AUSTRALIA

The 2007/08 financial year encompassed two distinct periods of business performance for this group. In the first part of the year, market conditions were tough, while in the second half, business performance was much improved. This fluctuation was due to the flood of imports in the first half and reduced global availability of steel in the second.

As a consequence of the global market conditions, as well as our successful management of increased raw materials costs, our Australian Distribution and Solutions business was able to meet its performance targets. We recovered our margins, held volumes and successfully controlled costs. Volumes remained strong through to the end of the financial year.

Sales revenue for the year was $2.202 billion, an increase of 215 per cent. This sharp rise was primarily due to the acquisition of the Smorgon Steel Distribution business in August 2007.

EBIT was $45 million, up from $12 million the previous year, again due to the Smorgon Steel Distribution acquisition as well as higher volumes and cost reductions. EBIT was impacted by integration costs.

There was a heavy reduction in imports due to reduced supply from Asia. In particular, greater domestic demand for our product was driven by regulatory restrictions such as the introduction of export tariffs in China. Prices have increased as a result of higher raw material costs, and we have worked hard to ensure customers understand the reasons for these increases.

The Australian Distribution and Solutions business group services a broad range of markets. In 2007/08, demand was relatively strong in certain sectors such as mining, heavy infrastructure and rural. Residential markets were weaker, particularly in New South Wales.

However, some improvement in severe drought conditions led to increased activity in the rural sector. Industries such as automotive manufacturing have also encountered challenging times.

The BlueScope Buildings business continued to introduce custom-engineered buildings into the Australian market. During the year, it added aircraft hangars, distribution centres and industrial premises to its list of completed projects.

Integrating our distribution business

The integration of the former Smorgon Steel Distribution business into BlueScope Steel is progressing well. We have gained many talented people and customers have been receptive to the change. We have retained key staff and the branding position of the new business was well received by our people. Overall, the integration process has been a smooth and positive one.

We are ahead of schedule in taking advantage of the synergies and benefits of integration in areas such as service centres, sheet metal suppliers and safety.

In the area of safety, significant changes have been implemented and the importance of this discipline has been clearly communicated to our people. We are already seeing improvements, with Lost Time Injury Frequency Rate down by 35 per cent and Medically Treated Injury Frequency Rate down by 23 per cent on the previous year. We are also aligning our business management systems.

Looking ahead

We expect demand to remain strong in the first half of the 2008/09 financial year. Fundamental conditions appear solid. We will consolidate our margins and continue to take advantage of business synergies. However, the question remains as to the return of imports into the domestic market, and a downturn in the pricing cycle. The practice of buying forward may also affect market demand. Great opportunities exist in the operation of a national network of 150 sites, selling all our products across all these businesses and providing the best possible customer offer.

BlueScope Water

Within five years, our BlueScope Water business has achieved a leading position as a supplier of premium rainwater harvesting solutions, as well as culvert and irrigation infrastructure products. We are working to make our rainwater tanks a feature of urban housing developments as well as rural locations. Products such as our WATERPOINT® in-ground system, AGRIRIB® irrigation pipes and THINKTANK® water savings systems have been well received by the market.

In 2007/08, our Pioneer Water Tanks business, which specialises in large, industrial rainwater tanks, performed well. We have expanded Pioneer’s production facility in Perth to meet strong demand for rural and commercial water storage in Australian and export markets.

The urban rainwater tank market is highly competitive, and our strategy of targeting development areas, seeking larger scale residential customers, is promising. In Australia, we are manufacturing at capacity and are installing new capacity to meet growing demand.

DURING THE YEAR, BLUESCOPE LYSAGHT DESIGN AND CONSTRUCTION WAS CONTRACTED TO PROVIDE THE ENTIRE STRUCTURAL PACKAGE FOR THE NEW MACQUARIE BANK CENTRE IN SYDNEY.

In the USA, we have gained on-ground manufacturing and installation expertise through the acquisition of BH Tank Works Inc. The company, located in California, complements the existing sales and distribution facility in Austin, Texas. A number of other promising domestic and international opportunities exist in the water market. BlueScope Water has successfully exported our tanks and installation expertise to areas such as the Middle East.

During the year, BlueScope Steel research to improve our steel rainwater tanks developed an internal lining, and this product enhancement is expected to increase sales to urban markets. While there was a slight easing of drought conditions towards the end of the 2007/08 financial year, we anticipate continued strong demand for BlueScope Water products.

Lysaght Australia

BlueScope Lysaght is Australia’s premium name in residential, commercial, industrial and agricultural steel building markets. The Lysaght business is a leading manufacturer and distributor of wall cladding, fencing, rainwater products and structural products such as roof trusses and decking. Brands such as CUSTOM ORB® and MINI ORB® are well known throughout the Australian building industry, while new products and services are constantly being developed.

In 2007/08, demand remained strong in the commercial and industrial segments in Queensland, Western Australia and Tasmania. Residential building markets in these states were buoyed by labour migration. However, labour scarcity in these states affected costs and staff turnover. Import competition and drought conditions also impacted on earnings.

These factors were partly offset by an increased focus on driving operating efficiencies across the business, including the relocation of several Lysaght sites in the Sydney area, delivering cost savings.

During the year, BlueScope Lysaght Design and Construction was contracted to provide the entire structural package for the new Macquarie Bank Centre in Sydney. This innovative building design uses an external steel frame as an architectural feature that also serves as a structural grid, eliminating internal columns.

The Design and Construction business is providing a total package of design skills, expertise, planning, project management, financial strength and innovation for this high profile project. BlueScope Lysaght Façades also continued to build its reputation as a complete solutions provider, growing its business during the year.