RESULTS FOR ANNOUNCEMENT TO THE MARKET (Under ASX listing rule 4.2A)

Transcription

1 BLUESCOPE STEEL LIMITED A.B.N Level 11, 120 Collins Street Melbourne, Victoria 3001 Ph: +61 (03) Fax: +61 (03) Website: ASX Code: BSL FOR IMMEDIATE RELEASE RESULTS FOR ANNOUNCEMENT TO THE MARKET (Under ASX listing rule 4.2A) Half Year Earnings Report Six Months Ended 31 December 2006 Note: All numbers are AUD unless otherwise stated. Melbourne 26 February 2007 BlueScope Steel Limited (ASX Code: BSL) today reported its financial results for the six months ended 31 December Table 1 provides the headlines for the first half FY2007. Table 1: 1H FY2007 Headlines Earnings performance Record half year revenue of $4,528M NPAT was up 24% to $388M and EPS up 10.7 cents to 54.7 cents, with every business segment profitable. Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 34% to $794M largely due to improved domestic and export prices, higher sales volumes and improved sales mix partly offset by higher raw material costs. Net cash flow from operating and investing activities (pre-tax) increased by $289M (or $608M if the $319M used to acquire the 19.9% in Smorgon Steel Ltd is excluded) to $133M. Financial ratios for 1H FY2007 vs 1H FY Return on equity (based on annualised net profit after tax (NPAT) attributable to shareholders) 24.0% 18.9% Return on invested capital (based on annualised NPAT) 17.0% 14.6% Gearing (net debt/net debt plus equity) 35.6% 33.2% Dividends Interim ordinary dividend of 21cps declared in respect of the first half 2007, fully franked, (1H cps, fully franked) Interim ordinary dividends reinvested under the Dividend Reinvestment Plan (DRP) in FY2007 will benefit from a 2.5% discount. ASX Half-Year Results Announcement Page: 1

2 Operations Upstream Australia (Port Kembla Steelworks) Another strong operational performance; achieved record six month iron make, hot rolled coil and plate production records; +400kt hot strip mill expansion completed and capacity ramp-up to annualised equivalent 400kt; earnings up 7% due to higher export slab and hot rolled coil prices and improved sales mix partly offset by the benefit of lower priced iron ore in stock at the start of 1H 2006, higher scrap costs and higher priced iron ore and coking coal during 1H New Zealand Slab production was down 4% and higher maintenance costs on the primary plant kiln. North America (North Star BlueScope) Another outstanding operational performance and earnings improvement. Paid $65M dividend to BlueScope Steel in the half year. Midstream and downstream Australia Strong earnings turnaround led by vastly improved domestic sales into the building and distribution segments and recovery from the Western Port fire which occurred in the previous comparative period. Lower steel feed costs were mostly offset by higher zinc costs. New Zealand Stronger domestic despatches but higher zinc costs. Asia A strong start. Record six months EBIT in Thailand, although the coup affected sales from the second quarter. Another strong performance from Indonesia and the turnaround in Malaysia continues whilst increased competition and the transition from construction to operations in China and Vietnam dampened earnings. North America The improved performance of Butler and Vistawall in the second half of FY2006 continued into 1H FY2007 due to higher volumes and improved margins. Capital Growth Projects A number of new facilities were completed during 1H FY2007, including Metalic coating and painting facility in Suzhou, China Pre-engineered building facility in Thailand The two Butler/Lysaght facilities in India ( in addition to the Pune facility which commenced April 2006). Port Kembla steelworks +400kt hot strip mill expansion. The major capital projects still to be completed are: West Sydney COLORBOND facility (around June 2007) Blast furnace No. 5 reline (now scheduled for March 2009) Indian coating project, expected to be completed in CY2009 Whilst the Indonesian coating project will be subject to review during CY2007. The focus has now shifted from construction to producing from BlueScope s unique Asian/Far East midstream and downstream steel manufacturing/distribution franchise in the world s future growth corridor. Investment Capital In August 2006, BlueScope acquired a 19.9% (cost $319M) shareholding in Smorgon Steel Ltd. Under so called Plan B announced 18 December 2006, this shareholding may result in a 19.9% interest in Smorgon Steel Ltd distribution and a 5.6% interest in OneSteel if the transaction is approved to proceed. ASX Half-Year Results Announcement Page: 2

3 Consolidated Results Table 2a provides the 1H FY2007 consolidated financial results and the comparable 1H FY2006 period. Table 2b reconciles underlying operational earnings to reported earnings. Table 2a : Financial Headlines Six months ended 31/12/07 ( 1H 2007 ) and 31/12/06 ( 1H 2006 ) % Financial Measures 1H H 2006 Change Change Total revenue (1) A$M 4,528 3, Earnings before interest, tax, depreciation (2) and amortisation (EBITDA) A$M EBIT (2) A$M Net borrowing costs A$M (69) (33) (36) ( 109) NPAT attributable to BlueScope Steel shareholders A$M Earnings per share /s Diluted earnings per share (3) /s Interim dividend /s Net cash flow from operating and investing activities A$M 133 (156) After tax return on invested capital (4) % 17.0% 14.6% Return on equity (5) % 24.0% 18.9% Gearing (net debt/net debt plus equity) % 35.6% 33.2% Net tangible assets per share $/s (1) Excludes the company s 50% share of North Star BlueScope Steel revenue of $373M in 1H 2007 ($324M in 1H 2006). Includes revenue other than sales revenue of $20M ($10M in 1H 2006). Includes revenue from discontinued business of $9M ($23M in 1H 2006). (2) Includes 50% share of net profit from North Star BlueScope Steel of $102M in 1H 2007 ($62M in 1H 2006). (3) Earnings per share is diluted for executive share right awards that are likely to vest based on current Total Shareholder Return performance. (4) Return on invested capital is defined as annualised net profit after tax over average monthly capital employed. (5) Return on equity is defined as annualised net profit after tax attributable to shareholders over average monthly shareholders equity. Variance Analysis (1H 2007 vs 1H 2006) Total revenue The $636M (16%) increase principally reflects: Higher slab and hot rolled coil prices. Higher export and domestic Coated and Building Products Australia sales volumes following recovery from Western Port fire and stronger demand from the Australian building and distribution markets. Favourable Hot Rolled Products Australia domestic/export mix primarily due to higher domestic demand. Higher Coated and Building Products sales volumes across all regions within Asia and North America. Par tially offset by: Higher average AUD:USD exchange rate of compared to the previous corresponding period of ASX Half-Year Results Announcement Page: 3

4 EBIT The $186M (41%) increase principally reflects: Prices ($ 148M favourable) Higher export slab and hot rolled coil prices from Hot Rolled Products Australia. Higher Coated and Building Products prices in Asia (predominantly Indonesia, Malaysia and Thailand) and North America. Partly offset by: Lower tinplate prices. Sales volumes and product mix ($164M favourable) Favourable mix of domestic and inter-company (Coated and Building Products Australia) sales driven mainly by stronger domestic demand in the pipe and tube, building and distribution markets. Higher domestic sales volumes in the North American Coated and Building Products business. North Star BlueScope Steel ($40M favourable) Higher earnings contribution due to hot rolled coil prices in North America increasing more than increases in the price of scrap feed. Exchange rates ($11M unfavourable) Unfavourable movement in the AUD:USD relative to the previous comparative period. Raw material costs ($204M unfavourable) Higher zinc and aluminium coating metal costs. The benefit of using lower priced iron ore in stock at the start of 1H 2006 combined with higher scrap costs and higher USD iron ore and coking coal purchase prices at the Port Kembla Steelworks. Costs ($ 11M favourable) comprising the following components: Cost improvement initiatives ($44M favourable) - Cost reductions reflecting the effect on unit costs productivity and other costs. of initiatives to improve yield, labour Cost escalation ($61M unfavourable) - Escalation of employment, utilities, consumables and other costs. One-off and discretionary costs ($52M favourable) - Lower maintenance costs mainly at Port Kembla Steelworks and Coated and Building Products Australia, partially offset by additional maintenance at New Zealand Steelworks. - Lower unit costs at Western Port following recovery from the fire at Western Port during 1H Lower pre-production and business development costs predominantly at the Vietnam, India and China development projects together with start-up costs associated with the Buildings North America Jackson Plant in the previous comparative period. Other costs ($24M unfavourable) - Higher freight costs primarily due to destination mix, additional cost of fuel and rate increases. ASX Half-Year Results Announcement Page: 4

5 Other items ($38M favourable) Profit on sale of surplus land in New South Wales and Lysaght Taiwan assets, partially offset by profit on sale of the Galesburg, Illinois facility in the previous comparative period. Employee share plan costs in the previous comparative period (Note: a similar plan in the current year will occur in the second half of fiscal 2007). Dividend income received on 19.9% shareholding in Smorgon Steel. Lower redundancy costs at Hot Rolled Products Australia. Funding Net borrowing costs for the six months ended 31 December 2006 were $69M ($33M in 1H 2006). The increase in costs reflects an increase in average borrowings to $2,153M ($1,310M in 1H 2006) and an increase in the average interest rate to 6.1% (5.8% on 1H 2006). Tax The effective tax rate for the six months ended 31 December 2006 was 29.8% (25.0% in the previous corresponding period). The tax rate differs from the Australian tax rate of 30% primarily due to the utilisation of tax exemptions in our Thailand Coating operation. These were largely offset by North American operations being taxed at approximately 39% (35% US tax rate plus state taxes). The increase in effective tax rate is due to the expiry of full tax exemptions in Thailand and the booking of all tax losses in New Zealand. The full tax exemptions on the Thailand metal coating line (MCL1) expired in September However, the company continues to benefit from a reduced (15%) tax rate on earnings from this line until 2010 and has full tax exemption on MCL2 earnings until New Zealand Steel has booked all outstanding tax losses and commenced expensing tax on its taxable earnings from January Table 2b: Reconciliation of Underlying Operational Earnings to Reported Earnings 1H 2007 vs 1H 2006: $ million Underlying Operational Earnings have been adjusted for unusual or non-recurring events to reflect the underlying financial performance from ongoing operations. EBIT NPAT EPS Factors 1H H H H H H 2006 Reported earnings Unusual or non-recurring events: Significant production disruptions (1) Business development and pre-operating costs (2) Asset impairment (3) Restructure and redundancy costs (4) (5) 5 (4) Losses from businesses to be discontinued (5) Smorgon dividend income (6) (9) Asset sales (7) (7) (5) (5) (3) (0.01) (0.00) Underlying Operational Earnings (1) Western Port fire in 1H (2) Business development and pre-operating costs in Asia, North America and Corporate. (3) Impairment of assets damaged in the Western Port fire in 1H (4) Lower redundancy costs at Hot Rolled Products Australia due to a write-back of provisions, raised in prior periods, driven by natural attrition of employees. ASX Half-Year Results Announcement Page: 5

6 (5) Gains/(losses) incurred in Packaging Products and Lysaght Taiwan businesses that are being closed during Note: Packaging Products comprise operating losses reported in Coated and Building Products Australia partly offset by the margin earned by Hot Rolled Products Australia on inter-segment sales to Packaging Products. (6) Dividend income received on 19.9% shareholding in Smorgon Steel. NPAT has not been adjusted as dividend income is largely offset by funding costs. (7) 1H 2007 sale of property in New South Wales. 1H 2006 sale of property in Galesburg, Illinois. Equity, Financial Flexibility and Cash Flow Table 3 provides a summary of consolidated equity and return measures at 31 December 2006 and Table 3: Consolidated Return Statistics 1H 2007 and 1H 2006: mixed measures 1H H 2006 % Return Statistics Shares outstanding end of period (million) Average shares for the period (million) Return on equity based on NPAT attributable to shareholders 24.0% 18.9% 27 (%) Return on equity based on underlying operational NPAT 23.9% 22.3% 7 earnings (%) Return on invested capital based on NPAT (%) 17.0% 14.6% 17 Return on invested capital based on underlying operational NPAT earnings (%) 17.0% 17.0% 0 Table 4 provides a summary of key financial flexibility metrics based on underlying operational performance. Table 4: Consolidated Financial Flexibility Measures 1H 2007 and 1H 2006; mixed measures Variance Financial Flexibility Measures 1H H 2006 $M % Underlying Operational EBITDA $M Interest expense $M Borrowings $M 1,983 1, Underlying Operational EBITDA/interest (8) (42) Debt/Underlying Operational EBITDA ASX Half-Year Results Announcement Page: 6

7 Table 5 below provides a summary of consolidated operating and investing cash flows. Table 5: Consolidated Cash Flow 1H 2007 and 1H 2006: $ million Variance Factors 1H H 2006 $M % EBITDA (1) Add back non-cash items - Share of profits from associates and joint venture partnership not received as dividends (37) (29) (8) (28) - Impaired assets Net (gain)/loss on sale of assets (10) (6) (4) (67) - Expensing of share-based employee benefits Cash EBITDA Changes in working capital (2) (55) (214) Net cash from operating activities Net cash from investing activities (3) (564) (365) (199) (55) Sale of receivables (4) 0 (140) Cash from operating and investing (pre-tax) 133 (156) Interest paid (76) (30) (46) (153) Tax paid (126) (239) Cash from operating and investing (post-tax) (as per statutory cash flow) (69) (425) (1) Refer EBIT Variance Analysis for major changes in EBITDA. (2) The improvement in working capital primarily reflects: Inventories: a smaller increase in inventories in the current period than the previous comparative period. The increase in the current period is driven by rate increases partly offset by improvement initiatives reducing volumes on hand. Receivables: A greater decrease in receivables in the current period than the previous comparative period mainly reflecting the timing of export shipments and initiatives to reduce export credit terms. (3) The increase in investing activities reflects the 19.9% investment in Smorgon Steel offset partly by lower capital expenditure than the comparative period last year. (4) On conversion to AIFRS, sale of receivables were reclassified to borrowings from 1 July 2005 resulting in an unfavourable operating cash flow variance in FY2006 which is offset by proceeds from borrowings (cash flow from financing activities). Group Review In commenting on the half year results, the Managing Director and Chief Executive Officer of BlueScope Steel, Mr Kirby Adams, said: The results for the first half of this financial year are very positive with all of our business segments operating profitably. A record half-year in total revenue was achieved with an increase of 16% or $636 million, reaching $4.5 billion. NPAT rose by 24% over the corresponding period last year to $388 million. With earnings before interest and tax (EBIT) up 41% year on year to $635 million and earnings per share reaching 54.7 cents, the first six months of this year exceeded the total annual NPAT result for last year. This is a great result for the first half of 2006/07. Our balance sheet continues to be robust with gearing down from 38.0% at the start of the half year to 35.6% and our cash flow strong. ASX Half-Year Results Announcement Page: 7

8 The key factors for the earnings improvement were higher sales volumes, higher steel prices internationally and a higher spread for North Star BlueScope Steel, partly offset by higher metal coating costs (principally zinc) and higher raw material costs. The Board of Directors has declared an interim ordinary dividend of 21 cps, (FY cps), which will be fully franked. I m pleased to report that during this period, we have seen a strong improvement in the performance of our midstream and downstream businesses, which is very encouraging. Downstream and midstream sales revenue grew 14% compared to the previous corresponding half. While there is still some way to go, we believe this result shows the positive effect of our growth strategy, to reduce volatility in our overall business by growing our midstream and downstream businesses. Midstream and Downstream businesses Asia Coated & Building Products In Asia, top line revenue growth was an impressive 46% as we move from construction phase into production phase and ramp up the operations of our new facilities in China, Vietnam and Thailand. We expect to be in full production by 2009 at these locations. In India, the three Butler/Lysaght downstream facilities are now operational, and we are already seeing improved demand for our pre-engineered buildings. Earnings for our Asia business improved over the previous corresponding six months but unfortunately Thailand s otherwise excellent contribution was curtailed by the coup and political unrest. We have taken measures to partially mitigate this downturn, principally through the sale of export product. New marketing programs in our Indonesian business were buoyed by the resilience of the local economy, and led to continued strong demand for our products. In Malaysia, we are pleased with the excellent improvement initiatives undertaken. In China, BlueScope Buildings also had a solid improvement over the previous corresponding half. The commissioning of the new, state-of-the-art metallic coating and painting facility in Suzhou, just west of Shanghai, which was officially opened in October, is proceeding well. As announced earlier, the relocation of the Asian business office from Sydney to Singapore has now occurred. Australia Coated & Building Products In Australia, our Coated and Building Products segment was profitable for the first half despite margin pressure as a result of higher zinc and aluminium feed costs and lower tinplate prices. The packaging operation will be closed as of April We have been working closely with our customers and employees to ensure a smooth transition. At our Illawarra and Western Port coated products operations, six month production records were achieved at the metallic coating and painting lines. Pleasingly, during the first half, our lines were fully loaded, with very strong domestic demand largely driven by a continued strong building and construction market, and an increased demand in the distribution market compared to the same period last year. The fire in the Western Port hot strip mill adversely affected this business in the corresponding period last year. North America Coated & Building Products In North America, the value of our Butler acquisition is becoming increasingly evident with its significant improvement in the first half. EBIT rose strongly from nearly $2 million in the previous corresponding half to approximately $37 million. Total despatches are up by 9% and revenue increased by 8%. Order volumes for Butler Buildings and Vistawall products also increased during the period. ASX Half-Year Results Announcement Page: 8

9 Upstream business Hot Rolled Products Our North Star BlueScope Steel joint venture in the United States continues to achieve excellent results as the spread between the hot rolled coil cost and the scrap cost remains at strong levels. For the fourth year in a row, North Star BlueScope Steel was voted Number 1 flat rolled steel supplier to the service centre segment in North America. A second baghouse was commissioned in December to improve working conditions for our employees and to meet the demands of greater production by capturing the increased levels of dust. In Australia, earnings from Hot Rolled Products increased due to higher export slab and HRC pricing and a favourable domestic/export mix mainly from higher demand in the pipe and tube market and higher domestic demand by Coated and Building Products Australia. Port Kembla Steelworks reported strong operations overall, with record production maintained for iron making and slab. The reline for the No. 5 Blast Furnace, which currently produces approximately 2.6 million tonnes per annum, was rescheduled to March The Hot Strip Mill attained a record half year hot rolled coil production and record despatches as a result of the successful commissioning of the second reheat furnace in July. We were disappointed by the recent imposition of a further price increase in iron ore, which will come into effect on 1 July 2007 for approximately 90% of our requirements, with the remaining 10% effective from April However, this increase will be totally offset by the reduction in coking coal prices which are also due to take effect from 1 July New Zealand and Pacific Islands Products New Zealand and Pacific Islands Products had lower earnings for this first-half largely due to higher zinc and repairs and maintenance costs. Corporate and Group The results for Corporate and Group improved compared to the same period last year, largely due to the receipt of Smorgon Steel dividends and the cost of an employee share ownership plan in the previous period. A similar plan will be in place in the second half of this fiscal year. The reduction of 250 management and staff positions across the company, announced last June, is well progressed and we are beginning to see the benefit in our earnings. Safety Safety is our number one focus at BlueScope Steel. For the first six months of this year, the company s Lost Time Injury Frequency Rate (LTIFR) was 0.4 lost time injuries per million hours worked. We are very proud of this truly world-class accomplishment. We are never complacent about positive safety results, and remain focused on staying safe and achieving our goal of zero harm. Environment The world continues to face a number of environmental challenges from climate change and greenhouse gas emissions, to air pollution and drought. We recognise that global warming is a serious community concern that requires a global response. BlueScope Steel supports the Asia-Pacific Partnership on Clean Development and Climate (AP6) and the International Iron and Steel Institute s CO 2 Breakthrough Project. These programs are aimed at developing new technologies to reduce carbon dioxide emissions in global steel making processes. Water shortages are a major concern for many of the communities in which we operate. We have taken a leadership role in water conservation and recycling. During the half year period, a major water recycling ASX Half-Year Results Announcement Page: 9

10 initiative between BlueScope Steel and Sydney Water was activated to reduce fresh water use at the Port Kembla Steelworks by 50%, or equivalent to the annual water use of 26,000 households. As a result of this initiative salt water and recycled water now account for 98% of our total Port Kembla Steelworks water use. Industry and Company Outlook Global demand for steel products is at record levels, strong economic performance and significant investments in capital goods and infrastructure, particularly in emerging economies, is driving demand for steel to over 100M tonnes per month. Growth in steel production in China is slowing and further rationalisation is expected as the Chinese government steps up its closure of uneconomic mills. Many steel companies are backward integrating into raw materials. Consolidation in the global steel industry is expected to continue. We do not currently expect our second-half financial result to be as strong as the first-half. Second-half average prices for hot rolled coil and slab globally are expected to be moderately lower than first-half average prices. In North America, although scrap costs are rising and demand in the automotive and housing sectors is softening, we expect overall steel demand to slightly improve late in the second-half. Our Asian business had a strong improvement in its first-half performance. Our Thailand business will experience greater pressure in the second-half primarily due to market uncertainty. In Australia, the construction market is expected to remain strong, while weakness will continue in the automotive and manufacturing sectors. A strengthening in the Australian dollar may affect domestic sales volumes. Despite these issues, we expect the full-year financial results to be a significant improvement over the previous year and another step forward in the growth of BlueScope Steel. We would like to thank our shareholders and customers for their continued support and our employees for their hard work and contribution towards an improved financial and safety result. ASX Half-Year Results Announcement Page: 10

11 BUSINESS UNIT REVIEWS Table 6a: Sales Revenue 1H 2007 and 1H 2006; 2H 2006: $ million Segment 1H H H 2006 Hot Rolled Products Australia 2,000 1,816 1,656 Coated and Building Products Australia 1,699 1,429 1,635 Inter-segment (1) (874) (834) (665) Sub-total Australia 2,825 2,411 2,626 New Zealand and Pacific Islands Products Coated and Building Products Asia Hot Rolled Products North America (2) Coated and Building Products North America Inter-segment (1) (3) 0 (1) Sub-total North America Corporate and Group (3) Discontinued Businesses (4) Inter-segment (1) (536) (359) (584) Total BLUESCOPE STEEL 4,508 3,882 4,130 Table 6b: EBIT 1H 2007 and 1H 2006; 2H 2006: $ million Segment 1H H H 2006 Hot Rolled Products Australia Coated and Building Products Australia 20 (30) (168) Inter-segment (1) (34) (21) 77 Sub-total Australia (45) New Zealand and Pacific Islands Products Coated and Building Products Asia Hot Rolled Products North America Coated and Building Products North America Inter-segment (1) Sub-total North America Corporate and Group (3) (14) (42) (35) Discontinued Businesses (4) 3 (6) (14) Inter-segment (1) (1) 1 (1) Total BLUESCOPE STEEL (1) Inter-segment revenue reflects the elimination of internal sales between reporting segments. Inter-segment EBIT reflects an entry to eliminate profit-in-stock associated with inter-segment sales. (2) Excludes the company s 50% share of North Star BlueScope Steel s sales revenue of $373M in 1H 2007 ($324M in 1H 2006 and $388M in 2H 2006). (3) Corporate and Group reflects logistics and corporate office activities. 1H 2007 includes dividends received from the 19.9% interest in Smorgon Steel 1H 2007 and FX gains on net foreign currency denominated debt, including inter-company debt. 1H 2006 includes the cost of an employee share ownership plan. A similar plan in the current year has been deferred until 2H (4) Reflects gains/(losses) from the discontinued Lysaght Taiwan business. The gain relates to profit on the sale of the business. ASX Half-Year Results Announcement Page: 11

12 BLUESCOPE STEEL AUSTRALIA Hot Rolled Products Australia This segment comprises: Port Kembla Steelworks, NSW, Australia (coke, iron, slab, plate and hot rolled coil production); (i) Financial Performance (Refer to Attachment 2 for the revised half-year historical Hot Rolled Products Australia financial performance (1H 2005 to 1H 2007) to reflect the segment changes announced 21 August 2006.) Table 7a: Financial Performance 1H 2007 and 1H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue 2,000 1, EBITDA EBIT Operational EBIT (1) Capital and investment expenditure (2) (17) (23) Net operating assets (pre-tax) (3) 1,829 1,925 (96) (5) Return on net assets (pre-tax) (4) 46% 43% Table 7b: Financial Performance 1H 2007 and 2H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue 2,000 1, EBITDA EBIT Operational EBIT (1) Capital and investment expenditure (2) (71) (55) Net operating assets (pre-tax) 1,829 1,837 (8) 0 Return on net assets (pre-tax) (4) 46% 5% (1) 1H 2007 EBIT has been adjusted for domestic transfer pricing margins earned from the tinplate operations to be closed and the reversal of redundancy provisions raised in prior periods. 1H 2006 EBIT has been adjusted for domestic transfer pricing margins earned from the tinplate operations to be closed partly offset by internal restructuring and redundancy costs. 2H 2006 EBIT has been adjusted for redundancy costs for staff, executives and other internal restructuring partly offset by domestic transfer pricing margins earned from the tinplate operations to be closed. (2) Reduced capital expenditure reflects the completion of the Hot Strip Mill upgrade project by 30 June (3) Reduced net operating assets primarily reflects a reduction in inventories and an increase in creditors. (4) Return on net assets is defined as EBIT (annualised)/average monthly net operating assets. ASX Half-Year Results Announcement Page: 12

13 (ii) Variance Analysis (1H 2007 vs 1H 2006) The $184M increase in sales revenue is primarily due to higher international slab and hot rolled coil prices, higher mix of domestic sales and higher inter-segment sales to Coated and Building Products Australia mainly due to the Western Port fire in the previous comparative period. The export product mix was improved with increased hot rolled coil sales, due to the increased capacity from the Hot Strip Mill expansion and consequently lower slab sales. The $28M EBIT increase was largely due to: Higher slab and hot rolled coil prices attained in international markets. Favourable domestic/export mix primarily due to higher domestic demand in the pipe and tube market and improved inter-segment sales to Coated and Building Products Australia (1H 2006 sales adversely affected by Western Port fire, i.e. required to export an additional 300,000t of slab on the spot export market). Furthermore, a favourable export product mix resulted from the Hot Strip Mill expansion. These were partly offset by: The benefit of using lower-priced iron ore in stock at the start of 1H 2006 combined with higher scrap costs and higher USD iron ore and coking coal purchase prices at Port Kembla Steelworks. Freight and conversion cost increases more than offsetting cost reduction initiatives to improve yield, labour productivity and other costs. (iii) Operations Report Iron & Slab Achieved a half-year ironmaking production record of million tonnes (Mt) (vs previous best of 2.623Mt in 1H FY2006), due to good blast furnace availability (low unplanned interruptions) and operating stability. Slab production maintained at near record rates with 2.684Mt in the first half (vs previous best of 2.689Mt in 1H FY2006), due to stable hot metal production and good process synchronisation. As at 31 Dec 2006 No. 5 Blast Furnace ( BF No. 5 ) achieved campaign-to-date production of 37.70Mt (5,684 days). Previous campaign was 25.19Mt (4,452 days). The BlueScope Steel Board approved a proposal to reschedule timing of the BF No. 5 reline from September 2007 to March BF No.5, which currently produces about 2.6mtpa of hot metal, was built in 1972 and the last reline took place in The scope of work being considered will: - extend to the replacement and/or upgrade of associated items of equipment that were not included in the scope of the 1991 reline; - maintain existing capacity; - include environmental and efficiency benefits; - support a further 15 year campaign; and - have a capital cost of around A$330m (please refer to the FY2007 half-year presentation pack for the capital phasing) Hot Strip Mill (HSM) Achieved record half-year hot rolled coil production record of 1.394Mt (vs previous best of 1.353Mt for 1H FY2005), due to the successful commissioning of the $100M HSM second reheat furnace with the first slab heated and rolled in July The ramp-up to the planned increased throughput rate (additional 400kt per annum) was achieved by December Plate Mill Achieved a half-year plate production record of 0.215Mt (vs previous best of 0.190Mt in 1H FY2005), due to steady improvement in plant availability and rolling rates. Best ever half-year delivery performance metric, i.e. 92.4% vs 89.5% in FY2006 and 70% in FY2004. ASX Half-Year Results Announcement Page: 13

14 Coated and Building Products Australia This segment comprises: Illawarra Coated Products at Port Kembla, NSW (comprising Springhill Coated Products and Packaging Products); Western Port at Hastings, Victoria; Service Centres, with seven sites across Australia; BlueScope Lysaght, with 43 sales, distribution and manufacturing sites throughout Australia; BlueScope Water; and Western Sydney COLORBOND Steel Centre development. (i) Financial Performance (Refer to Attachment 3 for the financial performance tables (half-year results) for Packaging Products and Coated and Building Products Australia excluding Packaging Products. Packaging Products includes the tinplate manufacturing assets which will be closed, and the pickle line and cold rolling mill which will continue to operate while a study continues into the viability of utilising these assets). Table 8a: Financial Performance 1H 2007 and 1H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue 1,699 1, EBITDA EBIT 20 (30) Operational EBIT (1) Capital and investment expenditure (2) (30) (33) Net operating assets (pre-tax) 1,377 1, Return on net assets (pre-tax) (3) 3% (5%) Table 8b: Financial Performance 1H 2007 and 2H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue 1,699 1, EBITDA 58 (131) EBIT 20 (168) Operational EBIT (1) Capital and investment expenditure (95) (61) Net operating assets (pre-tax) 1,377 1, Return on net assets (pre-tax) (3) 3% (24%) (1) 1H 2007 EBIT has been adjusted for operating losses for the tinplate business to be closed partly offset by profit on the sale of property in New South Wales. 1H 2006 EBIT has been adjusted for the Western Port fire and operating losses for the tinplate business to be closed. 2H 2006 EBIT has been adjusted for Packaging Products and Chullora solid block paint line asset impairment and closure costs, operating losses for the tinplate business to be closed and redundancy costs for staff, executives and other internal restructuring partly offset by profit on the sale of property in Western Australia. (2) Capital and investment expenditure decrease is due to higher capital maintenance and West Sydney COLORBOND development project costs during (3) Return on net assets is defined as EBIT (annualised in case of half-year comparison)/average monthly net operating assets. ASX Half-Year Results Announcement Page: 14

15 (ii) Variance Analysis (1H 2007 vs 1H 2006) The $270M increase in sales revenue is primarily due to higher domestic demand in the building (record volumes) and distribution markets combined with higher export volumes due to the effect on production volumes of the fire at Western Port during 1H This was partly offset by lower tinplate prices. The $50M EBIT increase was largely due to: Favourable domestic sales, including record sales into the building market and significant recovery of the distribution markets. However, this was offset by a higher proportion of lower margin export sales. Lower steel feed costs. Profit on sale of land in New South Wales. 1H 2006 volumes and costs being negatively impacted by the Western Port fire. These were partly offset by: Significantly higher coating metal costs, in particular zinc. Lower tinplate prices. This segment continues to be affected by the loss making tinplate manufacturing which will cease operations in April (iii) Operations Report Illawarra Coated Products (Springhill Coated Products and Packaging Products) Coated Achieved a metal coating half-year production record of 421kt up by 5% (vs previous record of 402kt in 2H FY2006), largely due to a focus on process improvement initiatives and a furnace upgrade on Metal Coating Line No. 1. Half-year production record for the paint line of 101kt up by 8% (vs previous record of 93kt in 2H FY2006), largely due to increasing the line speed. Recorded the best ever half-year quality performance on the metal coating and paint lines. Packaging The tinplating and finishing facilities are now expected to cease operations in April 2007, noting that BlueScope announced in June 2006 the decision to close this business as it was no longer profitable nor viable given the reduced size of the Australian domestic market. Despite its announced closure, a new half-year production record was achieved on the No. 3 Electro Tinning Line, of 99kt up by 22% (vs previous record of 81kt in 1H FY2006). The Packaging pickle line and cold rolling mill will continue to operate and a study continues into the viability of utilising this cold rolling mill to produce cold rolled coil feed for BlueScope Steel's metal coating lines and external customers. Western Port Achieved a half-year production record on Metal Coating Line No. 6 of 179kt up 5% (vs 171kt in 1H FY2004). The Hot Strip Mill had its strongest half-year production in 4 years with 604kt. New TrueCore system installed on metal coating line No. 5 enabling no lost operating time when implementing product changeovers. A new laminator and water quenching system was installed on the No. 2 paint line. This system will provide increased capacity (extra 3kt) and improved product qualities, while removing one of Western Port's highest-ranked safety risks. ASX Half-Year Results Announcement Page: 15

16 Service Centres A number of six month records were achieved at the Acacia Ridge centre, namely painting, slitting and despatches, largely due to the strong demand in Queensland and good operational performance. Ongoing commissioning and start up issues at the Forrestfield site in Western Australia have led to less than optimal performance. Various actions have been identified to improve performance in the second half of the fiscal year. Despite some late equipment deliveries, the West Sydney COLORBOND facility remains on track for commissioning around June The current capital cost is $130M, excluding the land cost of $20M. BlueScope Lysaght Lysaght further strengthened its manufacturing, sales and distribution capabilities through a number of initiatives, including: The Sunshine Coast Service Centre, which became fully operational in October 2006, will take advantage of the growing Queensland market. Relocation of major equipment from Chullora, and commencement of operations at Arndell Park in western Sydney, to be closer to the residential market in the expanding Sydney building corridors. Lysaght Home Improvements Brisbane operations commenced. Sale of surplus land at Erskine Park, western Sydney. Lysaght is continuing to develop its technology and processes to widen the penetration of steel building frames in Australia. BlueScope Water BlueScope Water continues to expand its presence in Queensland, New South Wales and Victoria markets where strong growth in demand for rainwater harvesting solutions is being experienced, largely due to the severe drought conditions and more onerous water restrictions. A sales and display office on the Sunshine Coast and a new production centre at Stapylton, Queensland have been opened. Pioneer Water Tanks has seen strong growth in both commercial markets and in export opportunities, and has continued to expand its presence in the USA. The urban water business has now had five months of profitable operations and there are strong lead indicators of this trend continuing, i.e. record enquiries and robust order book. ASX Half-Year Results Announcement Page: 16

17 BLUESCOPE STEEL NEW ZEALAND New Zealand and Pacific Islands Products This segment comprises: New Zealand Steel; and Lysaght Pacific. (i) Financial Performance Table 9a: Financial Performance 1H 2007 and 1H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue EBITDA (24) (30) EBIT (23) (35) Operational EBIT (23) (35) Capital and investment expenditure (2) Net operating assets (pre-tax) (3) Return on net assets (pre-tax) (4) 24% 43% Table 9b: Financial Performance 1H 2007 and 2H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue EBITDA EBIT Operational EBIT (1) Capital and investment expenditure (25) (54) Net operating assets (pre-tax) (3) Return on net assets (pre-tax) (4) 24% 23% (1) 2H 2006 EBIT has been adjusted for internal restructuring/redundancy costs. (2) Increase in capital expenditure reflects a range of maintenance and process improvement capital initiatives. (3) Increase in net operating assets mainly reflects an increase in net fixed assets. (4) Return on net assets is defined as EBIT (annualised)/average monthly net operating assets. (ii) Variance Analysis (1H2007 vs 1H2006) Sales revenue was essentially flat. The $23M EBIT decrease was largely due to: Higher coating metal costs, in particular zinc. Higher cost of imported materials, mainly slab. Higher unit cost due to lower production volumes and increased maintenance on the primary plant kiln. ASX Half-Year Results Announcement Page: 17

18 Unfavourable movement in the NZD:USD relative to the previous comparative period. These were partly offset by: Strong New Zealand economy increasing domestic demand. Improved export prices. (iii) Operations Report Slab production was down 4.0% on 1H 2006, largely due to: Caster equipment reliability issues. Lower ironmake as a result of accretion build-up in the kilns (hard scale deposits forming inside the kiln). A remedial solution was implemented and the kilns are back to normal production levels. Metal coating line production was up 15kt to 116kt as a result of improved reliability. Paint line production was up 4kt to 31kt. The following optimisation studies continue: Increased vanadium extraction Titanium extraction BLUESCOPE STEEL ASIA Coated and Building Products Asia This segment comprises: Metal coating and paint line operations in Thailand, Indonesia, Malaysia, Vietnam and China; Butler PEB and Lysaght businesses across Asia (use product from these coating lines). Joint venture in India with Tata Steel Limited covering the development and construction of a metal coating line and paint line, Butler PEB and 3 Lysaght rollforming facilities which have been completed and commissioned. Note: The Lysaght Taiwan business has been transferred to Discontinued Business following its closure in December All periods have been restated. (i) Financial Performance (Refer to Attachment 4 and 4a for a breakdown of half-year financial data by country) Table 10a: Financial Performance 1H 2007 and 1H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue (1) EBITDA EBIT (1) ,450 Operational EBIT (2) Capital and investment expenditure (3) (109) (77) Net operating assets (pre-tax) (4) 1,273 1, Return on net assets (pre-tax) (5) 5% 0% ASX Half-Year Results Announcement Page: 18

19 Table 10b: Financial Performance 1H 2007 and 2H 2006: $ million % Financial Measures 1H H 2006 Change Change Sales revenue (1) EBITDA EBIT (1) Operational EBIT (2) Capital and investment expenditure (3) (111) (77) Net operating assets (pre-tax) (4) 1,273 1, Return on net assets (pre-tax) (5) 5% 3% (1) Previous earnings reports have included sales revenue and EBIT data for the Butler China operations acquired in April These operations have now been fully integrated into BlueScope Steel s China operating and financial results. (2) 1H 2007 EBIT has been adjusted for pre-operating costs. 1H and 2H 2006 EBIT has been adjusted for business development and pre-operating costs. (3) Capital expenditure decrease largely reflects lower expenditure in China and Thailand partly offset by higher expenditure in India. (4) Increase in net operating assets was largely due to capital expenditure in the current year, higher receivables and inventories in line with increased sales, partly offset by an increase in creditors. (5) Return on net assets is defined as EBIT (annualised)/average monthly net operating assets. (ii) Variance Analysis (1H 2007 vs 1H 2006) The $212M increase in sales revenue is primarily due to higher sales volumes across all regions together with higher domestic and export prices. The $29M EBIT increase is largely due to: Higher domestic despatches across all regions. Higher domestic and export prices. Reduced business development and pre-operating costs. Partly offset by: Higher unit costs mainly as a result of the commissioning and ramp-up of production volumes at the Vietnam and China coating lines. On a country basis, Thailand achieved a six month earnings record. Indonesia and Malaysia both had good performances whilst Vietnam, China and India made negative contributions as the new growth projects ramp-up capacity and for other reasons noted below. (iii) Operations Report Thailand Current Operations Strong first-quarter domestic demand was negatively affected in the second quarter by the prolonged political uncertainty and coup that occurred in September The resultant uncertain political climate and consequential investor apprehension is expected to continue through the second half of FY2007. A number of business initiatives have been taken to partly offset the reduced domestic demand, including: - the development of core export customers; - hot rolled coil inventory reduction; and - launch of new products and service offers in the domestic market. The technical issues are now largely resolved on metal coating line No. 2, with yield, uptime and throughput improving significantly and now close to normal anticipated operating levels. ASX Half-Year Results Announcement Page: 19

20 Ongoing improvement initiatives at the cold mill have continued to increase throughput rates and yield performance to top quartile performance. Production at the new pre-engineered building manufacturing plant commenced in July 2006 and sales have been encouraging, albeit tempered, as a result of the coup. Vietnam Current Operations Continued to ramp up operations at the new coating line. Equipment related issues affected performance in the first half. These issues have now been largely resolved with the main supplier. Domestic sales volumes were below expectations in the half primarily due to: 1. market de-stocking throughout the supply chain reflecting a fear of price reductions and a general slowdown in the market due to an extended wet season compounded by flooding in the Mekong Delta and numerous typhoons; and 2. aggressive domestic and import competition in the market on the back of weaker demand. The foreign direct invested project market continues to remain buoyant and with Vietnam accession to the World Trade Organisation it is forecast to grow further in A range of initiatives to improve business performance have been undertaken and include: - Development and launch of various new coated steel products for the project, residential and manufacturing sector. - Continued growth of BlueScope Vietnam s customer base. - A range of plant and process initiatives, including tightening of target coating masses. - Rigorous overhead cost management and reductions. Indonesia Current Operations Strong first half sales performance with 30% increase in tonnes despatched, due to strong market conditions, PEB sales and high operational performance, and 26% increase in revenue compared to 1H FY2006. Strong order booking in the first half with 15kt as of end of December The metal coating line and paint line are running at 100% and 92% capacity respectively. Introduced new products, including blue-tinted products in midstream and decking in downstream with initial success. Successfully supported disaster recovery projects with almost 9,000 houses constructed in Aceh and more than 400 houses in Yogyakarta. Strong growth in residential solutions with sales of 3.3kt in 1H FY2006 increased to 5.2kt 1H FY2007 The Indonesian economy is expected to remain strong with lower interest rate (down from 12.75% in January 2006 to 9.75% in December 2006), strengthening Rupiah (by almost 350 basis points from period of January December 2006) and GDP growth by approximately 5.5% as well as reduced inflation of 6.6% in CY2006. Capital growth project status The second metal coating and paint line project remains on hold and subject to review in CY2007. Malaysia Current Operations Strong domestic demand in the first quarter with successful price increases in anticipation of increased raw material costs. Softening demand in the second quarter (approximately 25% reduction) and realisation of increased raw material costs. ASX Half-Year Results Announcement Page: 20