Arrium Limited. For personal use only. Andrew Roberts. Transformation scale and diversity. Managing Director & CEO

Transcription

1 Arrium Limited Transformation scale and diversity Andrew Roberts Managing Director & CEO Macquarie Australia Conference 8 May 2014

2 Contents Overview 3 Business Segments 7 1H14 Financial Overview 24 2H14 Update 28 Appendix 39 2

3 Overview An international diversified mining and materials company Business segments: Mining Mining Consumables Steel Revenue 1 $6.8bn (FY13) ~10,000 employees S&P/ASX top100 Loading the MV Tian Fa Hai - largest vessel loaded by Arrium (~200kt, April 14) 1 Includes continuing and discontinued operations. 3

4 Building scale and diversity Our strategic focus has been diversification into the international resource sector Creation and listing of OneSteel Project Magnet Smorgon Acquisition Moly-Cop Acquisition Mining business doubled A domestic steel manufacturer and distributor Steelworks converted to magnetite feed Creation of new export iron ore business 4mtpa x 10 years Domestic steel consolidation Australasian and US Grinding Media business Recycling Grinding media expansion - North and South America Became largest grinding media producer in world (previously No. 2) Doubled export iron ore sales from ~6mtpa to ~12mtpa Port capacity doubled to ~13mtpa 4

5 Building scale and diversity We have transformed from a domestic steel business to an international mining and materials company with scale $2.6bn FY04 1 Steel, Australia 100% $0.3bn FY13 Assets $8.6bn FY13 EBITDA 2 $0.6bn Source of income 3 1 Includes sales and other revenue/income from external customers. Excludes income and assets attributable to Arrium s interest in Steel & Tube New Zealand. 2 Underlying results from total operations. Includes continuing and discontinued operations. A reconciliation of non-statutory underlying results to statutory results can be found in the Appendix to this presentation. 3 Source of income based on 1H14 financial results. 5

6 Strategic focus Continue to grow Mining and Mining Consumables and deliver acceptable returns in Steel and Recycling Mining Mining Consumables Steel and Recycling Current Utilise full capacity of Port Conversion of hematite resource to reserve Increased exploration program Capture share of grinding media growth Maintain stable margins Expand capacity ahead of market Roll out next generation SAG ball Integrated long products supply chain Ongoing cost and operational improvements Rationalise Recycling footprint to align with steelmaking Longer term Magnetite opportunities Non ferrous Whyalla Port Geographic expansion Product expansion Deliver acceptable earnings and cash through cycle 6

7 Business segments 1,2 - Middleback Ranges - Southern Iron - Whyalla Port - Moly-Cop - AltaSteel -Steel - Recycling FY13 $m Revenue 977 EBITDA 340 Assets 2,159 Employees 571 FY13 $m Revenue 1,567 EBITDA 197 Assets 2,460 Employees 2,031 FY13 3 $m Revenue 4,835 EBITDA 83 Assets 2,985 Employees 6,795 1 FY13 numbers from Full Year Financial Report They exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June Underlying results from total operations. Includes continuing and discontinued operations. A reconciliation of non-statutory underlying results to statutory results can be found in the Appendix to this presentation. 3 Arrium Steel FY13 information has been derived by adding together the Steel and Recycling segments. Transactions between these segments have not been eliminated. 7

8 Mining

9 Arrium Mining South Australia s leading iron ore producer Attractive quality blended export hematite ore products Leader in magnetite ore and processing Attractive mining leases Ferrous Non ferrous Infrastructure largely owned including Whyalla Port Only bulk port in Spencer Gulf Iron Knob, SA Track record of delivering large scale projects per plan 9

10 Arrium Mining Hematite export iron ore sales doubled to ~12mtpa Completed expansion to double iron ore sales and capacity of Whyalla Port mid 2013 Export hematite sales ~12mtpa - Further sales growth targeted Whyalla Port capacity ~13mtpa - Opportunities for further expansion Two operations Middleback Ranges and Southern Iron Products: Whyalla Blend / Opal Blend (average grade 60% Fe) Tailored customer base (~70% contract, ~30% spot) Predominantly China 10

11 Arrium Mining For personal use only We have a competitive cost base with operational flexibility Loaded cash cost 1 ~ A$50/wmt Ability to manage volumes relative to market scenarios Total Cash Cost 2 USD/dmt mt mt 8mt 12mt mt 10mt 12mt 42mt 16mt 5mt 298mt 150mt 212mt 290mt 20 0 Based on UBS estimates, Breakeven price for global iron ore producers Mar Includes mining, crushing, beneficiation, road haulage and transhipping costs. Excludes capitalised costs (infrastructure, pre-stripping and mining licences) and depreciation, amortisation charges in respect of those costs, royalties, sales and marketing and corporate costs. 2 Includes loaded cash cost, royalties, sales and marketing and corporate costs, adjustment for moisture content and freight. 11

12 Arrium Mining We have a good basis for sales longevity Existing reserves Beneficiation Two beneficiation plants (converts ~4mt of LGO to ~2mt of HGO p.a.) Conversion of hematite resource to reserves History of replacing reserve depletions Focus now on accelerating conversion Blasting at Middleback Ranges New Inner Harbour Export Facility Shed 12

13 Arrium Mining We are well positioned to extract the value from our attractive leases and infrastructure We have the people, skills and history of Delivering large scale projects Sweating our supply chain to increase volumes New prospective areas (via ILUA) Ferrous exploration (hematite and magnetite) Middleback Ranges - Brownfield and greenfield - Recently received indigenous clearance for new prospective areas Southern Iron - Peculiar Knob - Hawks Nest Exploration & Mining Target Areas within the ILUA Agreement Area 13

14 Mining Consumables

15 Mining Consumables A growth business of scale, with stable margins and a sustainable competitive advantage Strong earnings growth post Moly-Cop acquisition Strong cash generator after funding own growth EBITDA Global leader in grinding media Leading market positions in key growth areas of North America, South America and Australasia Quality customer base Estimated grinding media demand growth in North and South America ~ 8% CAGR FY13 FY17 1 project delays may impact timing Good visibility of new projects and mine expansions Grinding media consumption driven by: - Copper, gold and iron ore processing rates - Declining mineral head grades 2 1 Review conducted August 2013, next review due August Other includes rail wheels & ropes and AltaSteel 15

16 Sustainable competitive advantage Delivered through combination of superior ball quality, supply chain, technical support and capacity advantages Superior quality and product performance Performance including wear rates helps reduce cost Proprietary metallurgical and engineering know how Next generation SAG ball being rolled out Superior supply chain certainty of supply Located close to customers Fast response times minimises risk of interruptions to operations Global customers benefit from our global network Lima, Peru 16

17 Sustainable competitive advantage Delivered through combination of superior ball quality, supply chain, technical support and capacity advantages Unparalleled technical support Recognised for our extensive technical expertise (mill processing experts) Tailored customer support Capacity advantages Investing in new capacity ahead of market and close to customers Installed capacity ~3.5x larger than next largest competitor Lima, Peru 17

18 Grinding media capacity Edmonton, Canada (AltaSteel) Americas Australasia Kamloops, Canada Kansas City, USA Cilegon, Indonesia Newcastle, Australia (Grinding Media, Ropes, Rail Wheels) El-Salto, Mexico Lima, Peru Arequipa, Peru Mejillones, Chile Santiago, Regional Office Talcahuano, Chile Moly-Cop Grinding media facilities FY13 Capacity Expansion Capacity Newcastle, Australia Cilegon, Indonesia (currently commissioning) 80 Kansas City, USA Talcahuano & Mejillones, Chile Lima & Arequipa, Peru (completed 1H14) 155 El Salto, Mexico Kamloops, Canada (completion mid 2015) 235 Total 1, ,500 18

19 Steel

20 Arrium Steel Integrated operation in Australia with leading market positions, flexibility and significant leverage Integrated operation Scrap/iron ore Manufacturing Retail Leading market positions in Australia Only manufacturer of steel long products #1 in general steel retail/distribution #1 in reinforcing steel #1 in wire Production flexibility with integrated (blast furnace) and electric arc furnace technology Barangaroo Development Sydney, NSW Australian and Asian recycling businesses Ferrous and non ferrous businesses 20

21 Arrium Steel Australia Asia Steelmaking facilities Capacity 1 ktpa Sydney Steel Mills EAF ~ 630 Laverton Steel Mills EAF ~ 700 Whyalla Steelworks Blast Furnace ~ 1,200 Total ~ 2,530 1 Demonstrated capacities, assuming 24 hours 7 days operation 21

22 Arrium Steel Historically a strong contributor to earnings and cash Returned to EBITDA/cash positive following significant loss position post GFC Cost reduction and operational improvements Focus on continuing to lower breakeven point Employees (number) 9,000 8,000 7,000 6,000 5,000 4,000 Steel EBITDA History 1,2, EBITDA $m 3, ,000 1, (37) FY13 FY12 FY11 - FY10 FY09 FY08 FY07 FY06 FY05 FY EBITDA $m Employees (number) 1 Steel historical information (FY13 & earlier) has been derived by adding together the Manufacturing & Distribution segments. Transactions between these segments have not been eliminated. 2 Steel information for 2013, 2012 & 2011 excludes transactions between entities previously in the Manufacturing and Distribution segments and excludes discontinued operations Underlying results from total operations. Includes continuing and discontinued operations. A reconciliation of non-statutory underlying results to statutory results can be found in the Appendix to this presentation.

23 Arrium Steel Historically a strong contributor to earnings and cash Significant leverage to an increase in volumes Low capacity utilisation (EAFs ~ 60%) - First additional 150kt from existing shifts Significant leverage to a sustained lower AUD/USD 1c = ~$10m EBIT impact (annualised) 1 Steel fixer at Barangaroo Development, Sydney NSW 1 As at 1H14 indicative Group indirect impact on continuing businesses. Assumes constant raw material prices and demand levels. 23

24 1H14 Financial Overview

25 1H14 Financial Overview Realising benefits of growth investments in Mining and Mining Consumables Record EBITDA Underlying 1 EBITDA $503 million up 97% pcp (Statutory EBITDA $499 million) - Record contribution from Mining - Strong earnings and cash from Mining Consumables - Steel EBITDA and cash positive Underlying NPAT $201 million, up 294% pcp (Statutory NPAT $220 million) Record cash outcome Operating cash flow $344 million up 97% pcp CSL Whyalla at Whyalla Port, SA 1 Underlying results from total operations. Includes continuing and discontinued operations. A reconciliation of non-statutory underlying results to statutory results can be found in the Appendix to this presentation. 25

26 1H14 Financial Overview Good progress with current priority of reducing debt and improving leverage ratio Net debt $1,975 million down from $2,115 million end FY2013 Gearing 33.8% down 2.9pp from end FY2013, well within bank covenants Leverage ratio 1 2.3x (CY13) substantial improvement from 3.6x (CY12) Leverage ratio Southern Iron / Whyalla Port investments (USD/AUD FX~1.01) Leverage ratio historically generally below 2x other than when significant growth investments made Smorgon acquisition Moly-Cop acquisition (USD/AUD FX~1.02) (USD/AUD FX~0.89) 1 Net Debt / underlying EBITDA, 12-month rolling basis 26

27 1H14 Financial Overview $1.4 billion available undrawn facilities 1 Total facilities A$3.6 billion 1 Well progressed refinancing next significant maturity (FY16) Average interest rate for total drawn and undrawn funding ~ 4% Covenants include gearing ratio >50%, and interest cover of between 3.0 to 3.5 times AUD mil 1,200 1,100 1, Facility Maturity Profile FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY At end 1H14 27

28 2H14 Update

29 2H14 Update Mining Expanded operations performing well March quarter sales up 54% to 3.03Mt (1.97Mt pcp) despite some significant adverse weather - Benefit of supply chain flexibility YTD to Mar 2014 sales up 70% to 9.2Mt (5.4Mt pcp) FY14 sales expected to be 12.3Mt 12.6Mt (target was12mt) Expect to be at 13Mtpa run rate in Q1 FY15 New high capacity ship loader at Whyalla Port, SA Mining operation at Iron Knob area progressing to plan 29

30 2H14 Update Mining Average loaded cash cost for March quarter ~A$47/wmt 1 Average realised CFR price for March quarter ~US$110/dmt (~A$123/dmt) 92% recovery against Platts 62% Fe index Average realised FOB price for March quarter US$95/dmt (A$106/dmt) Loaded iron ore railcars from Southern Iron to Whyalla, SA 1 Includes mining, crushing, beneficiation, road haulage and transhipping costs. Excludes capitalised costs (infrastructure, pre-stripping and mining licences) and depreciation, amortisation charge in respect of those costs, royalties, sales and marketing and corporate costs. 30

31 2H14 Update Mining Consumables Continued strong demand and stable margins for grinding media in North and South America North and South America 1 Grinding Media Sales Volumes and Margins Capacity expansions tracking to plan Lima, Peru completed ramp up in 1H and performing well Kamloops, Canada on track for completion mid 2015 Cilegon, Indonesia expansion on time and budget 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14F Sales Volumes EBITDA/t - Commissioning March 14 quarter - Operational handover June 14 quarter 1 Based on Management actual and forecast data 31

32 2H14 Update Mining Consumables Australasian business being impacted by: Further weakness in rail wheel sales as miners continue to focus on costs and cash - 2H volumes expected to be down ~25% v 1H, ~45% pcp - Maintaining high share of maintenance wheels - Lower export sales to South Africa Significant reduction in grinding media sales in Indonesia related to impact of mineral value added tax - Reduced customer production and grinding media demand in 2H14 Cilegon, Indonesia Adverse EBITDA impact (2H v 1H) expected to be ~A$15 17 million 32

33 2H14 Update Mining Consumables Waratah, Newcastle operations restructured in 2H to right size production and cost base for demand Change in Waratah production requirements: New Cilegon, Indonesia facility operational in June 14 quarter - Prior shortfall in Indonesia capacity met by Waratah Lower demand for rail wheels Lower steelmaking requirements First balls from new Cilegon, Indonesia facility Workforce to be reduced by 120 (~20% of total Waratah employees) by June 14 Labour savings $14m annualised, restructuring cost $15m (FY14) 33

34 2H14 Update Steel and Recycling Ongoing weakness in domestic and international steel markets, but modest improvement in domestic construction as expected 2H14 domestic sales volumes expected to be flat v 1H14 (modest increase sales/day basis) Delays to some major projects - Slower than expected commencements (e.g. Pacific Highway) - Projects underway (e.g. Barangaroo) Higher number of wet weather days Improved sales volumes expected in FY15 Steel products Whyalla, SA Increased project construction in NSW and Western Australia 34

35 2H14 Update Steel and Recycling Steel expected to again be underlying EBITDA and cash positive, but lower than 1H14 Full impact 1 of synergy benefits offset by adverse impact on prices from: - Asian steelmaking over-capacity - Pressure on international margins over scrap - AUD volatility Dumping investigations underway for structural steel (HRS) and rod in coils (combined ~30% total Steel volumes) Recycling improvement expected in 2H14 underlying EBITDA v 1H14 Cost and operational improvements Margin over Scrap - Asian Import Rebar ~3 to 4 months lag re impact on domestic prices Source: CRU, Tex Report, RBA Source: RBA US$/t A$/t AUD:USD exchange rates 1 FY14 of $30 million (annualised $40 million FY15) 35

36 2H14 Update Asset divestments Continuing to track well Divestment proceeds to date $202 million Divestments completed or under contract to date $228 million in line with FY14 expectation Examining other business and property portfolio opportunities Capital expenditure No change to FY14 guidance provided at 1H14 36

37 Summary Invested to deliver significant scale and diversity Full earnings and cash benefits from recent investments now being realised Within Mining and Materials business portfolio: Mining and Mining Consumables have good organic growth opportunities in short to medium term Steel focus on simplified integrated long products operation with lower cost and significant leverage to improved volumes and a sustained lower AUD Key priority is debt reduction and improved leverage ratio 37

38 Appendix

39 Lost Time Injury Frequency Rate (LTIFR) Medical Treatment Injury Frequency Rate (MTIFR) H H14 For personal use only 1H14 safety performance Per million hours worked Per million hours worked A key element of our Safety effort has been improving our capability to recognise, assess and manage high consequence as well as high frequency risks 39

40 1H14 business tonnage Half-Year ended 31 December 1H14 1H13 1H12 1H11 1H10 1H09 1H08 1 1H07 1H06 1H05 mt mt mt mt mt mt mt mt mt mt Iron Ore Iron ore lump Iron ore fines Total lump & fines Pellets, other ore and by products Recycling Ferrous - external Ferrous - internal Total ferrous Non-ferrous Total Recycling Despatches Mining Consumables - external Mining Consumables - internal Total despatches - Mining Consumables Manufacturing Distribution Total despatches - Steel Total despatches - external Raw steel production Whyalla Sydney Steel Mill Laverton Waratah AltaSteel Total raw steel production Tonnages for FY08 reported for raw steel production and steel despatches include the SSX businesses as if they were part of the Arrium Group from 1 July All other production and despatch statistics presented above are actual. Tonnages include Moly-Cop Group from 1 January 2011 only. 2 Ore by products include dolomite, centrix, filter cake and pellet chips. 3 Includes scrap sales. 4 Tonnage comprises of total group operations. Pre-2005 tonnage info can be found on Arrium's website. 40

41 1H14 Arrium FX exposure Exposure to movements in AUD vs USD Direct impact: 1c change in AUD/USD = ~$16-19 million 1 EBIT impact (annualised) Indirect impact: 1c change in AUD/USD = ~$10 million 2 EBIT impact (annualised) FX sensitivity on gearing 3 : 5c movement in AUD/USD = ~1% impact on gearing USD debt acts as natural hedge against FX exposure on USD net assets Change in USD debt offset by change in value of USD assets 1 Based on impact of USD iron ore sales, translation of overseas earnings (Mining Consumables and Recycling), impact on Recycling Australia s margins, partially offset by USD purchases of coal and alloys in Steel. 2 Indicative indirect impact on continuing businesses. Assumes constant raw material prices and demand levels. 3 Based on balances at 31 December

42 Steel key markets Steel Domestic Sales by Market Segment Steel FY13 Volume by Segment Residential Non-Residential Engineering Construction Manufacturing Mining Production Agriculture ~75% of Steel revenue is driven by construction Residential, non-residential and engineering construction (inc mining investment) drives demand for reinforcing bar and wire, rod for mesh, structural pipe, HRS and rail Agriculture drives demand for rural wire, rural posts and rural pipe products Mining production drives demand for grinding bar which is feed for grinding media Manufacturing has limited exposure to automotive and manufacturing segments 42

43 Arrium Mining Non-ferrous exploration Prospective for copper/gold 43

44 1H14 financial overview 44

45 1H14 financial overview 45

46 Historical data profit and loss underlying Period Ended 1 Dec $m $m $m $m $m $m $m $m $m $m $m Sales revenue 3, , , , , , , , , , ,269.2 EBITDA Depreciation, amortisation and impairment (181.0) (273.5) (221.4) (213.5) (203.9) (199.5) (194.9) (96.2) (94.0) (97.5) (87.1) EBIT Finance costs (62.0) (118.1) (121.1) (101.1) (89.2) (172.2) (159.6) (55.8) (56.7) (53.6) (42.2) Profit before tax Tax (expense)/benefit (59.3) (27.6) (37.5) (84.8) (81.6) (64.1) (128.0) (74.7) (60.8) (55.4) (53.4) Non-controlling interests (0.5) (2.1) (5.9) (7.2) (2.3) (10.1) (10.2) (11.9) (13.6) (17.5) (12.4) Net profit after tax EPS (cents) - weighted average ROFE (%) 11.1% 5.1% 5.6% 7.3% 7.5% 8.4% 11.3% 15.0% 14.5% 13.5% 11.6% Dividends (cents/share) Reconciliation of underlying NPAT to statutory NPAT: Period Ended1 Dec $m $m $m $m $m $m $m $m $m $m $m Net profit after tax - underlying Non-trading items, net of tax - Restructuring costs (3.2) (65.7) (29.8) (6.2) (1.2) (46.8) (58.1) Impairment (0.7) (895.3) (125.4) (1.5) - - (12.0) Transaction costs - - (18.7) (13.9) Goodw ill amortisation (21.0) - Tax adjustments and other items Net profit after tax - statutory (694.7) Dec13 data is from the Half Year 2014 Financial Report and comprise of total operations. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June 2013 and comprise of total operations. Pre-2004 results can be found on Arrium's website. 46

47 Historical data key balance sheet items As at 1 Dec $m $m $m $m $m $m $m $m $m $m $m Cash Receivables , Inventory 1, , , , , , , Property, plant and equipment 3, , , , , , , , , , ,188.2 Intangibles 2, , , , , , , Other assets , TOTAL ASSETS 7, , , , , , , , , , ,803.2 Interest-bearing liabilities 2, , , , , , , Payables 1, , , , , Provisions Other liabilities TOTAL LIABILITIES 4, , , , , , , , , , ,429.8 NET ASSETS 3, , , , , , , , , , ,373.4 Contributed equity 2, , , , , , , , , , ,096.3 Non-controlling interests Retained earnings & reserves (47.4) TOTAL EQUITY 3, , , , , , , , , , ,373.4 Funds Employed 5, , , , , , , , , , ,042.4 Gearing % 33.8% 36.2% 32.3% 27.7% 17.7% 22.0% 36.2% 31.8% 29.8% 31.7% 32.8% Interest cover (times EBITDA, 12m rolling basis) NTA/Share $ Dec13 data is from the Half Year 2014 Financial Report. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June 2013 and have not been restated since June 2013 to reflect changes in the Group s continuing and discontinued businesses in 1H14. 2 December 2004 figures have been adjusted to include securitisation Pre-2004 results can be found on Arrium's website. 47

48 Historical data statutory cash flow* Period Ended 1 Dec $m $m $m $m $m $m $m $m $m $m $m Profit after tax (692.6) Depreciation, amortisation and impairment , Non-cash items (20.5) (32.6) 17.7 (16.8) (1.8) (2.0) 16.5 (8.5) (1.1) (65.2) (15.1) Other changes in assets and liabilities including working capital (38.0) (71.4) (133.3) (30.1) (43.2) (10.9) (45.0) Operating cash flow Capital expenditure (209.6) (459.2) (401.3) (251.3) (173.2) (187.6) (306.9) (357.9) (214.4) (126.9) (141.5) Free Cash Flow (81.4) Investment expenditure - - (317.7) (992.9) (33.6) (3.3) (433.2) (2.6) (13.2) (0.6) (9.9) Asset Sales Other (0.8) Operating & investing cash flow (133.1) (751.3) (384.7) (72.6) Dec13 data is from the Half Year 2014 Financial Report. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June * The financial measures displayed in this table are based on statutory results. Pre-2004 results can be found on Arrium's website. 48

49 Historical data Mining Period Ended 1 1H14 FY13 FY12 2 FY11 FY10 FY09 FY08 $m $m $m $m $m $m $m Total revenue/income EBITDA EBIT Sales Margin 36.9% 25.4% 37.0% 55.2% 42.6% 18.9% 37.9% Assets 2, , , Funds Employed 1, , , Return on funds employed 40.1% 16.4% 28.1% 70.1% 47.4% 19.6% 46.1% Employees (number) External lump & fines iron ore sales (Mt) Pellets, other ore and by products (Mt) Dec13 data is from the Half Year 2014 Financial Report. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June These statistics include results relating to the WPG subsidiaries acquired on 6 October Ore by products include dolomite, centrix, filter cake and pellet chips. 49

50 Historical data Mining Consumables Period Ended 1 1H14 FY13 FY12 FY11 3 FY10 2 FY09 2 FY08 2 $m $m $m $m $m $m $m Total revenue/income , , , EBITDA EBIT Sales Margin 9.7% 9.7% 8.8% 6.1% 9.2% 3.5% 12.9% Assets 2, , , , , , ,104.3 Funds Employed 2, , , , , , ,015.0 Return on funds employed 7.5% 7.6% 6.9% 4.4% 6.0% 2.2% 6.5% Employees (number) 2,063 2,031 1,973 1, External tonnes despatched (Mt) Internal tonnes despatched (Mt) Steel tonnes produced (Mt) Dec13 data is from the Half Year 2014 Financial Report. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June The FY08-FY10 results have been restated to reflect changes in organisation structure following the formation of the new Mining Consumables segment asa result of the acquisition of the Moly-Cop Group. The Waratah, Newcastle facilities, which include the grinding media and rail wheel businesses, The grinding media businesses in the United States and Indonesia, and the wire ropes business at Newcastle previously reported as part of the Steel segment now form part of the Mining Consumables segment. 3 These statistics include the results of the Moly-Cop Group from 31 December Assets and liabilities have been restated to reflect the final fair value adjustments arising on acquisition of the Moly-Cop Group in December Excludes scrap sales. 50

51 Historical data Steel Period Ended 1 1H14 FY13 3 FY12 3 FY11 3 FY10 2 FY09 2 FY08 2 FY07 2 FY06 2 FY05 2 FY04 2 $m $m $m $m $m $m $m $m $m $m $m Total revenue/income 1, , , , , , , , , , ,192.4 EBITDA (37.1) EBIT (21.2) (43.0) (56.4) (164.6) Sales Margin (1.5%) (1.2%) (1.4%) (4.2%) 1.1% 5.8% 4.5% 7.3% 7.3% 6.8% 7.4% Assets 2, , , , , , , , , , ,621.5 Funds Employed 1, , , , , , , , , , ,031.4 Return on funds employed (2.4%) (1.9%) (1.9%) (5.2%) 1.7% 11.0% 9.6% 14.5% 13.3% 12.7% 11.8% Employees (number) 5,163 5,946 6,164 6,922 7,020 7,408 8,211 6,292 6,396 6,391 6,263 External tonnes despatched (Mt) Steel tonnes produced (Mt) Dec13 data is from the Half Year 2014 Financial Report and comprise of continuing operations. The historical data from FY13 and prior are from the Full Year Financial Report 2013, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June 2013 and have not been restated since June 2013 to reflect changes in the Group s continuing and discontinued businesses in 1H14. 2 Steel historical information has been derived by adding together the Manufacturing and Distribution segments. Transactions between these segments have not been eliminated. 3 Steel information for FY11, FY12 & FY13 excludes transactions between entities previously in the Manufacturing and Distribution segments and includes discontinued operations. 51

52 Historical data Recycling Period ended 1 1H14 FY13 FY12 FY11 FY10 FY09 FY08 $m $m $m $m $m $m $m Total revenue/income , , , , , ,404.1 EBITDA (21.8) 98.4 EBIT (2.1) (8.3) (38.6) 86.5 Sales Margin (0.4%) (0.6%) 0.4% 1.4% 0.7% (3.4%) 6.2% Assets Funds Employed Return on funds employed (1.0%) (1.8%) 1.2% 3.6% 1.3% (6.7%) 13.9% Employees (number) ,033 1,019 1,016 1,127 Ferrous tonnes - external (Mt) Ferrous tonnes - internal (Mt) Non-ferrous tonnes (Mt) Dec13 data is from the Half Year 2014 Financial Report and comprise of continuing operations. The historical data from FY13 and prior are from the Full Year Financial Report 2013 and includes total operations, and they exclude the impact of any new accounting standards and interpretations issued but not effective as at 30 June 2013 and have not been restated since June 2013 to reflect changes in the Group s continuing and discontinued businesses in 1H14. 52

53 1H14 statutory vs underlying results Year ended 31 December 2013 Reconciliation between Underlying and Statutory Results Continuing operations Statutory Results Discontinued operations 1 Total Operations Statutory Underlying Results Restructuring costs 2 Impairment 3 Tax adjustments 4 Total Operations Underlying Sales revenue 3, , ,642.5 Other revenue/income Total revenue/income 3, , ,716.9 Gross profit/(loss) (27.4) EBITDA (70.0) Depreciation and amortisation (181.0) - (181.0) (181.0) Impairment (4.7) 3.7 (1.0) EBIT (66.3) Finance costs (62.0) - (62.0) (62.0) Earnings before tax (66.3) Tax expense/(benefit) (54.9) 21.0 (33.9) (1.4) (0.3) (23.7) (59.3) Profit/(loss) after tax (45.3) (23.7) Non-controlling interests (0.5) - (0.5) (0.5) Net profit/(loss) after tax (45.3) (23.7) Relating to the results of Australian Tube Mills, Merchandising and US Recycling businesses. Excludes intercompany transactions. Statutory EBITDA and statutory net profit after tax including intercompany transactions are $10.4m loss and $4.1m loss respectively. 2 Related to redundancies from organisational changes and other direct expenditure associated with business restructures. 3 Impairment of property, plant and equipment and intangible assets associated with Mining Consumables, Steel, US Recycling and Merchandising businesses. 4 Tax adjustment relates to the net impact of Mineral Resource Rent Tax 53

54 1H13 statutory vs underlying results Half-year Ended 31 December 2012 Reconciliation between Underlying and Statutory Results Continuing operations Statutory Results Discontinued operations 1 Total Operations Statutory Underlying Results Restructuring costs 2 Impairment 3 Tax adjustments 4 Other items 5 Total Operations Underlying Sales Revenue 2, , ,404.4 Other Revenue/Income Total Revenue/Income 3, , ,457.4 Gross Profit EBITDA (52.1) (0.9) Depreciation & Amortisation (119.9) (14.5) (134.4) (134.4) Impairment (96.5) (378.0) (474.5) (0.5) EBIT 77.5 (444.6) (367.1) (0.9) Finance costs (57.5) (0.7) (58.2) (58.2) (Loss)/profit before tax 20.0 (445.3) (425.3) (0.9) 61.5 Tax expense/(benefit) (40.8) 20.3 (20.5) (4.1) (0.4) (8.7) (Loss)/profit after tax (20.8) (425.0) (445.8) (1.3) 52.8 Non-controlling interests (0.4) (1.4) (1.8) (1.8) Net (loss)/profit after tax (21.2) (426.4) (447.6) (1.3) Relating to the results of the Australian Tube Mills, Merchandising, US Recycling and Steel and Tube Holdings businesses. Excludes intercompany transactions. Statutory EBITDA and statutory net profit after tax including intercompany transactions are $9.6m and $382.7m loss respectively. 2 Related to redundancies from organisational changes and other direct expenditure associated with business restructures. 3 Impairment of the ARC brand name portfolio and goodwill in the Manufacturing and Distribution segments. 4 Tax adjustments related to prior year adjustments and the net impact of Mineral Resource Rent Tax. 5 Related to gains on sale of Steel & Tube Holdings and other non-recurring costs. 54

55 This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of Arrium and certain plans and objectives of the management of Arrium. Forward-looking statements can generally be identified by the use of words such as project, foresee, plan, expect, aim, intend, anticipate, believe, estimate, may, should, will or similar expressions. All such forward looking statements involve known and unknown risks, significant uncertainties, assumptions, contingencies and other factors, many of which are outside the control of Arrium, which may cause the actual results or performance of Arrium to be materially different from any future results or performance expressed or implied by such forward looking statements. Such forward-looking statements speak only as of the date of this presentation. Factors that could cause actual results or performance to differ materially include without limitation the following: risks and uncertainties associated with the Australian and global economic environment and capital market conditions, the cyclical nature of the steel industry, the level of activityinthe construction, manufacturing, mining, agricultural and automotive industries in Australia and North and South America and, to a lesser extent, the same industries in Asia and New Zealand, mining activity in the Americas, commodity price fluctuations, fluctuations in foreign currency exchange and interest rates, competition, Arrium's relationships with, and the financial condition of, its suppliers and customers, legislative changes, regulatory changes or other changes in the laws which affect Arrium's business, including environmental laws, a carbon tax, mining tax and operational risk. The foregoing list of important factors is not exhaustive. There can be no assurance that actual outcomes will not differ materially from these statements. This presentation contains certain non-statutory financial measures including underlying EBIT, underlying EBITDA, underlying NPAT, underlying earnings per share and underlying effective tax rate. These measures are used to assist the reader understand the financial performance of the company s operations. Non-statutory financial information has not been audited or reviewed as part of KPMG s report on the 2014 Half Year Financial Report. The Directors believe that using these non-statutory financial measures appropriately represents the financial performance of the Group s total operations including continuing and discontinued operations. Details of the reconciliation between non-statutory and statutory financial measures can be found in the Appendix of this presentation. All balance sheet items are based on statutory financial information. Except as otherwise expressed, references in this document to net profit/loss after tax refer to net profit/loss attributable to equity holders of the parent. The December 2012 and June 2013 comparatives have not been restated to reflect the application of the new Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine and the revised AASB 119 Employee Benefits. 55