BlueScope Steel Limited

Good morning and welcome to Bluescope's 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, then we'll open it up 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 Wiradjuri peoples. We pay our respects to elders, past, present and emerging, and to all First Nations people joining us today. To the highlights. FY25 was a challenging year, but one where Bluescope executed well and continued to make progress. Despite volatility in US spreads and trade policies and cyclically soft conditions in Asia, driven by record-still exports from China, the group delivered a resilient result. Underpinned by our diversified portfolio and multi-domestic strategy, we recorded $738 million in underlying EBIT and a return on invested capital of 6.2%. We made great progress on our cost and productivity program, continued to advance major capital projects targeting $500 million in annual earnings growth by 2030, and positioned our strategic property portfolio to realise value starting in FY26. We also continued to drive cultural and operational improvements through our global refocus on safety program and made solid strides in our decarbonisation initiatives. Our financial headlines. Underlying EBIT of $738 million was lower than FY24, mainly due to lower steel spreads. We maintained a strong balance sheet, finishing the year with $28 million net debt. During the year, we returned $293 million to shareholders through dividends and buybacks. And the board today has approved a 50% final dividend of 30 cents per share and extended the buyback program to allow it to be used over the next 12 months. Disappointingly, there's been a delay in achieving our expectations of the Blue Scope Coated Products business, which we acquired in 2022. And an impairment of $439 million has been recorded. This business remains core to our North American growth strategy, and we continue to invest in the turnaround of the business. Now, these results 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. And David will take you through the individual business performance in detail shortly. To safety. Over the last year, our global Refocus on Safety program has driven cultural and operational improvements. While our TRIFA improved to 8.5, this still remains above our long-term target range. We continue to embed a culture of care, learning and accountability, with over 1,300 employees participating in HSC learning programs, and we completed 192 critical risk projects. Across the group, we're recommitting to our safety basics and freeing up our leaders to spend time on the plant floor, supporting their teams in operationalising the refocus. This is manifesting itself in stop for safety events where critical risks are reviewed and blue line, black line assessment are worked through with our frontline operators. We're then taking those learnings and applying them across the network. Despite this effort, some of our people suffered life-changing injuries with significant impact on them, their families and our people. This is something we're absolutely committed to addressing. We continue to progress on climate change. While we recognise there will be volatility along the way, we've been pleased to make further progress in reducing emissions intensity during FY25. Driven by higher volumes at Northstar and efficiencies at Glenbrook and Port Kembla, steelmaking emissions intensity declined to 1.41 tonnes per tonne of steel, making a cumulative 14% decline since FY18. We progressed Project Neosmelt, including the announcement of Woodside and Mitsui as new partners to the project. And work is continuing on our Australian DRI options study. Further, in New Zealand, construction of the new electric arc furnace at our operations in Glenbrook remains on track for the commencement of commissioning by the end of this calendar year. We continue to also focus on our broader material sustainability topics. Female workforce participation remained at 25% and we continued ensuring the sustainability of our supply chain. We held stakeholder forums and webinars to strengthen responsible sourcing and climate action across our supply chain. Now turning to the group outlook. We're entering FY26 with confidence. Underlying EBIT in the first half of FY26 is expected to be better than the second half of FY25 and in the range of $550 to $620 million, subject to spread, foreign exchange and market conditions. Improved spreads in the US are the key driver of this, together with the benefits from the group-wide cost and productivity program. Before we get into the detail of the results, I'll take a moment to revisit our growth and performance objectives. When we delivered our half-year results six months ago, we set out detail on how we're positioning BlueScope for better near-term performance and how our initiatives and investments are going to deliver growth through to 2030. This page provides a good overall summary, but I'd like to address the key elements specifically. Starting with the near term, in October last year, we communicated a target of $200 million of cost and productivity improvements by FY26. I'm pleased to report that across our businesses, good progress has been made during the year with net savings of $130 million achieved on a like-for-like basis when compared with our FY24 cost base. These savings have been derived across a range of areas, but predominantly in direct manufacturing and raw material costs. $200 million or more of net savings continues to be our goal, and we expect that to be broadly evenly split across North America, Australia and the rest of the portfolio. On the cash front, we're continuing to target a reduction in working capital of $200 million to $300 million by the end of this financial year. This will exclude a transitional inventory accumulation associated with six blast furnace reline commissioning. Part of the benefit will be achieved as we realise projects and land stock in Bluescope Properties Group with a wind down in activity. And David will address that shortly. Looking further ahead to 2030, Bluescope has a range of initiatives and investments underway to drive sustainable earnings and growth. We're targeting $500 million in incremental EBIT from our growth initiatives. This includes North Star de-bottlenecking, Colourbond and Trucore volume growth, ASEAN volume recovery, and opportunities from the transition in New Zealand to an electric arc furnace model. Pleasingly, all regions are contributing to this growth ambition. There's obviously been significant change in trade policy and geopolitics in the last year. Despite this volatility, in my view, North America remains the most attractive steel market in the world, and we continue to believe the US is a great place to focus on and continue investing in. There's clearly a pro-business and pro-manufacturing environment in the US. The increase of Steel Section 232 tariffs in June reinforced the Administration's commitment to domestic steelmaking and other companies and countries are taking that into account when making investment decisions. The tax elements of the One Big Beautiful Bill are a significant positive for manufacturing and therefore steel demand. The tariff-based support of assembling vehicles onshore is also a potential tailwind to manufacturing, as this is one of the largest sectors for steel use. And electricity prices, whilst rising, remain globally very competitive. Whilst the significant trade policy changes has resulted in higher uncertainty and volatility in the short term, with some impact on demand, we seem to be moving through that with the longer-term fundamentals for the North American steel market well supported to underpin activity, growth and further investment. I'd like to call out the write-down in BCP. This has been a very disappointing transition. The integration has been more problematic and taken longer than I had anticipated. The negative impact of that is being recognised in my STI for the year. It was my call and responsibility. Having said that, I fundamentally believe we've acquired a base that will provide great opportunity for growth in the medium to longer term. This is a business we know and make money out of around the world. And it's in an advantaged market, as I've just described to you. I've got no doubt these assets will turn around and contribute to our growth in North America in the future. Focusing now on our land opportunities, we have a 1200 hectare portfolio with about 1000 hectares of adjacent strategic land, which is under careful review for value realisation. The sites have significant value with locations near key activity centres and port, rail and electrical interconnector access. Potential use cases include energy, data centres, logistics and other aligned businesses together with social infrastructure. An early example of progress is the agreement we've reached with New Zealand energy operators to install a grid-scale battery energy storage system at our Glenbrook site. Recognising the strategic significance of the site, with no capital outlay, this arrangement over five hectares of our land will generate $4.5 million per annum over an extended lease term. With our head of property development now on board, we have increased capability to accelerate opportunities for value creation and realisation, with a focus on stage development and retaining flexibility and control of our strategic assets. An immediate and major land opportunity is the 200 hectare West Apto site, some distance from the steelworks in the Illawarra. As we've previously flagged, we're targeting value realisation from 33 hectares of zoned residential land at the western end of this site, with a potential for 350 to 400 housing lots. We're advancing terms of agreement with a national car import logistics operator to build and lease a 14 hectare hard stand facility. The development cost is expected to be funded by the proceeds from the residential land divestment and the lease should provide around $7 million of annual income and again points to the significant value in the site. We also have other industrial zone land on the site that has great value potential given its advantaged infrastructure and we're reviewing appropriate opportunities to achieve value for this land. As many of you will have seen, we've been monitoring developments at YALA for some time. Not only is this the only domestic manufacturer of certain types of heavy long products, importantly, it's a prospective location for future production of low emissions iron. With the transition into administration, we were asked to assist as a technical advisor to the administrator. A small group of our senior people from Port Kembla has spent many weeks over the past six months carrying out this assessment. Two weeks ago, we announced that we'd formed a consortium with Nippon Steel, JSW from India and POSCO to review options for the assets through the process the administrator is commencing. The consortium has submitted a non-binding expression of interest. We will leverage our detailed knowledge of the Australian steel industry and the YALA assets as the consortium assesses potential options, opportunities and capital requirements, particularly around the potential for a future direct reduced iron production and export hub. We'll also engage with the South Australian and federal governments regarding the announced funding support to maintain a sustainable steel industry in the region and the form that that may take. Any decision to make an offer to acquire and develop Wyala would be subject to the consortium members' return on investment hurdles. Now, there's a considerable amount of work involved here, and this process could take some time to work through. So bear with us and we'll keep you updated as appropriate. Before handing over to David, I want to highlight a critical issue threatening the future of Australian manufacturing, energy costs. I've been warning about Australia's energy crisis for over a decade. Today, the situation is more dire than ever. Manufacturing is at a tipping point, with energy prices that are no longer just too high, but unsustainable. What was once our competitive edge has gone. At BlueScope, we see energy costs across our global footprint. Australia is three to four times more expensive than the US. Last Friday, we made a submission to the Federal Government's Commonwealth Gas Market Review. And we, more than any company in Australia, wholeheartedly endorse the Prime Minister's future made in Australia vision. We're supporting that by investing billions of dollars in capital through our blast furnace reline, MCL7 and plate mill upgrade. But without immediate intervention in the East Coast gas market, there will be no future made in Australia. Here's what we're contending with. We're a major gas user today, and to decarbonise steelmaking at Port Kembla in the future, we'll need 10 times more gas than we purchase today. That shift would cut our emissions by 60%, or 3.6 million tonnes of carbon per year, more than any other industry, while supporting high-value regional jobs and sovereign steelmaking capability. But Australia doesn't have a functioning domestic gas market. Since 2015, LNG exports have gutted liquidity and driven prices up by nearly 300%. We prioritise exports over domestic supply, both industrial and retail. That's just madness. We need immediate intervention to save industry and lower prices for all Australians, businesses and households. That means... Redirecting uncontracted LNG spot cargoes to the domestic market at competitive prices. And let me be very clear about this. This does not increase our sovereign risk. Restricting exporters from buying domestic gas for re-export. And prioritising domestic supply over LNG imports. In what world does exporting LNG in massive quantities only to re-import it to supply a As the Energy Users Association CEO Andrew Richards said, this is like importing sand into the Sahara. And we need to strengthen and enforce the instruments the government already has in place. Beyond this immediate action, we need proper structural reform. We need a permanent domestic gas reservation and price mechanism. This is not radical. It's common practice around the world. We need a market design that boosts liquidity and transparency. And these need to be simple, effective and enduring reforms with ACCC oversight and proactive engagement. Now, I've been around long enough to see the highs and lows of our industry. We've reduced capacity in the face of massive oversupply of steel globally from China. We reduced costs, increased productivity, and we've grown our premium products like Colourbond and expanded geographically to the US to increase our resilience. And we worked our way through the COVID crisis. If we truly want a future made in Australia, and I believe that is possible, we must act now before it's too late. I'll now hand you over to David, who will take you through the FY25 results in detail.

Thanks, Mark, and good morning, everyone. Let's turn to the results across our region for the year, starting with Australia. The Australian business delivered an underlying EBIT of $262 million in FY25 and a return on invested capital of 6.2%. Domestic dispatches were stronger compared to FY24, particularly driven by the residential construction segments. Calabon steel sales remained at historically high levels. Slightly weaker realised spread and high conversion costs weighed on the full year result. Cost escalation across energy and labour remains a significant challenge for the Australian business, with timing of implementation and realisation of cost improvement initiatives unable to offset these step change increases in the same timeframe. Looking at the specific end use segments for ASP on the next slide, across the board, we saw stronger dispatches in the financial year compared to FY24. The higher result was driven primarily by the dwelling construction segment, including robust alterations and additions activity. The non-residential construction and manufacturing sectors also contributed to the stronger result in the year. We remain confident in the fundamentals supporting the medium-term outlook and the ongoing shortage of housing stock, combined with interest rate and policy support. ASP business conditions in FY25 continue to highlight the importance of driving cost efficiency in our steelmaking operations and a focus on growth in domestic value-added products to support mid-cycle ROIC. The business continues to focus on our Australian steelmaking cost base, with a necessary ambition for it to be cash break-even, including sustaining CapEx, at the bottom of the cycle. In Australia's relatively high-cost operating environment, driven by labour, energy and broader import costs, it requires ongoing optimisation of our cost base each and every year. The escalations we're seeing in Australia mean that we're not where we need to be today, but we're confident that continuous execution of our identified initiatives will address this. The shift of volumes into the domestic market and up the margin curve towards value-added products shown in slides here is an ongoing focus and supports through cycle margins. The criticality of this domestic strategy has only become even more important with the current unavailability of opportunities to export to the more attractive markets associated with North America and elevated level of China exports continuing to depress markets outside of North America. With these priorities, we continue to position ASP in the upper band of the chart on the right-hand side of the slide, which is necessary to have confidence to invest through the cycle within the ASP business. Our North America business produced underlying EBIT of $514 million and a return on invested capital of 8.8%. The EBIT result was approximately half that of last year, and this downstep was shared evenly between Northstar and BlueScope and Coated Products North America. At Northstar, we saw materially weaker spreads in FY25. However, improved cost performance and higher volumes supported the result. Importantly, in the second half, we saw a big improvement with a performance roughly three times that of the first half. Building encoded products North America saw margin normalisation and lower volumes with some relief from lower costs. Focusing on a couple of matters relevant to this segment, the engineered building solutions business continued to perform well. Pleasingly, we saw strengthening order intake towards the end of the year as customers appeared more willing to commit to projects as they see more certainty in the trade policy environment. Following a strategic review of the Blue Scope Properties Group, we determined benefits across our buildings business were not sufficient to justify the required allocation of capital. As a result, we're progressing the realisation of the current portfolio of projects through normal market channels, which we expect to conclude over the next 12 months. Performance at BCP deteriorated in FY25 to a loss for the year on sales challenges, which limited operational throughput. This has been primarily driven by lower volumes from the foundation customer contract, combined with soft demand at the heavy gauge paint lines. Additionally, the substantial shifts in US trade policy and tariffs in early 25 impeded the ramp up of BCP's regionally tailored, packaged and branded paint offering, which was initially leveraging the supply of metal coated and painted product from our Australian and New Zealand operations for market seeding. Whilst turnaround efforts are well underway, BlueScope has recognised an impairment charge to the goodwill and intangible assets of the business of approximately $439 million due to the business's near-term underperformance and the extended timeframe to deliver our business case. Despite the write-down of intangibles, work continues at pace to deliver improvements in the operational and sales performance. BCP is a strategic platform for Bluescope to grow in North America, leveraging our advanced capabilities in metal-coated and painting, which has been developed over the last six decades. The broader strategic rationale and long-term value of the BCP assets remains, and we expect it to contribute meaningfully to Bluescope's North America growth ambitions. Looking at activity levels across our North American end-use segments, Activity across key steel-consuming sectors remains solid. Non-residential construction activity remains at elevated levels, leveraging support from the Investment and Jobs Act. Auto demand remains solid, held up by lower interest rates and with the consumer preference for more steel-intensive vehicles continuing. And manufacturing is also showing resilience. At an overall market level, we've seen a complicated demand environment with uncertainty as global trade actions unfold. 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 plays out. Our Asia business generated underlying EBIT of $139 million and a return on invested capital of 14.2% in FY25. Southeast Asia, led by Thailand, delivered a solid result across the year, with an improvement in the second half of FY25. Indonesia and Vietnam also contributed to the better outcome in the year. China's performance deteriorated in FY25 on broader weakness in the Chinese economy, and India's performance reflects the capital charge from increased manufacturing capacity supporting the joint venture under the new supply agreement with Tata. The New Zealand and Pacific Islands business performance deteriorated in the second half of FY25, leading to a $17 million loss for the year. The weakness reflected the ongoing lower levels of construction activity, as well as softer real-life spread, and particularly in the second half, elevated conversion costs, primarily from power prices. However, with the imminent commissioning of the electric arc furnace, we are confident that we have a solid business that can withstand the current external challenges and is well positioned to benefit from an improvement in economic and market activity in the region. Whilst not materially changing economics at the top of the cycle, the future EAF operating model will improve down cycle performance through fixed electricity prices, contracted at commercially more competitive rates, scrap feed costs more aligned to global steel pricing than current relatively fixed iron production costs, and modular production model that increases flexibility and allows reduced exposure to exports. We've set out on the slide our estimate of the economics that the EAF model would have if it was operational in FY25. EBIT would have been indicatively around $65 million, an improvement of around $80 million. We look forward to sharing updates on the commissioning of the EAF in New Zealand later in the year. Bringing it all together now with the group underlying EBIT movements. The full year picture FY25 to 24 shows the extensive impact of weaker steel spreads combined with unfavourable volume and mix impacts, particularly in Australia and the building and coated products North American segments. You can see the benefits of cost improvement programs in the conversion and other costs, totalling $104 million, and other benefits, primarily in raw materials, accounting for the balance of our net savings for the year. The first half to second half walk forward shows an improvement largely driven by spread, which was predominantly at North Star. Looking now at the outlook for the first half of 26 across the regions, In North America, we expect a result around a third higher than second half 25, particularly driven by stronger spreads, costs and volumes at North Star. The building encoded product segment is also expected to deliver a better result, particularly through improvements at BCP. In Australia, weaker realised spread and export earnings, along with cost escalation, are expected to be partly offset by a modest improvement in volume and cost initiatives. This will also be supported by the expected profit on the West Dapdo partial land sale, which will see a moderately better result than second half FY25 overall. Asia is expected to deliver a result around 25% higher than the second half, largely on typical seasonality in China. New Zealand is expected to return to around a break-even performance, benefiting from the delivery of cost and productivity initiatives. And the corporate and group line is expected to be similar to the second half of 25. Turning now to the financial framework and key financial indicators and settings. Our financial framework is integral to how we manage the group through the cycle, with our focus on returns, strong balance sheet and a disciplined approach to investing for growth and returning funds to shareholders. With weaker EBIT and incremental capital invested, return on invested capital for the year was 6.2%, down on last year. Cash generation before CapEx remained robust, supporting our capital investment program on growth and sustaining projects. And in coming years, we expect those growth investments to continue to contribute to a strengthening return on capital, being the 500 million incremental EBIT goal that Mark mentioned earlier. One of our core financial disciplines is to maintain a strong balance sheet with investment-grade credit metrics, recognising that with meaningful operating leverage, we are best placed to have prudent financial leverage. At 30 June, net debt was $28 million on the stronger side of our 400 to 800 million long-term target range, being a sensible position as we work through another high capex year with a weak Asian region macroeconomic backdrop. We retain deep liquidity and have positive momentum in our S&P and Moody's credit ratings. Our capital expenditure, both in FY25 and 26, has been focused on major projects such as the New Zealand EAF, the realign of the number six blast furnace in Australia, the Western City metal coating line, and de-bottlenecking investments at Northstar. In all, we're expecting nearly $1.5 billion of capex this year, up from the circa $1.4 billion of investment in FY25. 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 board increased the annual ordinary dividend level to target $0.60 per share per annum in August last year, which reflected the increased scale and resilience of BlueScope's portfolio, as well as the reduced share count. The Board has approved the payment of a $0.30 per share final dividend for the half, being in line with our target of $0.60 per share per annum. Our reduced availability of franking credits means this dividend will be 50% franked. The buyback remains an important component of our capital management strategy, and 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 macroeconomic conditions and other factors as part of its execution. And with that, I'll hand it back to Mark, and we'll be here for Q&A at the end. Thank you.

Thanks, David. Now, before we take your questions, just a couple of comments on the Bluescope investment proposition. We have a strategic asset base, including Northstar and our Australasian network, a premium brand portfolio led by Colourbond Steel, a resilient multi-domestic business model and a disciplined financial framework. We've returned over $3.8 billion to shareholders since FY17 and maintained a largely unlevered balance sheet while investing over $3 billion in growth. And we're targeting $500 million in annual EBIT uplift by 2030 from those initiatives already underway. We are a different kind of steel company, a premium steel producer with proven returns and a strong growth trajectory. So thanks for your time this morning. And with that, I'll turn it over to Q&A.