BlueScope Steel (ASX:BSL)

Mark Vassella
MD & CEO
Market Cap (AUD): 6.36B
Sector: Materials
Last Trade (AUD): 12.62 +0.31 (+2.44%)
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1. About

BlueScope is a global leader in premium branded coated and painted steel products - the third largest manufacturer of painted and coated steel products globally; Group has great strengths in engineered steel buildings in key markets and is number one in building and construction markets. Group’s global networks is another great BlueScope strength, with more than 100 facilities in 17 countries, employing over 14,000 people serving thousands of customers.

2. Business model

 

The Company operates the following divisions:[1]

 

Division

Revenue ($M)

% of Revenue

% of Profit (before Int & Tax)

Profit Drivers[2]

Australian Steel Products

$5,423.2

45.07%

42.30%

The 9% increase in total revenue was principally due to higher steel
prices in all regions; increased sales volumes in the ASP segment; and
unfavourable translation impacts from a stronger Australian dollar
exchange rate (AUD:USD)

North Star BlueScope Steel

$1,923.9

15.99%

31.01%

Building Products Asia & North America

$2,693.8

22.39%

13.28%

Buildings North America

$1,106.4

9.19%

5.37%

New Zealand & Pacific Steel

$833.6

6.93%

8.04%

Discontinued operations

$51.9

0.43%

0.00%

3. Strategy

 

Key strategies include:[3]

 

  • Grown premium branded steel businesses with strong channels to market
  • Maximise value from “Best in Class” assets
  • Deliver competitive commodity steel supply in our local markets
  • Ensure ongoing financial strength

4. Markets

 

The Group operates in markets including:[4]

 

Industry (Australia)

Industry Revenue (2018)

Annual Growth (13-18)

Iron Smelting and Steel Manufacturing

$10 billion

(1.8%)

Metal Roof and Guttering Manufacturing

$1 billion

11.5%

Structural Steel

Fabricating

$6 billion

(4.1%)

5. Competition

 

Major competitors include:[5]

 

  • Steel Dynamics, Inc. (NASDAQ : STLD)
  • JSW Steel Ltd (JSW STEEL : NSE)
  • Olympic Steel, Inc. (NASDAQ: ZEUS)
  • JFE Holdings, Inc. (TYO: 5411)

6. History

 

1885[6]

BHP formed to mine silver, lead, and zinc

 

1915   

BHP commenced steelmaking in Newcastle

 

1918   

John Lysaght (Australia) founded to serve building and construction market with galvanised sheets

 

1928   

Australian Iron & Steel Limited (AIS) formed to operate Port Kembla Steelworks

 

1935   

BHP acquired AIS

 

1965-1989

BHP established Australian and downstream operations; rollforming in Asia

 

1990-2001

Further expansion in Asia,entered into mid and downstream US Market

 

2002   

BlueScope became an independent company; further investment

 

2002   

BHP Steel listed on the ASX

 

2003   

Name changed to BlueScope Steel

 

2004   

Acquired Butler Manufacturing, leading designer and producer of pre-engineered buildings in North America and China

 

2005   

Vietnam metal coating/coated painting line commissioned; Tata BlueScope Steel JV announced

 

2006   

Metallic coating and painting facility opened in Suzhou, China, Blue Scope's largest investment in Asia. Second Thai metal coating line commissioned

 

2007   

Smorgon Steel Distribution acquired

 

2008   

Western Sydney Service Centre opened

 

2011   

BlueScope Australia and New Zealand business unit established

 

2012   

Divestment of Metl-Span, reconfiguration of Asia and US businesses under Global Buildings Solutions and Building Products, NS BlueScope Coated Products JV announced

 

2013   

BlueScope ANZ announced the acquisition of Orrcon Steel, Fielders and OneSteel Sheet and Coil assets and expansion of Taharoa iron sands export operations

Launched next generation of COLORBOND steel and ZINCALUME steel

 

2014   

Acquired Fletcher Building's Pacific Steel Group coil and wire manufacturing business in New Zealand

 

2015   

BlueScope moved to full ownership of north star BlueScope Steel

 

2016    

Sold Taharoa export iron sands business

 

2017    

Reached an agreement to sell 100% of the shares in its Taharoa export iron sands business to Taharoa Mining Investments Limited (TMIL), a majority-owned subsidiary of Taharoa C Block Incorporation (Taharoa C).

 

2018   

Australia's BlueScope is looking at opportunities in Asia and North America.

7. Team

 

Board of Directors[7]

 

John Bevan – Chairman (Independent)

Mark Vassella – Managing Director and Chief Executive Officer

Daniel Grollo – Non-Executive Director (Independent)

Penny Bingham-Hall – Non-Executive Director  (Independent)

Ken Dean – Non-Executive Director  (Independent)

Ewen Crouch AM – Non-Executive Director (Independent)

Lloyd Jones – Non-Executive Director (Independent)

Rebecca Dee-Bradbury – Non-Executive Director (Independent)

Jennifer Lambert – Non-Executive Director (Independent)

Mark Hutchinson – Non-Executive Director

 

Management Team

 

Mark Vassella – Managing Director and Chief Executive Officer

Charlie Elias – Chief Executive NS BlueScope

Pat Finan – Chief Executive BlueScope Buildings

John Nowlan – Chief Executive Australian Steel Products

Tania Archibald – Chief Financial Officer

Debra Counsel – Chief Legal Officer and Company Secretary

Alec Highnam – Executive General Manager, People

Gretta Stephens – Chief Executive New Zealand & Pacific Islands

Andrew Garey – Chief Strategy & Transformation Officer


read more

8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[8]

 

Division

Revenue ($M)

% Change

Profit (before Int & Tax) ($M)

% Change

Australian Steel Products

$5,423.2

10.26%

$459.4

27.86%

North Star BlueScope Steel

$1,923.9

13.11%

$406.6

5.90%

Building Products Asia & North America

$2,693.8

9.51%

$201.7

(11.60%)

BlueScope Buildings

$1,106.4

(5.75%)

$64.0

29.74%

New Zealand & Pacific Steel

$833.6

11.52%

$61.1

82.82%

Discontinued operations

$51.9

(74.74%)

$0.0

N/A

  Total

$12,032.8

7.37%

$1,192.8

16.38%

9. Risk

 

Economic downturn or weaker economic conditions.[9]

An economic downturn in developed economies or significantly slower growth in emerging economies, particularly China, could have a material adverse effect on the global steel industry which may affect demand for the Group’s products and financial prospects.

 

A significant cyclical or permanent downturn in the industries in which the Group supplies its products.

The Group’s financial prospects are sensitive to the level of activity in a number of industries, but principally the building, construction and manufacturing industries. These industries are cyclical in nature, with the timing, extent and duration of these economic cycles unpredictable. As many of the Group’s costs are fixed, it may not readily be able to reduce its costs in proportion to an economic downturn and therefore any significant, extended or permanent downturn could negatively affect the Group’s financial prospects.

 

Declines in the price of steel, or any significant and sustained increase in the price of raw materials in the absence of corresponding steel price increases.

The Group’s financial prospects are sensitive to the long-term price trajectory of international steel products and key raw material prices. A significant and sustained increase in the price of raw materials, in particular iron ore and coking coal, with no corresponding increase in steel prices, would have an adverse impact on the Group’s financial prospects. A decline in the price of steel with no corresponding decrease in the price of raw materials would have the same effect.

 

The Group is exposed to the effects of exchange rate fluctuations.

The Group’s financial prospects are sensitive to foreign exchange rate movements, in particular the Australian dollar relative to the U.S. dollar. A stronger Australian dollar relative to the U.S. dollar
has adverse effects on the Group. This is because in the Australian market a strong Australian dollar makes imported steel products less expensive to Australian customers, potentially resulting in more imports of steel products and/or lower domestic prices. These are offset in part by a significant amount of raw material purchases being denominated in U.S. dollars. In addition, earnings from BlueScope’s international businesses must be translated into Australian dollars for financial reporting purposes.

 

Competition from other materials and from other steel producers could significantly reduce market prices and demand for the Group’s products.

In many applications, steel competes with other materials such as aluminium, concrete, composites, plastic and wood. Improvements in the technology, production, pricing or acceptance of these competitive materials relative to steel could result in a loss of market share or margins. The global steel industry is also currently characterised by significant excess capacity and the Group faces competition from imports into most of the countries in which it operates. Increases in steel imports could negatively impact demand for or pricing of the Group’s products.

 

Foreign exchange risk

Foreign currency payables and receivables (primarily USD) and net investments in foreign currency.

 

Interest rate risk

Floating interest rate bearing liabilities (2018: $349.2M, 2017: $203.4M) and investments in cash and cash equivalents (2018: $944.4M, 2017: $753.0M).

 

Commodity price risk

International steel prices (primarily hot rolled coil and slab), and commodity prices including iron ore, coal, scrap, zinc, aluminium and electricity.

 

Liquidity risk

Difficulty in meeting obligations associated with financial liabilities.

 

Credit risk (Counterparties/ Geographical)

Possibility that counterparties to the Group's financial assets, including cash, receivables and derivative financial instruments, will fail to settle their obligations under their contracts.

  • Large number of customers internationally dispersed with trades in several major geographical regions.
  • Regions in which the Group has a significant credit exposure are Australia, USA, China, Southeast Asia and New Zealand
  • Significant transactions with major customers, being Arrium Limited and Fletcher Buildings Group within the Australian Operations