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Our Focus: derive maximum value from the growing China steel construction industry. The market will see improved building quality, thermal efficiency and steel consumption over the next 20 years.
BlueScope Steel China
CoatedInvested Capital A$281m
BuildingsInvested Capital A$255m
BlueScope Steel Suzhou Buildings North Buildings Central
Buildings South/West Lysaght Residential
Panels Vistawall
BlueScope Steel China
Coated Buildings
BlueScope Steel Suzhou Buildings North Buildings Central
Buildings South/West Lysaght Residential
Panels Vistawall
BlueScope Steel China – an integrated group of focused businesses
Page 3
We are located in the strategic business centres of China
OwnershipBlueScope Steel 100%
Coated facilitiesSuzhouMetallic coating line, paint line & slitter
Butler PEB facilitiesShanghaiBeijingGuangzhou
Lysaght facilitiesBeijingShanghaiChengduGuangzhou
Residential facilityShanghai
Panel facilityBeijing
Sales officesOver 50 sales offices across China
Building solutions facility, BlueScope LysaghtMetallic coating and painting facility, BlueScope Steel ChinaPEB facilities, BlueScope Steel China
BlueScope Steel China
Coated Buildings
Beijing/Tianjin
ShanghaiChengdu
Guangzhou
Page 4
China’s strong economy is well documented and debated
EconomyReal GDP growth is forecast to slow gradually, but will remain strongFDI exceeds US$50 billion per annumTariff regime- 5% on cold roll steel imports- 8% on metallic coated steel imports- 4% on painted steel importsCurrently negotiating an FTA with Australia
Population1.5% per annum growth rateUrbanization continuing at a rate of 17 million people per annum
PoliticalGovernment policy will reduce investment in overheated sectors and stimulate domestic consumption levelsPotential environmental issues and economic impact from increasing pollution levelsAnticipate continued upward pressure on value of RMB
Real GDP Growth and Inflation - % chg
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1996-9
7
1998-9
9
2000-0
1
2002-0
3
2004-0
5
2006-0
7
2008-0
9
2010-1
1
2012-1
3
GDP GrowthInflation
Gross Fixed Investment and Foreign Direct Investment (US$ bn)
0
10
20
30
40
50
60
70
2001 2002 2003 2004 20050
200
400
600
800
1000
1200
1400
GFI (RHS)
Inward FDI (LHS)
Source: Global Insight, EIU
BlueScope Steel China
Coated Buildings
Page 5
China Steel & Construction – A large and growing market
• Large - Total steel consumption 351 million tonnes.• Fragmented - Top 8 producers account for 32% of
China total (BaoSteel, Anben, Tanshan, Wuhan, Shougang, ShaSteel, Jinan, Laiwu)
• Dynamic - Industry consolidation is expected
2005 Steel Production and Consumption by region
BlueScope Steel China
Coated Buildings
Source: Growell Research IISI, BSL Economics
Production (349MT)Consumption (351mt)
South:-962
South:-854
East:-26119 145
Northeast: +8
37 29
North:+40
10666
Northwest:+1
20 19
Southwest: -17
13 30
Page 6
Urbanization will drive construction growth
CONSTRUCTION AND MACHINERY ACCOUNT FOR 2/3 OF DEMAND GROWTH BY 2015
314
2015
637
323
2005
32%
Machinery
8%
Consumerdurables
16%
Automobile
10%
Others
Construction
32%
Ship building& Containers
2%
Finished steel demand, million tons
* Excludes ship building and containerSource: McKinsey China steel demand model
BlueScope Steel China
Coated Buildings
Construction Investment - Contant US$Billion
0
20
40
60
80
100
120
140
160
180
2000 2001 2002 2003 2004 2005 2006p
ResidentialNon-ResidentialCivil Engineering
CONSTRUCTION INVESTMENT
Source: Global Insight
Construction has been growing strongly as the demand for new housing and basic infrastructure soars.
Predominately coastal at present But will rapidly expand to China’s centre
URBANISATION
Page 7
Local leaders driving the business and working safely
China Extended Leadership Team
• China safety performance is amongst BlueScope Steel’s best.
• Over 1800 employees, 25% female and over 80% with post secondary education (50+% with Bachelor degree).
• Actively participate in local educational, charity and sports function.
BlueScope Steel China
Coated Buildings
Page 8
China – Our performance (growth and investment)
approx ($7m)($9.1m)--Business development and pre-operating costs included in EBIT
($10m) – ($15m)$13.1m$13.0m$8.3mTotal EBIT (3)
$4m - $8m$19.2m$11.7m$6.2m- Buildings (2)
($15m) – ($19m)($3.4m)$4.2m$4.1m- Coated
In the range ofEBIT (A$m) (1)
$352.6m$143.6m$84.1mTotal Sales
Sales Revenue (A$m) (1)
$35.0m$37.2m$36.7m- Coated
$317.6m$106.4m$47.4m- Buildings
Net Operating Assets (pre-tax A$m) (1)
$137.8m$23.8m$6.8m- Coated
$111.4m$108.4m$38.7m- Buildings
$250.1m$133.1m$45.5mTotal Net Operating Assets
196.060.017.8Total:
0.00.07.3- Export
196.060.010.5- Domestic
Ext. Despatches (tonnes) (1)
FY2006(e)FY2005FY2004FY2003
Note:(1) Results exclude Lysaght Taiwan (please refer to Supporting Information for details)(2) Acquired Butler Buildings in April 2004.(3) Includes regional costs
BlueScope Steel China
Coated Buildings
Page 9
FY06 China significant developments
Coated product SuzhouPaint line: paint on strip January 2006 (ahead of schedule)Metal coating line: on schedule for first quarter FY07
Buildings (Guangzhou) project completedInsulated panels (Langfang) project completedSecured signature projects for buildings
OlympicsDecking
Rapid growth in power station segmentCosts
Investment: pre-operating and business development costs
Page 10
China – Key influences
CoatedInput Side
CRC sourcing, pricingRamp-up of coating lineCost of coating metals
Sales SideDomestic pricingCommercial ramp-up
BuildingsInput Side
Steel price volatilityGuangzhou buildings start-up
Sales SideDomestic pricingIncreased competitionCustomer project delaysFilling increased capacity
Key factors influencing ongoing profitability
Page 11
BlueScope Buildings China – The market leader BlueScope Steel China
Coated Buildings
1983 – Lysaght Taiwan
1995 – Lysaght Shanghai
1995 – Lysaght Guangzhou
2003 – Lysaght Langfang
2003 – Lysaght Chengdu
2004 – Acquired Butler China
2005 – Tianjin Beam Line
2005 – Lysaght Residential
2006 – Buildings Guangzhou
2006 – Insulated Panels
BlueScope Steel China
Coated Buildings
BlueScope Steel Suzhou Buildings North Buildings Central
Buildings South/West Lysaght Residential
Panels Vistawall
Page 12
“High value branded steel solutions for the building and construction industry”
A targeted approach to the market BlueScope Steel China
Coated Buildings
Butler – Pre Engineered Metal Buildings
Public Buildings
Industrial
Residential
Transportation
Power Stations High Rise
Page 13
Our regional approach will provide future growth
15%
50%
35%
FY06
25%10%South/West
40%65%Central
35%25%North
FutureFY04Indicative revenue by geography
BlueScope Steel China
Coated Buildings
FY04 includes full year Butler results
LYSAGHT SHANGHAI – est. 1995
BUTLER SHANGHAI – est. 1995
BUTLER TIANJIN – est. 2002 LYSAGHT LANGFANG – est. 2003
LYSAGHT CHENGDU – est. 2003
BUILDINGS GUANGZHOU – est. 2006
Page 14
In the PEB segment, more local customers are buying quality
Local
BlueScope Steel China
Coated Buildings
StrategicMultinational2002 80% 10% 10%
2006 35% 30% 35%
Page 15
The building market is highly competitive and we must stay ahead
Opportunities
Residential and transportation segment growth supported by urbanisation
Insulated panels used more widely to control internal environments
Public buildings growth from urbanisation trend and highlighted by 2008 Beijing Olympics and 2010 Shanghai World Expo
StrategiesDevelop regional businesses & networks
Expand geographically to provide local service and reduce freightIntroduce new offers – product & support
Target new segments for steel construction (ie. residential)
Integrate supply chain with SuzhouContinue to hire & retain local talent
ChallengesReal estate development is moving geographically due to government controls
Local competitors improving quality
Margins are under pressure
Rising steel costs reduce profits
BlueScope Steel China
Coated Buildings
Page 16
Coated Steel China – a new business is starting up
1999 – Sales & marketing office established to seed China market with metallic coated and painted products
April 2004 – Groundbreaking for Suzhou facility
January 2006 – Paint on strip
March 2006 – First despatch of painted coil from Suzhou
BlueScope Steel China
Coated Buildings
BlueScope Steel China
Coated Buildings
BlueScope Steel Suzhou Buildings North Buildings Central
Buildings South/West Lysaght Residential
Panels Vistawall
BlueScope Steel China
Coated Buildings
BlueScope Steel Suzhou Buildings North Buildings Central
Buildings South/West Lysaght Residential
Panels Vistawall
Page 17
Metal Coating Line (250kt)
Color Paint Line (150kt)
BlueScope BuildingsRoll Forming Lines
Beam Fabrication Line
Cold Rolled Coilfrom
Domestic & imports
Distributors
Directs
Future product flow through Coated Steel ChinaBlueScope Steel China
Coated Buildings
Project Owners
Government
Contractors
Page 18
China Coating Project Status
StatusPaint line
Paint on strip 26 January 2006Current prime yield 80%+Full product range manufactured
Metal coated lineCoil tracking in June-July 2006Metal on strip expected September 2006MCL operator team trainedEquipment undergoing commissioningStart prime yield 60%, ramp up to 90% by year end
Lysaght ShanghaiBlueScope Steel SuzhouButler Shanghai
250ktpa Coating line, 150ktpa Paint line; 100% owned by BlueScope SteelBlueScope Steel’s largest single investment in Asia, A$280m
Australia’s largest investment in China
BlueScope Steel China
Coated Buildings
Page 19
China – Our opportunities
Going forward, sales volumes are expected to increase as new facilities come on line and markets for products from existing facilities are expanded.
Facilities Capacity (tonnes) FY2003 - 2005 FY2006 2009
Metallic Coating 250,000 250,000
Paint Line 150,000 7,350 150,000
Production (tonnes)
BlueScope Steel China
Coated Buildings
Page 20
China – expected production line ramp up profiles
96%95%88%
FY09FY08FY07AnticipatedYields
0
50
100
150
200
250
300
FY2006 FY2007 FY2008 FY2009
Prime Product Non-Prime
NAMEPLATE CAPACITY 250,000tpa
000’s Tonnes Metal Coated
020406080
100120140160
FY2006 FY2007 FY2008 FY2009
Prime Product Non-Prime
NAMEPLATE CAPACITY 150,000tpa
000’s Tonnes
* OPAL volume is included as paint products, but is produced from the metal coated line
BlueScope Steel China
Coated Buildings
Painted
96.7%
FY07
98.5%98.5%90%
FY09FY08FY06AnticipatedYields
Page 21
China – New metal coating and paint line facility markets
Current principal markets are located in:Central 56 %North 19 %South 15 %West 10 %
Brand strength separates the competitionOver 1.0 million tonnes of 55% Al/Zn production. Zincalume® steel is the #1 brand in the market.BlueScope Steel has the most widely recognised painted brandsExcellent local network with specifiers
Securing the channels to marketDirect to external customersVia strategic distributorsInternally through BlueScope Buildings
CentralNorth
South
West
BlueScope Steel China
Coated Buildings
Page 22
China product domestic pricing has become more volatile
Price: USD/MT (Incl.VAT)
0
200
400
600
800
1000
1200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Y2002 Y2003 Y2004 Y2005 Y2006
Note: USD based on quarterly exchange rate
Source: Company compiled from various sources
PPGI
CGI
HRC
CRC
China domestic steel pricing(2002 – 2006)
BlueScope Steel China
Coated Buildings
PPGI ZnAI CGI
ZnAI
ZnAI
CRC
Page 23
0
50
100
150
200
250
300
350
400
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
CGI/PPGI Spread
CRC/CGI Spread
HRC/CRC Spread
Price: USD/MT (Incl. VAT)
China product domestic pricing spreads – CRC to CGI spread has diminished over the last 18 months
2002 2003 2004 2005 2006
China domestic steel pricing spreads(2002 – 2006)
Note: USD based on quarterly exchange rate
Source: Company compiled from various sources
BlueScope Steel China
Coated Buildings
Page 24
China – Feedstock planning will help maximise profitability
Current SourceBlueScope Steel China’s major input costs are cold rolled coil, coating metals and paint.
1. Cold Rolled CoilDomestic supply will provide for best cost baseOffshore supply has proven/known quality, optimising yieldsLong term relationships are established with many suppliersFreight, tariffs and strategic relationships must also be considered
2. Other Materials:Zinc ingot from Korean Zinc is secured under group contractAluminium ingot from Comalco is secured under group contractPaint is sourced from Akzo Nobel through direct contract in China
BlueScope Steel China
Coated Buildings
Page 25
China– Despite the challenges, the market is moving our way
Opportunities
Growth of premium coated steel demand by the building market
Increase the use of steel in construction relative to concrete currently steel approx 10%
Enhance our market leading brand position
BlueScope Steel China
Coated Buildings
Strategies
Source coil feed selectively
Expertise on the ground in China
Continue marketing roll out
New market offer development
Challenges
Short term profitability
Ensuring an efficient start up
Volume growth
Margin improvement
Page 26
The business has come off FY2005 highs due to market conditions, “one offs” and large investment for the future.
The Suzhou plant will finish commissioning and begin full scale operations in October 2006.
Massive urbanisation will underpin demand for the next 20 years.
BlueScope Buildings understands the market and has adapted to recent dynamics. This will lead to solid overall growth.
BlueScope Buildings has a market leading position although we recognise that keen competition just behind us.
China will continue to experience construction growth and our recent investments will position us to grow.
Once our projects are ramped up, the Building and Coating businesses will be well placed to grow profitably.
Summary – BlueScope Steel China BlueScope Steel China
Coated Buildings
Page 28
Lysaght1. Shanghai2. Guangzhou3. Langfang4. Chengdu
BlueScope Buildings Manufacturing Locations
Butler1. Shanghai2. Tianjin3. GuangzhouVistawall1. ShanghaiResidential
1. Shanghai Panels1. Langfang
China - sales offices and facilities
3 111
4
2
4
5
2
3
1
6
8
1 11
10
9
1. Shanghai2. Guangzhou3. Wuhan4. Chengdu5. Xi’an6. Qingdao7. Tianjin8. Shenyang9. Kunming10. XiaMen11. Beijing12. Chongqing13. Hong Kong
CSM Sales Office Locations
Coating/Painting Locations1. Suzhou (under construction)
7
1
Location of Buildings China Sales Offices
Northern Region1. Tianjin2. Beijing3. Shijiazhuang4. Taiyuan5. Hohhot6. Shenyang7. Changchun8. Harbin9. Dalian10. Xi’an11. Lanzhou12. Yinchuan13. Urumqi14. Qingdao15. Yantai16. Jinan
Central Region17. Shanghai18. Hefei19. Zhengzhou20. Suzhou21. Nanjing22. Wuxi23. Hangzhou24. Ningbo25. Jiaxing26. Wuhan27. Xiangfan
South Region28. Guangzhou29. Zhongshan30. Shenzhen31. Huizhou32. Haikou33. Xiamen34. Fuzhou35. Changsha36. Nanchang37. Nanning38. Hong Kong
West Region39. Chongqing40. Chengdu41. Kunming42. Guiyang43. Quqing44. Mianyang45. Neijiang46. Leshan47. Lahsa
12
3
4
56
7
8
9
10
1112
13
141516
171819
20
2122
232524
2627
283029
38
31
32
33
34
35 36
37
3940
41
42
43
44 4546
47
3
1
1 2
12
13
BlueScope Steel China
Coated Buildings
Page 30
Recent project successes – Northern China
Tianjin Olympic Stadium Markor Furniture Group ShowroomSize: 48,445m2 Size: 5,633m2
Tech Full Electronic XEDA Industry Park Standard BuildingSize: 19,000m2 Size: 36,440m2
BlueScope Steel China
Coated Buildings
Page 31
Recent project successes – Central China
Shanghai General Motors Chart ManufacturingSize: 176,673m2 Location: 15 sites - Shanghai Size: 10,542m2 Location: Changzhou
New Horizon Manufacturing OBI SupermarketSize: 10,811m2 Location: Suzhou Size: 13,000m2 Location: Shanghai
BlueScope Steel China
Coated Buildings
Page 32
Recent project successes - Southern China
Kinglong Bodywork Shenzhen Baoli Culture PlazaSize: 40,000m2 Size: 18,000m2
Mega Tower Fang Cheng Port Power PlantSize: 240,000m2 Size: 20,000m2
BlueScope Steel China
Coated Buildings
Page 34
Taiwan – Our performance
($18m) – ($22m)$3.4m$1.1m($0.4m)Total EBITIn the range ofEBIT (A$m)
$42.9m$16.1m$10.2mTotal SalesSales Revenue (A$m)
$11.5m$10.2m$4.9mNet Operating Assets (pre-tax A$m)
7.23.82.5Total:0.00.00.0- Export7.23.82.5- Domestic
Ext. Despatches (tonnes)FY2006(e)FY2005FY2004FY2003
BlueScope Steel China
Coated Buildings
Note:FY2006 (e) includes operating losses and estimated closure costs