including the near-term opportunity at West Apto. In addition, we can see meaningful upside in our earnings from an improvement in spreads from their current cyclically and historically low levels. And including a reversion of FX, This benefit could be in the range of $500 million to $1 billion. Starting with the near term, in October, we communicated a target of $200 million of cost and productivity improvements. Since then, a lot of work has been done by the team to identify a range of initiatives which are expected to be delivered for FY26. Split evenly across North America and Australia and the rest of our portfolio, Value is being unlocked through operational and overhead efficiencies, manufacturing productivity, and through the better use of raw materials. We're also reviewing further cost and productivity initiatives over and above the $200 million target. And on the cash front, we're targeting a reduction in working capital of $200 to $300 million over the next 18 months to be delivered across our businesses. Looking further ahead to 2030, BlueScope has a range of initiatives and investments underway to drive sustainable earnings and growth. Now, while we've shared these initiatives underpinning our growth ambitions with you for some time, today we're providing more insight into the earnings contribution we expect over the next five years. North America is a clear driver of growth, but I note that all regions have material contribution to our growth ambitions. And what's most exciting to me is that these initiatives and investments are underway and are all within our core business and capability set. Diving into this vision some more, in North America, we're targeting an annual EBIT improvement of over $200 million. This growth comes from a range of projects across our footprint, including the de-bottlenecking project at North Star to grow to 3.3 million tonnes per annum, the turnaround of BCP's business to increase utilisation, the development and rollout of our branded and packaged painted product offering, noting that we've decided to defer the coal rolling and metal coating capacity pending successful painted volume ramp-up, and work in the buildings business to drive growth through new products and target segments. As an example of the action we've taken to facilitate this growth, we've moved to a majority ownership of SteelScape and ASC to better support a coordinated national approach to our coated and painted strategy. In Australia, we're working to ensure the growth in domestic and value-added products that we've achieved over the last decade continues into the future, and we're targeting an annual EBIT improvement of over $100 million. Whilst Calabond and Trucore have seen solid growth in demand, we believe there's still a long way for these products to go, supported by a robust outlook for residential construction, favourable demand trends, expansion into other parts of the build envelope, such as cladding, and our ongoing sales efforts. MCL7, our new metal coating line that's due to come online in 2026, will support this growth and underpins a large portion of our target EBIT uplift. We're also working to displace imports with our enhanced product offering and capabilities with a new pipe and tube mill and the upgraded plate mill, focusing on the industrial, defence and manufacturing segments. Asia and New Zealand are each targeting an additional $75 million of EBIT. Growth in Asian earnings are targeted across the region, largely from volume growth in Malaysia, Indonesia, Vietnam and China. Similarly, with upside from the supply agreement with Tata Steel, we also expect to increase sales in the large and rapidly growing India market. In New Zealand, much like Australia, increased sales of the flagship painted product, Color Steel, on demand trends and customer-facing initiatives will drive growth and be supported by capital-efficient paint line upgrades. The business is also expecting growth in broader domestic volumes, with recovery from the current challenging macro conditions. And the new EAF business model presents opportunities for the team to rethink their broader approach to manufacturing, which is expected to also deliver value. In addition to these initiatives and investments, we're also working hard on the opportunity that the land portfolio presents us. In the near term, the West DAPDO surplus land provides some exciting upsides. There's currently 33 hectares at West Apto that is zoned residential and is ready for a sale process. And we're looking to release cash from this in the coming financial year. We also have a range of industrial zoned land on the site that has great value potential given its advantaged infrastructure. And we'll be reviewing near-term sales opportunities. And we've accelerated our work on positioning the land holdings that are adjacent to our operating sites for strategic value realisation. Our new head of property development has had his feet under the table for just over a month now and has made some solid progress in shaping our approach and thinking. An area of great excitement is the potential these sites have for data centres, energy storage and automated logistics, given they're all located with compelling port, rail and electricity interconnector access. These types of uses typically attract values much higher than general industrial land. and we're looking at how we can accelerate the realisation of this value. This remains an extremely exciting program of work and we'll keep you updated as we progress. Turning to the macroeconomic conditions, in FY25, we're seeing weak steel spreads in both Asia and the US. While they seem to have found a floor at these levels, there's clear scope and need for a return to more normal or mid-cycle levels. This presents significant upside to BlueScope's current earnings, even allowing for the cyclically stronger US dollar and the weaker A dollar seen in FY25. BlueScope is well positioned for the slated US tariffs, with our three plus million tonnes per year at Northstar meeting all the requirements as melted and poured in the US. And as such, the beneficiary of the potential still price support these tariffs will provide. I do note that we export roughly 200,000 to 300,000 tonnes per annum to North America, predominantly from Australia, as feed for our Steelscape business on the West Coast, where we transform the product into value-added material. Now, it's unclear as to the broader impact of any potential tariffs on these exports, as we expect the Steelscape margins will be supported by higher selling prices, and we continue to seek an understanding of whether the exemption Australia received from the Section 232 tariffs will be extended. Now, of course, still spreads are beyond our control. And as such, our focus is on the levers of the value that we do have control of, such as cost and productivity program and our growth investments. So I hope that gives you a better sense of the significant opportunity for earnings growth that we see for our business over the coming five years through our approach to managing cost, driving growth and from improved market conditions. I'll now hand you over to David, who will take you through the first half FY25 result in more detail.

Thanks, Mark, and good morning, everyone. Let's turn to the results across our region, starting with Australia on slide 21. The Australian business delivered an underlying EBIT of $131 million in the first half of 25 and a return on invested capital of 6.4%. Domestic dispatches were stronger compared to second half 24, particularly driven by the residential construction segments. This saw Calabon steel sales increased by 9% compared to second half 24. Spread performance was stronger in the half, albeit at long-term lows, supported by lower raw material costs, offsetting softer pricing. Contribution from export coke sales was lower compared to second half 24. Looking at the specific end use segments for ASP on slide 22, across the board we saw stronger dispatches in the first half of 25 relative to the prior half. The higher result was driven largely by the residential sector, which was supported by a robust ANA sub-segment. The non-residential construction and manufacturing sectors also contributed to the stronger result in the half. We remain confident in fundamentals supporting the medium-term outlook, with ongoing shortage of housing stock combined with strong population growth. ASP business conditions in the first half of 25 continues to highlight the importance of a lean steel making cost base and a focus on our growth in domestic value added products. The business continues to focus on our Australian steel making cost base with a necessary ambition for it to be cash break even, including sustaining 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. The shift of volumes up the margin curve towards value-added products shown in slide 23 is an ongoing focus and supports through the cycle margins. With these dual priorities, we continue to position ASP in the upper band of the chart on the right-hand side of the slide, 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 markets. Turning to the US, our North American business saw a softer result in the first half of 25 with an underlying EBIT of $182 million and a return on invested capital of 12.3%. The softer result this half was seen across all our North American businesses with weaker spreads and margins. At Northstar, we saw materially weaker spreads, however, improved cost performance and higher volumes supported the result. Within building and coded products North America, margin normalisation, as well as lower volumes, were partly offset by lower costs. BlueScope Properties Group completed two projects in the half, down from three projects in the second half of 24. Blue scope coated products continue to underperform its targets this half, making a loss due to lower sales volumes. Turnaround efforts for this business are well established, with confidence in the positioning of the light gauge portfolio. The medium to longer term opportunity here remains attractive, and we're continuing to progress initiatives such as the Colourbond offering rollout, particularly where they have the potential to provide volume support. Looking at activity levels across our North American end use segments on slide 25, activities across key steel consuming sectors remain solid. Non-residential construction activity remains at historically high levels with lead indicators showing resilience. Auto demand remains robust, benefiting from lower interest rates and the consumer preference shift to more steel intensive vehicles continuing. and manufacturing activity is gaining momentum. At an overall market level, we saw rising uncertainty as the US election unfolded, but we continue to expect fundamental activity levels to be supportive as fiscal support remains in place and certainty from a policy and trade perspective is playing out. Stepping into the North Star performance, we want to share with you some more context on the cost drivers that we've seen in North America over the last five years. Over this time, the US steel industry has seen industry production costs increase on macroeconomic and inflationary pressures, primarily in non-benchmark raw materials, including alloys, additives and fluxes. actual versus benchmark obsolete scrap pricing and inbound freight on raw materials. Over the same period, benchmark steel spreads have structurally increased to compensate for these increased costs as mills seek to maintain profitability, with benchmark spreads now averaging just under $100 a tonne higher than pre-COVID levels. Despite these industry cost pressures, Northstar remains a leading margin producer with performance supported by location and consistent full utilisation, as you can see on the chart on the right. Turning to Asia, our business there saw a broadly similar result to the second half of 24, delivering underlying EBIT of $69 million and a return on invested capital of 13.6% in the first half of 25. Another solid performance out of Southeast Asia was seen in the half, led by a strong performance in Thailand. Improved earnings were also seen in Vietnam and Indonesia in the half. China delivered a stronger first half 25 result given seasonality, although a softer result on first half 24, reflecting persistent weakness in the Chinese economy. India continues its breakeven performance as the business integrates growing volumes of coated and painted product under the supply agreement with Tata. The New Zealand and Pacific Islands business delivered a near breakeven result in the first half of 25, with an underlying EBIT of $3 million and a return on invested capital of 2.4%. A significantly softer performance in the first half reflected the ongoing macroeconomic challenges in New Zealand. Lower levels of construction activity, as well as softer realised spread and elevated conversion costs, are all weighing on performance. However, the imminent commissioning of the EAF With competitive renewable electricity supply and the benefit of its cost and productivity initiatives, we're confident that we have a solid business that can withstand the current external challenge and is well positioned to benefit from the improvement in economic and market activity in the region. Turning to the group underlying EBIT movements on slide 29. The first half to first half movement shows the volatility seen in both steel pricing and raw materials, which contributed to a step down in performance. Also shown is the impact of cost escalation, which offset the cost improvement initiatives in the half. The first half to second half walk forward shows a similar story, albeit with more volatility on the price and raw materials front. Looking now at the outlook for the second half of 25 across the regions. In North America, we expect a result around one third higher than the first half, supported by an expected result at North Star that is more than double the first half and a slightly lower performance across the building and coded product segment. In Australia, higher domestic volumes and better performance on cost are expected to offset a slightly softer spread to deliver a result that is moderately stronger than the first half of 25. Asia is expected to deliver a slightly lower result than the first half, largely on seasonality in China. New Zealand is expected to see a modest improvement on the first half, supported by the benefits of their cost and productivity program. And the corporate and group line is expected to be similar to the first half. 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 them for long-term quality earnings and growth. The group delivered a return on invested capital of 8.1% in the year to 31 December, 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, which Mark spoke to earlier today. Cash generation before CapEx remained robust despite slight work in capital bills, supporting our capital investment program on growth and sustaining projects. Turning to our capital structure, maintenance of a strong balance sheet and associated metrics enables us to invest in our business during challenging macroeconomic conditions, with $88 million in net cash at bank at 31 December. We retain ample financial liquidity of almost $3 billion, supported by our investment-grade credit ratings from both Moody's and S&P. On capital expenditure, In the first half of 25, we continued to progress a range of foundation and growth initiatives, including the MCL7 coating line project, the New Zealand EAF project, and the blast furnace reline project. In the second half of 25, we're expecting a step up in growth spend, most notably in the blast furnace reline, with a similar spend on the range of projects in the first half of 26. 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 at the outset of the call, the boards increased the annual ordinary dividend level to a target 60 cent per share per annum range in August, which reflected the increase in scale and resilience of the BlueScope portfolio, as well as our reduced share count. Aligned to this target, the Board has approved the payment of a fully franked interim dividend of 30 cents per share. The buyback remains an important component of our capital management strategy, with over 150 million shares bought back and cancelled since 2017. Today, the Board has approved an extension of the buyback program to allow it to be used over the next 12 months. Noting as usual, any buyback activity will consider prevailing economic conditions and other factors as part of its execution. With that, I'll hand it back to Mark and we'll be here for Q&A at the end. Thank you.

Thanks, David. Before we take your questions, I'd like to re-emphasise the true value in the BlueScope business. Over its extended history, BlueScope has built something special. a steel producer that stands apart from others, owing to five key factors. First is our strategic asset base. In the US, we operate what is considered the best EAF facility in the industry. Combine that with our extensive manufacturing network across Australasia, and we have a truly unique platform. But hardware is only part of the story. We're a global leader in metal coating and painting, with a portfolio of iconic brands... that don't just give us wide recognition, but also drives margin enhancement. This growing premium positioning has been a key to our success. We maintain a robust balance sheet and follow a disciplined financial framework that's served us well. Our assets, brands and in-country, for-country strategy underpin the resilience of our business model. The numbers tell the story. Since 2017, we've returned over $3.5 billion to shareholders through dividends and buybacks, whilst investing $3 billion back into the business for growth. That's a balanced capital allocation. But here's what gets me most excited, our growth pipeline. We have concrete initiatives and investments well underway that are focused on strengthening and growing our core business. We're targeting an annual EBIT uplift of around $500 million by 2030. And that's not a pie in the sky number. It's based on the specific projects and opportunities we've identified and have been talking to you about for some time. In the steel industry, you need three things to win. Strategic assets, operational excellence and financial discipline. We've proven we have all three. And we're not just talking about potential. We're delivering results today while building for tomorrow. So thanks for your time this morning. And with that, I'll turn it over to Q&A.