Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BlueScope Steel Ltd (BLSFF, Financial) delivered a resilient performance despite volatile macro conditions, with an underlying EBIT of $1.34 billion and a return on invested capital of 11.9%.
- Strong contributions from North Star and downstream value-added components offset the impact of soft spreads in Asia.
- The company delivered nearly $550 million in shareholder returns and finished the year with a $364 million net cash balance sheet.
- The Board approved a $0.30 per share dividend and extended the buyback program to allow the remaining $270 million to be purchased over the next 12 months.
- Significant progress in decarbonization efforts, including a 12.2% reduction in steelmaking emissions intensity, aligning with the 2030 target level.
Negative Points
- Safety performance in 2024 was disappointing, with an increase in lagging safety indicators and a fatal injury of a customer's contract driver in North America.
- The rapid contraction of US spreads late in the financial year impacted North Star's performance.
- The New Zealand business faced tough macro conditions and operating challenges, resulting in a softer performance.
- Inflationary pressures, including higher electricity costs, are compounding softer industry conditions, particularly in Australia.
- The BlueScope Coated Products business in the US continues to underperform, with ongoing low bulk volumes from its foundation customer and slower external business development.
Q & A Highlights
Q: Can you unpack the North Star performance, particularly regarding any increased costs or structural costs impacting the cost base?
A: The general inflationary impact has affected the industry, but nothing specific to North Star. We reached the expected run rates towards the end of the year. Additional tons sold on spot rather than contract received weaker spreads. No interruptions from de-bottlenecking have impacted operational performance.
Q: Despite stable demand in the US, steel spreads have halved in the last 12 months. Can you explain why there hasn't been a supply-side response?
A: The new core pricing change strategy has significantly impacted the market, causing price indications to drop materially. There's general softness and uncertainty, partly due to the election cycle. No fundamental or structural reason explains the significant drop in spreads.
Q: Why not pause the buyback given the current cycle and balance sheet considerations?
A: The buyback provides flexibility to react quickly. The dividend review led to a $0.10 increase, reflecting the underlying business's capability at the bottom of the cycle. The buyback extension allows for nuanced adjustments based on changing circumstances.
Q: Can you provide more details on the $800 million CapEx guide for the second half of FY25? Is this peak CapEx?
A: The $800 million reflects ongoing projects like the blast furnace, MCL7, and the EAF in New Zealand. We are not at a point where we need to delay these projects. The focus is on prioritizing capital outside these major projects to maintain control.
Q: How do you plan to manage the Australian business given the current steel market conditions and higher electricity costs?
A: We are focusing on reducing energy consumption, optimizing discretionary spend, and improving productivity and efficiency. The team is addressing asset reliability issues and leveraging digital technologies for asset management. The goal is to maintain a strong balance sheet and manage costs effectively.
Q: Can you explain the expected performance of the US Building and Coated Products (BCP) business in the upcoming half?
A: The BCP business is expected to see a reduction in margins due to the softer steel prices. The focus is on maintaining margins and managing complexity in projects. The Cornerstone acquisition's performance is being supplemented by targeting external customers to improve volumes and operational performance.
Q: What gives you confidence in maintaining flat domestic volumes for premium products like COLORBOND and TRUECORE in Australia?
A: Despite the large volume of exports from China, they typically do not compete directly with premium products like COLORBOND. The value proposition and service offering of COLORBOND provide a competitive advantage. We expect similar volumes half-on-half, given the current market conditions.
Q: Can you provide an update on the competitive landscape and initiatives for the BCP business in the US?
A: The focus is on improving mill reliability, investing in systems, and enhancing sales and marketing capabilities. The competitive landscape is manageable, and the team is targeting toll processing tons and aluminum painting to supplement volumes.
Q: What are the key strategic steps for delivering meaningful earnings contributions in the medium term?
A: Key strategic steps include the North Star expansion and de-bottlenecking, growth opportunities for COLORBOND in North America, and continued investment in premium branded products in Australia and New Zealand. These initiatives are expected to drive medium-term growth and profitability.
Q: How do you view the medium-term outlook for the Asia business, particularly given the current economic conditions in China?
A: The China business, while impacted by the broader economy, remains flexible and profitable by targeting specific segments like electric vehicle construction. The broader Asia business has shown strong performance, particularly in Thailand and Malaysia, with ongoing improvements in Indonesia and Vietnam.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
