CHAIRMAN'S MESSAGE
Challenge and Rewards
OVER THE LAST FOUR YEARS, WE HAVE MADE MAJOR PROGRESS IN OUR LONG-TERM INVESTMENT STRATEGY, A STRATEGY THAT DIFFERENTIATES US AND WILL TRANSFORM BLUESCOPE STEEL AS AUSTRALIA'S GLOBAL STEEL COMPANY INTO A WORLD LEADER IN STEEL SOLUTIONS.
This year has been one of the most volatile and challenging years in the steel industry. In an environment of spiralling raw material and other input costs and lower steel prices, BlueScope Steel continues to focus on improving efficiency in its core operations while implementing its downstream investment strategy.
The Board is confident that this strategy is on track and will deliver long-term value for our shareholders.
Performance
Severe pressure on margins saw net profit after tax decrease 66 per cent to $338 million. This result is a reflection of higher raw material costs, particularly for iron ore, and lower pricing for slab, hot rolled coil and coated products in international markets. This, combined with start up costs for new projects in Asia and one-off restructure costs to exit loss-making businesses, placed pressure on margins.
In advance of the latest increase in raw material prices, BlueScope Steel took swift and decisive action to further reduce costs. In June, the Company announced that loss-making operations, such as the tin mill at Port Kembla and the operation in Taiwan, would be closed.
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WE HAVE INVESTED SIGNIFICANTLY IN OUR DOWNSTREAM BUSINESSES, MOVING FURTHER INTO HIGH VALUE-ADDED, BRANDED STEEL PRODUCTS, WHICH WILL GENERATE HIGHER REVENUE AND EARNINGS AND REDUCE CYCLICALITY. |
Further efficiencies were announced through the reduction of 250 staff and management positions. BlueScope Steel will continue to seek opportunities to improve efficiencies throughout the coming year.
The Company achieved 67 cents underlying earnings per share which was within the guidance provided to the market in February. After one-time restructuring charges, the earnings per share for the year was 48 cents.
Shareholders
Since public listing in 2002, we have been very focused on rewarding our shareholders as we grow. This commitment continues.
This year, we increased the dividend payment by 5 per cent, resulting in a total ordinary dividend of 44 cents per share fully franked, compared with 42 cents per share for ordinary dividends last year.
Since listing, BlueScope Steel has returned close to $2 billion to shareholders through share buybacks and ordinary and special dividends.
A Dividend Reinvestment Plan (DRP) has been introduced for shareholders in Australia and New Zealand.
This plan offers an efficient and cost-effective way to increase your investment in your Company. Shares received under a DRP rank equally with existing fully paid ordinary shares.
Long-term investment strategy
Over the last four years, we have made major progress in our long-term investment strategy, a strategy that differentiates us and will transform BlueScope Steel as Australia's global steel company into a world leader in steel solutions.
We have invested significantly in our downstream businesses, moving further into high value-added, branded steel products, which will generate higher revenue and earnings and reduce cyclicality. This investment strategy will enable us to capture profit margins that accumulate as we add greater value to our steel, and as we expand our global portfolio.
During 2005/06, seven major investment projects were completed and commissioned. These included the second metallic coating line in Thailand; the new coating and painting facility in Vietnam; in Tennessee, USA, the new Butler specialty product plant at Jackson and the expansion of the Vistawall Greeneville plant; the Lysaght plant and Butler pre-engineered building (PEB) manufacturing facility and Design Centre in India; the PEB and Lysaght facilities in Guangzhou, China; and the hot strip mill expansion in Port Kembla.
Other major investments will come on stream this coming year. In 2005/06, the capital investment program reached $816 million, representing approximately 40 per cent of the total $2 billion growth program.
In May, your Board, together with the Board of Tata Steel, the leading steel company in India, approved a 50/50 joint venture arrangement to develop a steel coating and building solutions business across India and South Asia.
India has one of world's fastest growing economies with the second largest population after China.
Your Directors are confident BlueScope Steel is developing an outstanding footprint and business in the Asia region. We are very excited by the growth prospects this region offers. BlueScope Steel is the leading Australian manufacturing investor in each Asian country in which we operate, and is ideally positioned to capitalise on opportunities within this dynamic region.
Corporate Governance
BlueScope Steel complies with the ASX principles of Good Corporate Governance and Best Practice Recommendations. I believe the Board of Directors continues to provide leadership and strategic direction of a high quality. The complementary skills and experience of our members is the key to its strength.
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CHALLICUM HILLS, VIC., AUSTRALIA |
We will continue to be guided by Our Bond, BlueScope Steel's values statement, which commits to rewarding shareholders, caring for our employees, valuing our relationships with our customers and respecting the communities in which we do business. We can only grow and prosper if we stay true to these principles.
Shareholders would be aware that Managing Director and CEO Kirby Adams has announced his intention to retire in October 2007, by which time he will have been CEO for more than seven years, including five years as Managing Director and CEO of BlueScope Steel as a publicly registered Company.
Over the next 12 months, he will have largely achieved the key strategic goals agreed with the Board since his appointment.
BlueScope Steel has a detailed succession planning process which is reviewed regularly by the Board. The 14 months notice provided by Mr Adams will enable a smooth succession process.
On behalf of the Board of Directors, I would like to thank Managing Director and CEO Kirby Adams, his management team and our 18,000 employees for their commitment, focus and initiative during a challenging year.
GRAHAM KRAEHE AO, CHAIRMAN
