BlueScope Steel Limited

Good morning everyone and thank you for joining us. I'm Tanya Archibald, Bluescope's Managing Director and Chief Executive Officer and with me today is David Fellew, our Chief Financial Officer. Together we'll take you through our results materials before we take your questions. I'd like to begin by acknowledging the traditional custodians of the various lands on which we meet and work today and pay my respects to elders past and present. Before I go any further, I need to address the most important issue for our company. In November, a young contractor, Jack McGrath, tragically lost his life whilst working on the number six blast furnace reline project at Port Kembla. The impact has been profound. A family lost someone they loved and the Bluescope community lost a colleague. I want to acknowledge how deeply this has affected everyone, our employees, our contractor partners and the local community. The SafeWork NSW investigation into the incident is continuing and we're cooperating fully. I won't comment further on the specifics. But what I will say is this, nothing matters more than the safety of our people. Every person who comes to work at a BlueScope site has the right to go home safely. That is non-negotiable. Our global safety refocus program continues and further improving our safety performance is my highest priority. Before I run through results, let me address the recent acquisition proposal. As I said two weeks ago, the board rejected that proposal and I supported that rejection. The board remains open to any proposal that genuinely reflects Bluescope's fundamental value, but we are not sitting here waiting. We're getting on the front foot to unlock Bluescope's value. Two weeks ago, I laid out my agenda as Bluescope transitions into a new era. Let me bring you up to date on the progress and where I'm leading the company. BlueScope is a manufacturer built with strength and built to win. We're now approaching an inflection point as our investment phase ramps down and we ramp up delivery of value to our shareholders. To do this, we're becoming simpler, leaner and more agile. We're accelerating the realisation of value from our 1200 hectare surplus land portfolio. We're increasing our shareholder distribution target to 75% of free cash flow, and we're planning to deliver $3 per share in returns this calendar year. Shareholders have been patient through our investment phase. That patience is now being rewarded. Turning now to first half results. BlueScope delivered underlying EBIT of $558 million in the first half, up $249 million on the prior corresponding period. This result demonstrates the strength and diversity of our portfolio. We achieved solid profitability despite historically low Asian steel spreads. ROIC remained stable at 8.1% as we progress our major capital investment program. Reported net profit after tax was $391 million, and we finished the half with net debt of just $2 million, essentially an ungeared balance sheet. On capital management, and I'll come back to this in detail, as I noted earlier, we're planning to deliver $3 per share in shareholder returns in the 2026 calendar year. Looking ahead to the second half, we expect underlying EBIT in the range of $620 to $700 million. The improvement on one half FY26 is on the back of stronger US steel spreads and improved sales volumes, which offset the impacts from softer Asian spreads and higher foreign exchange rates. I'd also like to call out that our guidance is predicated on a 70 cent FX rate. As always, these expectations are subject to spread foreign exchange and market conditions. As I said earlier, Bluescope is a manufacturer built with strength and built to win. We have high quality assets, leading brands and exceptional people with deep steelmaking and manufacturing skills. Our job is to accelerate execution and ensure we capture and deliver the full value of what we've built. We're organising our work around three core themes. First, customer value creation. Customers are at the heart of everything we do. Our products, our service, technical capability and reliability. We must continue to earn our customers' trust and repeat business. Second, operational excellence. We'll continue a focus on productivity at every level of the organisation. Revenue, manufacturing, functions, capital efficiency, every dollar counts. Third, shareholder value delivery. As we move from investment to returns, we're strengthening cash generation, putting our resilient balance sheet to work, and rebasing shareholder returns substantially higher. Our major project pipeline is nearing completion, and this is what sets us up for the future. The North Star de-bottlenecking is progressing well across all nine project components. Now, this will unlock an additional 300,000 tonnes per annum of capacity at our best-in-class mini mill. The new Western Sydney Metal Coating Line, MCL7, is nearing completion following weather delays, with start-up expected around the middle of the year. The new metal coating line adds 240,000 tonnes of coating capacity to support continued strong demand growth for Colourbond and Trucore Steel. The Port Kembla plate mill upgrades are on track and will enhance our product and service quality, enabling us to provide our customers the product specifications and quality they demand. The New Zealand electric arc furnace is in cold commissioning with hot commissioning expected in the coming months. The EAF will transform the operating model for New Zealand, improving demand response capability and lowering costs. The number six blast furnace realign and upgrade is progressing well. Outperformance of number five blast furnace provides us with strong commissioning flexibility targeted for the second half of this calendar year. And we're getting ourselves ready for the future. The Neosmelt joint venture, which BlueScope is leading, aims to develop the technology that allows Pilbara iron ore to be converted into molten iron using lower emissions, direct reduced iron technology, rather than the traditional blast furnace route. The feasibility study for the project is progressing well. This slide captures the core of our value proposition. We have high quality assets, a resilient business model and significant upside. There are five key drivers of our accelerated value delivery across growth, operational excellence, land realisation and shareholder returns. This is really what sets us up for the future. Let me take you through each of these value drivers. Our growth initiatives are targeting a $500 million EBIT uplift by 2030. In North America, we're targeting more than $200 million in earnings improvement. And as I mentioned, the North Star de-bottlenecking is well underway and we're progressing our coded and painted strategy, including the BCP turnaround. In Australia, we're targeting more than $125 million in earnings improvement. Colourbond and Truecore steel demand continues to grow and will be supported by the new capacity for metal coating line number seven. This is consistent with our broader strategy of premium and branded products. And also just let me make the point that this year marks the 60th anniversary of Colourbond and nearly 100 years of steelmaking at Port Kembla. In Asia and New Zealand, we're targeting around $150 million of improvement, particularly through value-added products. And in New Zealand, the EAF model creates new opportunities as it's commissioned. Our existing $200 million cost and productivity program is progressing well. We've now delivered $190 million of annualized benefit up from $130 million at the end of FY25. And you can see the breakdown of the cost initiatives for the half just gone on the pie chart. Our new $150 million cost reduction program is now underway. And this is about creating a simpler, leaner, more agile BlueScope. We're streamlining leadership teams and functional areas and rationalizing activities across the business. The full set of initiatives are targeted to be in place by 30 June this year, with the full run rate delivered in FY27. Importantly, this work provides a platform for further simplification and productivity improvements. Now onto property. I want to make the point that our surplus land portfolio of around 1200 hectares is in sought after industrial locations with port logistics and energy infrastructure. And the majority of the land is already appropriately zoned and able to be developed. We're accelerating realisation through a dual workstream approach. Firstly, by accelerating the early wins. In the first half of this year, we agreed to sell 33 hectares of West Apto for $76 million, which will deliver more than 350 residential lots. We've also put in place a ground lease at Glenbrook in New Zealand for a 100 megawatt battery storage facility. And we're now commencing a process for a 65 hectare logistics hub at Western Port. This is already appropriately zoned with attractive logistics infrastructure, and we're underway in our process to find a development partner. In parallel, our second work stream, we're advancing broader partnership structures, including assessing a master developer partnership across the balance of the surplus land portfolio. This brings me to capital management and shareholder returns. BlueScope's more resilient earnings base and stronger cash flows allows for an evolution of the settings in our financial framework. We're putting the balance sheet to work and rebasing shareholder returns substantially higher. We'll now target net debt of up to 1.5 billion with the ability to move above that if needed. And we've revised the shareholder distribution target to at least 75% of free cash flow, up from 50% previously. That means we're enabling strong returns on an ongoing basis. For this calendar year, we're planning to distribute $3 per share. This includes the $1 per share special dividend announced in January, a $1.30 annual ordinary dividend level, starting with a 65 cent per share interim dividend in the first half. And this will then be topped up with a $310 million on-market buyback program or other return method equivalent to 70 cents per share. I'll now hand over to David Fellew to take you through the regional performance and detailed financials. David.

Thanks, Tanya, and good morning, everyone. Before running through the detail of the business unit performance, you can see from an overall group perspective the benefit of our diversified portfolio, placing us in a strong position both financially and operationally. That's also thanks in no small part to the incredible efforts of all our people across the regions, which continues every day. Turning to ASP, Australia delivered underlying EBIT of $122 million, down from $130 million in the prior half. The result reflects softer realised spreads on lower domestic and export pricing, with benchmark Asian steel spreads remaining depressed through the half on the back of export levels from China. In this environment, we were still able to grow domestic dispatches, increasing to 1.1 million tonnes, largely driven by residential and non-residential construction. Calabon steel sales performed well, remaining robust at 322,000 tonnes. Cost escalation was offset by improvement initiatives and supported by a one-off $22 million retrospective tax credit. Moving to construction demand, both dwelling and non-dwelling now represent over three quarters of our domestic volumes. We continue to see strong demand in alterations and additions, and the non-residential pipeline across a range of industrial uses remains solid. We've spoken previously about the importance of mix and our strategy to shift more volume to domestic sales and more of those sales towards value added and premium branded products. And you can see we've continued to make progress in this respect. Pleasingly, the long-term trend is apparent, particularly with Calabon Steel volumes, which are up 25% on the first half of 2016, and Trucore Steel is up 155% over the same period. These have been critical to supporting ASP's earnings at low spread levels. North America showed the strength of this market and our strategic position within it, with underlying EBIT of $447 million, up $115 million on the prior half. Northstar delivered EBIT of $321 million on significantly stronger realised spreads. The business again operated at 100% utilisation of available capacity and achieved a new daily production record during the half as de-bottlenecking projects increased capacity. Buildings and coated products North America delivered EBIT of $129 million. BlueScope buildings improved materially on higher volumes. BCP's performance improved as turnaround efforts continue. However, it remains loss-making in line with expectations. The US economy is steady with resilient consumer activity and key end markets showing demand at healthy levels. Non-residential construction is plateauing near historically elevated levels, auto demand remains solid, and manufacturing indicators are showing positive signs. Turning to Asia, we delivered underlying EBIT of $97 million, up $27 million on the prior half. The stronger result was driven by improved cost performance and effective pricing management in Southeast Asia, combined with higher premium volumes across the region. Pleasingly, this performance was broadly based across our geographies, with improved performance in Indonesia, Malaysia and Vietnam, and continued strong performance in Thailand. China's results were higher on typical seasonality, although softer than the prior corresponding period, given China's soft domestic economic conditions. And on the 31st of December, we completed the sale of our 50% interest in Tata Blue Scope Steel to our joint venture partner, successfully concluding our investment in this region. New Zealand and Pacific Islands recorded an underlying EBIT loss of $18 million. Performance was impacted by the AAF transition, including increased raw material consumption and stock build activity to cover commissioning. Electricity costs remained elevated, which will be addressed once the AIF is operational, with the first power contract, which commenced in December this year. Domestic dispatches were stable as macroeconomic conditions remained soft. Pleasingly, we've seen a similar dynamic to what we see in Australia, with an improved mix of value-added product sales, particularly the likes of colour steel. Turning to group EBIT variants, the slide shows the key drivers for our first half result compared to both prior corresponding period and the prior half. Both comparisons show similar dynamics with stronger spreads, particularly in the US, improved volumes and lower conversion costs, including from our cost and productivity program. Looking now to the second half outlook across the regions. North America is expected to deliver a result approximately 15% up on the first half of FY26, largely on the benefit of higher spreads at North Star. Australia is expected to deliver a lower result against a backdrop of challenging regional spreads and non-repeat one-off items. Asia is expected to deliver a softer result on typical seasonality with Chinese New Year. and we expect New Zealand will return to profitability as the EAF is brought online. Corporate costs are expected to be the same, noting the West DAPDO sale now sits separate from ASP in this area of our reporting. Now to the financial framework elements. Our financial framework is designed to drive performance and disciplined capital allocation. This has been critical during a unique period of capital investment. As we now have line of sight to the conclusion of this CapEx program, we have the opportunity to adjust settings with a shift to substantially higher cashflow and shareholder returns. On returns, we're targeting ROIC above our cost of capital through the cycle and maximising cash generation. Group ROIC has improved to 8.1%, with North America at 13.6% and Asia at 17.5%. Cash flows are lower, reflecting the capital investment program, which is beginning to roll off. From a balance sheet perspective, it remains robust to support investment and returns. We will now target up to $1.5 billion in net debt, up from the previous $400 to $800 million range. This reflects our confidence in the earnings base and cash generation of the business. At the half, net debt was just $2 million, with liquidity of approximately $3.2 billion. As Tanya noted on our major project pipeline, we are investing in our business to deliver sustainable earnings and growth. Capital expenditure was $681 million in the heart as we progress our major projects. You can see CapEx peaking for the full year this year and stepping down in the first half of FY27 as these projects complete. As flagged earlier, on capital management, we're rebasing shareholder returns substantially higher. commencing with $3 per share in the calendar year for 2026 and targeting at least 75% of free cash flow to shareholders going forward. As you can see on the slide, this is a substantial step up in returns and will deliver overall distributions of more than $1.3 billion to shareholders in the 2026 calendar year, with the expectation for an ongoing higher level of shareholder returns moving forward. And with that, I'll hand back to Tanya and we'll be here for Q&A at the end.

Thank you, David. Before we close, let me thank Mark Vassella for building the foundation for Bluescope's new era. His exceptional leadership over the past decade leaves Bluescope in outstanding shape with a transformed portfolio, a robust balance sheet and a clear strategy for growth. I'm honoured to build on that foundation. I'd now like to summarise our presentation this morning. We're approaching an inflection point at BlueScope. The investment phase is ramping down and delivery of value to shareholders is ramping up. BlueScope is becoming simpler, leaner and more agile. And we're accelerating the realisation of value from our 1200 hectare surplus land portfolio. As a result, we're increasing our shareholder distribution target to 75% of free cash flow, starting with a plan to deliver $3 per share in returns this calendar year. This really is a new era for Bluescope, and we've only just started. We'll now open up for questions.