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Challenge and opportunity

The 2005/06 financial year should be seen as a turning point for BlueScope Steel as a large part of activity and spending shifts from construction to production. Your Company is evolving and reshaping as we dramatically expand our midstream and downstream value added businesses.

Since the establishment of BlueScope Steel four years ago, we have repositioned the Company from being primarily an Australian steel maker and metal coater, to a leading global provider of steel building products and steel solutions.

After this period of aggressive expansion, we now operate 91 manufacturing plants in 17 countries. We have more than 18,000 employees, with over half of that number working outside Australia.

Safety first

Every one of our employees, contractors and their families deserves our fullest commitment and vigilance in providing safe and healthy workplaces. Safety is our number one priority at BlueScope Steel and nothing less than Zero Harm is acceptable.

In the past year, our BlueScope Steel Asia facilities have continued to set new safety benchmarks. In North America, the Butler Buildings and Vistawall businesses, acquired in 2004, surpassed all previous injury free records. New Zealand Steel set a new lost time injury (LTI) free record and Port Kembla slabmaking achieved three million hours LTI free.

Regrettably, and despite this progress, there were two fatalities during the year - one in our New Zealand operation, and the second at our Suzhou construction site in China. These were tragic for us and we all continue working towards our goal of Zero Harm.

Kirby Adams

Importantly, our business strategy is on track and has not changed. If anything, tighter steelmaking margins reinforce the need to be positioned closer to the end customer in value-added products.

A volatile year

This past financial year was one of extreme volatility for BlueScope Steel and the global steel industry. Significantly higher iron ore and coal feed costs, soaring zinc and aluminium prices, lower steel prices and a strong Australian dollar all made business very tough for us, particularly in the second half.

From September 2005, a major fire closed Western Port's hot strip mill for 12 weeks, causing logistical and supply issues across our business. The impressive recovery effort to restore the mill (managed by our own Western Port employees) finished on budget and on schedule and was a credit to the entire BlueScope Steel team.

The Company's despatches were six per cent higher overall. Exports comprised 42 per cent of our product mix, up from 31 per cent, as additional slab and hot rolled coil was sold in response to the Western Port fire and weaker domestic markets. However, lower steel commodity margins in international markets reduced earnings for the year.

Our New Zealand Steel operation, with its second best performance ever, was adversely affected by softer demand in residential markets, lower steel prices and much higher electricity costs due to drought.

Your Company is uniquely positioned across the fastest growing economies of the world, and well established in the world's most populous COUNTRIES of China, India, Indonesia and the United States.

Wind towers of XLERPLATE® steel power Challicum Hills Wind Farm.

The eliptical shape of the Altona Meadows Library and Learning Centre is wrapped with COLORBOND® steel in CUSTOM ORB®. A three-metre racing stripe runs along both ends of the building, with the roof clad in LYSAGHT TRIMDEK® made from ZINCALUME® steel.

In response to the challenging environment and volatile market conditions, we have taken further steps across the Company to reduce costs, improve efficiencies, and increase performance levels.

At the end of June, we announced some major cost cutting measures, including the final closure of our tin mill at Port Kembla and our manufacturing operations in Taiwan. Further, we are reducing approximately 250 management and staff positions across all operations. These are not decisions we take lightly, as they affect the lives of often long-standing employees.

Despite all these pressures, volumes grew and revenue rose to $8.0 billion, an increase of one per cent. Post our restructuring charges, earnings before interest and tax (EBIT) was lower at $556 million, and net profit after tax (NPAT) reduced to $338 million.

We marked some significant achievements during the year. In North America, North Star BlueScope Steel had a record year of steel production and despatches, and was again voted the number one flat rolled steel supplier in the prestigious Jacobson survey. Downstream, we are delighted to see that the effort we have put into turning around the acquired Butler Buildings business is beginning to reap returns. The business reported its best financial performance since 2001.

The 2005/06 financial year should be seen as a turning point for BlueScope Steel as A large part of our activity and spending shifts from construction to production.

We have established a strong footprint for growth in North America, where we have a strategic focus on increasing our downstream businesses, supported by an excellent upstream hot rolled coil business. With our Butler business, we are well on our way to achieving our vision of becoming the pre-eminent global designer and supplier of pre-engineered steel buildings (PEBs).

Port Kembla Steelworks achieved its best ever delivery performance and record production levels.

The overall performance of our Asian business was very disappointing. Higher operating and start-up costs associated with the Company's many growth projects, increased regional volatility in market demand and pricing, lower volumes, and losses in the Taiwan operations all contributed. We have taken steps to improve performance across the regions, appointed Kathryn Fagg as President of Asian Building and Manufacturing Markets, and announced the closure of the Taiwan operations. We will see a better result from our Asian businesses in FY2007 as we move into production.

Josh Anderson, at Butler bundles flat STYLWALL® wall panels.

Josh Anderson, at the Butler
specialty plant.

Investment for growth

We are making excellent progress with our capital investment program. In July, the first slab was rolled from our $100 million improvement to the Port Kembla Steelworks hot strip mill, increasing capacity by 400,000 tonnes. The $150 million development of the Western Sydney COLORBOND® steel centre is on schedule for completion by mid 2007. This COLORBOND® steel paintline facility will meet the specific needs of local customers in the building and manufacturing sectors.

In Asia, we have five major plants under construction. The largest of these, the $280 million metal coating and painting facility in Suzhou, China, will be officially opened in October 2006. Also in China, the Guangzhou pre-engineered building (PEB) and Lysaght facilities were completed in June, on schedule and budget.

In Vietnam, near Ho Chi Minh City, a new metallic coating and painting facility commenced operations in November.

In the same month, at our Map Ta Phut plant in Thailand, a second metallic coating line opened. A PEB manufacturing facility, adjacent to the coating line, will be in operation in October 2006.

We announced the establishment of a new joint venture company in India in May. Tata BlueScope Steel will be a significant player in this fast emerging market. In Pune, India, the LYSAGHT™ rollforming plant and the BUTLER™ PEB and Design Centre was commissioned ahead of schedule and formally opened in August. Construction of the two rollforming and PEB manufacturing facilities at Chennai and New Delhi is progressing ahead of schedule, and expected to be completed by the end of 2006.

In North America, at Jackson, Tennessee, our Butler specialty plant came on stream at the start of the financial year, and the Vistawall extrusion plant expansion was completed in late November.

Leadership team

During the year, we welcomed Paul O'Malley as Chief Financial Officer following the appointment of Brian Kruger to the position of President Australian Manufacturing Markets. Mike Courtnall retired in February and Kathryn Fagg was appointed President Asian Building and Manufacturing Markets.

In August, I announced my intention to retire from the Company in October 2007. For some time, the Board and I have had an understanding that I would provide at least one year's notice of my retirement plans, to enable appropriate succession planning and leadership transition to occur.

In 12 months time, I look forward to reporting an improved financial result and the completion of our growth strategy to reshape BlueScope Steel for the 21st century.

To date, our Company's achievements have been numerous; from the successful demerger, to international growth, to the implementation of our midstream and downstream business strategies and our world leading safety record.

Over the next year there remains much to do - delivering returns on our rapid expansion in Asia, continuing to drive home the benefits of our acquisition in North America, focusing on our goal of Zero Harm, and delivering superior and tax-effective returns to shareholders. I remain fully committed to achieving these goals for you in 2007

This sleek, contemporary home is clad in ZINCALUME®steel in MINI ORB® profile.

WOODEND, VIC., AUSTRALIA This sleek, contemporary home is clad in ZINCALUME® steel in MINI ORB® profile.


The 2005/06 year was truly a challenging one. Despite the highest raw material costs ever, weaker global steel markets, tighter margins, a major fire at our second-largest facility, a persistently strong Australian dollar and our audacious growth plan with over 20 capital projects in eight countries, the Company delivered many records. We hold a positive long-term view of the global steel industry. Your Company is uniquely positioned across the fastest growing economies of the world, and well established in the world's most populous countries of China, India, Indonesia and the United States.


The pace of business is accelerating, and the competition is tough. To stay in front, we will work hard, be innovative and ready to adapt and change. Globally the steel industry is consolidating, and in Australia we are participating in the restructure of the domestic steel industry through the acquisition of an interest in Smorgon Steel.

As high raw material costs continue to put pressure on margins, we are making tough decisions and taking strong action to ensure we meet our longer-term corporate and financial targets.

Importantly, our business strategy is on track and has not changed. If anything, tighter steelmaking margins reinforce the need to be positioned closer to the end customer in value-added products.

In the meantime, we are absolutely focused on profitably growing our businesses in Australia, Asia, New Zealand and North America. The best is yet to come.

It is extremely gratifying to see BlueScope Steel people bringing Our Bond to life, through their commitment to achieve common goals, to safety, and to our customers and communities. I thank our employees for their dedication and contribution. I would also like to recognise the loyalty of our many customers and shareholders who choose to buy BlueScope Steel products and shares. Thank you.

Kirby Adams
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