Annual Report
2015/2016
XXX-XXX-XXXXX
CHAIRMAN’S
MESSAGE
DEAR SHAREHOLDER
BlueScope’s performance continued to strengthen in the 2016 financial year,
demonstrating that the Company is well and truly delivering on its strategic priorities.
I thank our loyal shareholders who have followed our journey of rebuilding the Company,
in the face of continuing over-supply and volatility in the global steel sector. BlueScope’s
earnings performance has been delivered through a laser-like focus on cost
competitiveness, investment in innovation, and strong balance sheet management.
This is my first letter to you as Chairman, so let me state at the
outset, that under my watch, BlueScope will continue to always
behave in a safe and responsible manner, that reflects the values
we have outlined in Our Bond – a document defining our
relationships with our shareholders, our customers, our
employees and our communities.
BlueScope will always be prepared and confident in our ability to
address whatever challenges the global steel sector poses. And it
will commit to achieving superior performance and returns for our
shareholders through the business cycle.
GLOBAL STEEL SECTOR
The context for this year’s annual report to shareholders is a global
steel sector that has rarely been more volatile. Steel spreads (the
margin between steel prices and raw material input costs) have
hit record lows per tonne, and global capacity utilisation has been
as low as mid-60 per cent (ie 35 per cent overcapacity) during this
financial year.
On the one hand, multilateral and bilateral free trade agreements
abound, while on the other, protectionist trade barriers are being
erected. It’s a complex and ever-changing world economy.
BlueScope operates in 17 countries around the world, and so we
must constantly monitor and adapt our businesses to these market
forces – within the context of our overall strategy, and with a
long-term, prudent mindset.
In the early part of FY2016 in Australia, these difficult market forces
combined. The Company’s Illawarra operations faced a critical
challenge – to continue or to cease steelmaking at Port Kembla.
THE BLUESCOPE RESPONSE
This cliffhanger debate, Plan A (continue steelmaking) versus
Plan B (cease steelmaking) took place in full public glare. Great
commitments from a range of stakeholders (including employees,
unions, and the NSW government) were required to give your
Board the confidence to decide on Plan A; steelmaking could
continue in the Illawarra.
It was a 50-50 decision and a very tense time. The Plan A decision
saved up to 4,500 jobs in the Illawarra.
Now, less than 12 months later, because of the operating cost
reductions made at Port Kembla, and also the positive earnings
performance by BlueScope’s businesses across our international
portfolio - the Company has delivered outstanding full year results,
culminating in a net profit after tax of $353.8 million for the year.
While some might expect pause for celebration, it’s not the time
to be complacent. The Board is well aware of the reality, that in
early 1H FY2017, global steel remains in massive oversupply. This
will cause volatility in all our markets. BlueScope has proved over
the past few years that it has the mettle to compete. We now
need to prove ourselves again, by building on the FY2016 result,
and by continuing to reinvent ourselves as one of world’s most
innovative and internationally competitive steel companies.
Across all our businesses, we need to embed the lessons of
survival from the last 12 months at Port Kembla. BlueScope must
become a synonym for “a flexible, nimble, low cost, high value
steel company”.
FY2016 FINANCIAL HIGHLIGHTS AND OUTLOOK
BlueScope delivered a $353.8 million reported net profit after
tax (NPAT) for FY2016 – a $217.5 million increase on FY2015.
Underlying NPAT of $293.1 million was 119 per cent higher
than FY2015.
The Company lifted underlying earnings before interest and tax
(EBIT) by 89 per cent to $570.5 million through a combination of
sales growth, cost reductions and the benefit of the North Star
acquisition in the US.
Net debt at 30 June 2016 was $778.0 million, reduced by
$595.4 million from 31 December 2015 through strong operating
cash flow. Leverage of 0.8 times EBITDA (EBIT, Depreciation &
Amortisation) was 50 per cent less than the first-half position
at 31 December 2015 of 1.6 times EBITDA. Our intention is to
further reduce leverage to be sustainably below 1.0 times net
debt to EBITDA.
The Board approved payment of a fully franked full year dividend
of 3.0 cents per share, in line with our FY2015 final dividend.
Looking forward, the Company expects 1H FY2017 underlying EBIT
to be around 50 per cent higher than 2H FY2016 underlying EBIT,
which was $340.4 million. 1H FY2017 underlying net finance costs
are expected to be lower than 2H FY2016 due to lower average
borrowings, underlying tax rate to be slightly higher and profit
attributable to non-controlling interests similar to 2H FY2016.
Expectations are subject to spread, FX and market conditions.
DELIVERY ON OUR STRATEGIC PRIORITIES
Across our global portfolio our people achieved these outstanding
results while also continuing our safety journey to zero harm.
Despite this improved performance, we maintain our relentless
focus on cost competitiveness in the face of volatile commodity
steel prices and raw material costs, and exchange rate fluctuations.
We are making good progress across each of our strategic themes.
In Coated & Painted Products:
• We have delivered 31 per cent compound annual underlying
EBIT growth in our Building Products segment over the last four
years. Our home appliance steels, in partnership with NSSMC,
are now in production in Thailand and are gaining customer
acceptance in line with our expectations. In Australia, we saw
9 per cent growth in coated and painted sales volume during
the year.
• Our current focus is to further grow our business particularly
in Asia, implementing our growth strategy in coated and
painted products. The BlueScope Board has given in-principle
approval, subject to finalisation of contracts and NS BlueScope
joint venture board approval, for a third metal coating line in
Thailand; the new line will deliver added capacity to meet
demand in the growing retail/SME building market. Rigorous
cost management remains essential and ongoing, particularly
for more mature markets like Australia and New Zealand.
In BlueScope Buildings:
• We are delivering continued growth in North American earnings;
in FY2016 underlying EBIT was $40 million, up $8 million on
FY2015. We are commencing a sizeable productivity and
cost-out project to drive further earnings growth whilst
introducing new innovative products into the market.
• Earnings in China turned the corner in FY2016, with reduced
losses at our buildings business. Our focus is to continue to
improve our market and customer engagement in China.
For North Star, in FY2016 we made very good progress in
maximising the value of this structurally advantaged steel
making business:
• In October 2015 the Company acquired Cargill’s 50 per cent
of North Star, to bring BlueScope to full ownership.
• With steel spreads rising approximately 60 per cent since
the acquisition, North Star had an excellent financial finish to
FY2016 and is well positioned at the start of FY2017 to benefit
from higher steel spreads.
• The business continues to deliver low-cost incremental volume
growth initiatives.
In Australian and New Zealand steelmaking, progress on cost
savings has provided the basis to continue to make steel for now.
In the Illawarra, the constructive engagement by employees, the
management team, union leaders, the Fair Work Commission and
the New South Wales government was essential and outstanding
– seeing 4,500 jobs saved, large restructuring costs avoided and
positive exposure to the benefit of higher steel prices preserved.
Our pursuit of productivity improvements continues. We need to
deliver returns necessary to support a decision in 10 to 15 years,
to reline the blast furnace at Port Kembla. What we have achieved
in the last year are essential steps toward being the competitive
and profitable producer needed to support this future
reinvestment opportunity.
In New Zealand, there is a long way to go on costs. We operate a
small, fully integrated steelworks that has to compete on the global
stage. It faces unique challenges to be cost competitive. The
Company will seek to collaborate with all key stakeholders, to
make our New Zealand Steel operations at Glenbrook
internationally competitive and profitable.
SAFETY
BlueScope people remain focussed on our goal of Zero Harm. In
the 2016 financial year, the Lost Time Injury Frequency Rate was
0.6 per million hours worked, matching the performance of the
previous year. The Medical Treated Injury Frequency Rate was
5.1 per million hours worked, compared to 4.6 the previous year.
The LTIFR and MTIFR have been below 1.0 and 7.0 respectively
for more than 10 years.
One of the privileges of being a member of BlueScope’s Board is
the opportunity to see employees at work at the Company’s sites
around the globe, and I am always struck by their dedication to
safety at all times. During the year we visited Malaysia, where we
used a new online reporting system to conduct safety audits on
site. In Thailand we saw product and roof fixing training delivered
by the BlueScope Mobile Training Centre, a BlueScope initiative to
help make the local industry safer. It has trained over 2,500 local
builders since FY2014, and is a tribute to our local team.
THE EXTERNAL ENVIRONMENT
BlueScope competes successfully on the international stage,
against much larger competitors. In the current face of global steel
oversupply, it’s imperative governments ensure trade is both free
and fair. That means ensuring Australia’s World Trade Organisation
(WTO)-compliant anti-dumping system operates in a timely and
effective manner to deter unfair or dumped imports.
In Australia, where there is a newly elected Parliament and new
agenda, we are working with all sides of politics to ensure there
are no unintended consequences from proposed public policy reform.
BOARD RENEWAL
During the FY2016 financial year the latest step in the Board
renewal program conducted over recent years was completed
when Graham Kraehe, AO, stepped down as Chairman at last
year’s Annual General Meeting in November.
Graham had a successful and distinguished career in executive
and non-executive roles with a number of Australian companies.
At BlueScope, Graham made an outstanding contribution to the
development of the Company. He provided early insight and drive
in the Company’s growth into Asia, and steered the Board and
management through the most significant changes the world steel
industry has ever seen.
It is an honour and privilege to take over from Graham as Chairman
of BlueScope. My key priorities are to support the execution of
BlueScope’s strategy introduced last year, and support the Company
to move quickly, be more agile and innovative, and prosper in a
challenging industry.
I thank my fellow Directors and BlueScope management for
supporting me during this transition.
My final thanks are to all BlueScope people who continue to work
with such dedication to ensure our Company has a sustainable future.
Like all shareholders, I look forward to another successful
year ahead.
Similarly, in domestic Competition law or Environment law, for
example, there should be no domestic imposts exclusively on
domestic companies that, in effect, give a “leg up” to our
international competitors.
John Bevan
Chairman
The Company remains focused on improving the energy and
carbon efficiency of all its operations. And we are getting on with
business, when it comes to our energy efficiency and environmental
responsibilities. We are strongly of the view that until such time as
our major international competitors face mandatory carbon costs
or limits, governments in countries such as Australia and New
Zealand should not impose material carbon costs on their
domestic steel and manufacturing industries.
DIRECTORS’
REPORT
BlueScope Steel Limited
ABN 16 000 011 058
Directors’ Report for the year ended 30 June 2016
The Directors of BlueScope Steel Limited (‘BlueScope Steel’) present their report on the consolidated entity (‘BlueScope Steel Group’ or ’the
Company’) consisting of BlueScope Steel Limited and its controlled entities for the year ended 30 June 2016.
OPERATING & FINANCIAL REVIEW
FINANCIAL RESULTS
The BlueScope Steel Group comprises five reportable operating segments: Australian Steel Products (ASP); New Zealand & Pacific Steel
(NZPac); BlueScope Buildings (BB); Building Products ASEAN, North America and India (BP); and Hot Rolled Products North America (HRPNA).
Table 1: Results Summary
Revenue
Reported Result 1
Underlying Result 2
$M
FY2016
FY20153
FY2016
FY2015
FY2016
FY2015
Sales revenue/EBIT3
Australian Steel Products
New Zealand & Pacific Steel
Building Products ASEAN, Nth Am & India
BlueScope Buildings
Hot Rolled Products North America
Discontinued operations
Segment revenue/EBIT
Inter-segment eliminations
Segment external revenue/EBIT
!
4,437.4
4,792.1
887.3
1,766.8
1,705.9
847.3
-
972.1
1,790.8
1,538.1
-
31.6
9,644.7
9,124.7
(462.0)
(572.4)
9,182.7
8,552.3
Other revenue/(net unallocated expenses)
20.0
19.4
Total revenue/EBIT
Finance costs
Interest revenue
9,202.7
8,571.7
Profit/(loss) from ordinary activities before income tax
Income tax (expense)/benefit
Profit/(loss) from ordinary activities after income tax expense
Net (profit)/loss attributable to outside equity interest
Net profit/(loss) attributable to equity holders of BlueScope Steel
Basic earnings per share (cents)
77.7
(397.3)
149.3
39.0
847.3
(0.7)
715.3
(1.4)
713.9
(92.3)
621.6
(109.1)
5.2
517.7
(101.4)
416.3
(62.5)
353.8
62.1
128.4
(30.3)
97.1
56.0
107.3
1.8
360.3
0.1
360.4
(63.8)
296.6
(77.0)
4.3
223.9
(46.8)
177.1
(40.8)
136.3
24.3
361.4
(53.5)
149.3
49.2
146.5
-
652.9
(1.4)
651.5
(81.0)
570.5
(95.1)
5.2
480.6
(124.9)
355.7
(62.6)
293.1
51.4
150.3
(33.2)
98.3
43.7
107.3
-
366.4
0.1
366.5
(64.7)
301.8
(71.2)
4.3
234.9
(59.5)
175.4
(41.2)
134.1
23.9
1) The financial report has been prepared in accordance with the Australian Accounting Standards issued by the Australian Accounting Standards Board, which are compliant with
International Financial Reporting Standards (IFRS). References to ‘reported’ financial information throughout this report are consistent with IFRS financial information disclosed in
the financial report.
2) References to ‘underlying’ information are to non-IFRS financial information prepared in accordance with ASIC Regulatory Guide 230 (Disclosing non-IFRS financial information)
issued in December 2011. Non-IFRS financial information, while not subject to audit or review, has been extracted from the financial report, which has been audited by our
external auditors.
3) Performance of operating segments is based on EBIT which excludes the effects of interest and tax. The Company considers this a useful and appropriate segment performance
measure because Group financing (including interest expense and interest income) and income taxes are managed on a Group basis and are not allocated to operating
segments.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 1
Page 40
Table 2A: Reconciliation of Underlying Earnings to Reported Earnings
Management has provided an analysis of unusual items included in the reported IFRS financial information. These items have been considered
in relation to their size and nature, and have been adjusted from the reported information to assist readers to better understand the financial
performance of the underlying operating business. Throughout this report management has used the term ‘reported’ to reference IFRS financial
information and ‘underlying’ to reference non-IFRS financial information. These adjustments are assessed on a consistent basis from period to
period and include both favourable and unfavourable items. Non-IFRS financial information while not subject to audit or review has been
extracted from the financial report which has been audited by our external auditors. An explanation of each adjustment and reconciliation to the
reported IFRS financial information is provided in the table below.
Reported earnings
Underlying adjustments:
Net (gains)/losses from businesses
discontinued 1
Impact of acquiring a controlling interest in
North Star 2
Asset impairments 3
Business development, transaction and pre-
operating costs 4
Accounting adjustment on closure of
Australian defined benefit super fund 5
Production disruptions 6
Restructure and redundancy costs 7
Asset sales 8
Debt restructuring costs 9
Tax asset impairment / (write-back) 10
EBITDA $M
EBIT $M
NPAT $M
EPS $ 11
FY2016
FY2015
FY2016
FY2015
FY2016
FY2015
FY2016
FY2015
1,009.8
639.6
621.6
296.6
353.8
136.3
0.62
0.24
0.7
(1.8)
0.7
(1.8)
0.6
(1.1)
0.00
(0.00)
(704.0)
553.6
-
-
(700.8)
553.6
-
-
(702.9)
553.6
-
-
18.2
10.6
18.2
10.6
12.8
7.4
(1.23)
0.97
0.02
-
-
0.01
-
1.6
109.8
(34.3)
-
-
(27.2)
6.6
28.3
(11.3)
-
-
-
1.6
109.8
(34.3)
-
-
(27.2)
-
(19.0)
-
(0.03)
6.6
28.3
1.2
76.8
(11.3)
(33.9)
-
-
6.2
24.9
4.7
19.2
(7.3)
2.8
(8.9)
0.00
0.13
0.01
0.03
(0.06)
(0.01)
0.01
0.04
0.51
0.00
(0.02)
0.24
Underlying earnings
955.4
644.8
570.5
301.8
293.1
134.1
1) FY2016 reflects foreign exchange translation losses within the closed Lysaght Taiwan business ($0.7M pre-tax). FY2015 reflects gains relating to the discontinued Building
Solutions Australia businesses ($2.3M pre-tax) and foreign exchange translation losses within the closed Lysaght Taiwan business ($0.5M pre-tax).
2) FY2016 reflects the de-recognition and fair value gain on BSL’s existing 50% equity investment in North Star ($706.6M pre-tax) partly offset by other one-off acquisition
accounting impacts ($5.8M pre-tax) following the acquisition of the remaining 50% on 30 October 2015.
3) FY2016 includes the following asset impairments:
• ASP: fixed assets and intangibles write off ($189.0M pre-tax) recognised in December 2015.
• NZPac:
- New Zealand Steel and Pacific Steel – fixed assets write off ($182.2M pre-tax) recognised in December 2015.
- Taharoa iron sands operations – fixed assets write off ($182.4M pre-tax), of which $162.7M was recognised in December 2015 and the remainder in June 2016.
4) FY2016 reflects Corporate transaction costs associated with the acquisition of the remaining 50% share in North Star ($9.4M pre-tax), Corporate business development costs
($1.9M pre-tax), integration costs associated with the Australian businesses acquired during 2H FY2014 ($2.4M pre-tax) and production losses incurred through commissioning
the billet caster in New Zealand ($4.5 pre-tax). FY2015 reflects transaction and integration costs associated with the Australian businesses acquired during 2H FY2014 ($6.4M
pre-tax) and Corporate business development costs ($2.5M pre-tax) and business development costs in New Zealand ($1.7M pre-tax).
5) FY2015 reflects an accounting adjustment realised on the closure of the Australia defined benefit (DB) superannuation fund which impacted Australian Steel Products ($23.8M
pre-tax) and Corporate ($3.4M pre-tax). Upon closure of the fund the difference between the accounting obligation and members’ actual benefits were required to be credited to
P&L under Australian Accounting Standards.
6) FY2016 reflects the impact of the Tianjin port explosion on the Engineered Buildings China site (net of insurance recoveries). FY2015 reflects the impact of the Port Kembla
Steelworks sinter plant waste gas cleaning stack fire which occurred in October 2014.
7) FY2016 reflects staff redundancy and restructuring costs at ASP ($93.7M pre-tax) primarily relating to the cost reduction program in Australian steelmaking and restructure of
Australian Distribution and staff redundancy and restructuring costs in New Zealand ($7.5M pre-tax) and BlueScope Buildings ($8.6M pre-tax). FY2015 reflects staff redundancy
and restructuring costs at ASP ($30.0M pre-tax) and Indonesia ($1.2M pre-tax) partly offset by the write-back of restructuring provisions raised in FY2014 relating to restructuring
initiatives within the China business ($2.9M pre-tax).
8) FY2016 reflects the profit on sale of McDonald’s Lime in New Zealand ($32.9M pre-tax) and property, plant and equipment in ASP ($1.4M pre-tax). FY2015 reflects the profit on
sale of land and buildings at the North American Buildings business ($9.4M pre-tax) and at the New Zealand business ($4.6M pre-tax) and a loss on sale in ASP ($2.7M pre-
tax).
9) FY2016 reflects the premium on early redemption of the US$190M senior unsecured notes due in May 2018 and the write-off of unamortised borrowing costs associated with
the senior unsecured notes and North Star acquisition bridge facilities which were refinanced within the period. FY2015 reflects the write-off of unamortised borrowing costs
associated with the previous $675M Syndicated Bank Facility which was restructured and refinanced early.
10) FY2016 reflects impairment of deferred tax assets in New Zealand ($64.7M) inclusive of a $33.6M impairment of carried forward tax losses. These were partly offset by
utilisation of previously impaired deferred tax assets in Australia arising from the favourable movement in timing differences exceeding tax losses generated during the period
($39.8M). FY2015 reflects utilisation of previously impaired deferred tax assets in Australia arising from the favourable movement in timing differences exceeding tax losses
generated during the period.
11) Earnings per share are based on the average number of shares on issue during the respective reporting periods, (570.1M in FY2016 vs. 561.3M in FY2015).
BlueScope Steel Limited – FY2016 Directors’ Report
Page 2
Table 2B: Underlying EBIT Adjustments to FY2016 Reported Segment Results
ASP
NZPac
BB
BP
HRPNA
Corp
FY2016 underlying EBIT
adjustments $M
Net (gains)/losses from
businesses discontinued
Impact of acquiring a controlling
interest in North Star
-
-
-
-
Asset impairment
189.0
364.6
Business development,
transaction and pre-operating
costs
Production disruptions
Restructure and redundancy
costs
Asset sales
Underlying adjustments
2.4
-
93.7
(1.4)
283.7
4.5
-
7.5
(32.9)
343.7
Table 3: Consolidated Cash Flow
$M
Reported EBITDA
Add cash/(deduct non-cash) items
- Share of profits from associates and joint venture
partnership not received as dividends
- Impaired assets
- Net (gain) loss on acquisitions and sale of assets
- Expensing of share-based employee benefits
Cash EBITDA
Changes in working capital
Gross operating cash flow
Finance costs
Interest received
Tax received/(paid) 1
Net cash from operating activities
Capex: payments for P, P & E and intangibles
Other investing cash flows
Net cash flow before financing
Equity issues
Dividends to non-controlling interests 2
Dividends to BlueScope Steel Limited shareholders
Transactions with non-controlling interests
Net drawing/(repayment) of borrowings
Net increase/(decrease) in cash held
-
-
-
-
1.6
8.6
-
10.2
-
-
-
-
-
-
-
-
-
(700.8)
-
-
-
-
-
-
-
-
11.3
-
-
-
(700.8)
11.3
0.7
Discon
Ops
0.7
-
-
-
-
-
-
Elims
Total
-
-
-
-
-
-
-
-
0.7
(700.8)
553.6
18.2
1.6
109.8
(34.3)
(51.2)
FY2016
1,009.8
FY2015
639.6
Variance %
58%
(12.4)
554.8
(734.3)
23.2
841.1
265.6
1,106.7
(111.2)
6.5
(50.0)
952.0
(313.9)
(975.6)
(337.5)
-
(38.8)
(34.2)
-
440.9
30.4
16.2
2.7
(16.8)
12.7
654.4
0.6
655.0
(69.6)
3.0
(49.7)
538.7
(384.9)
(25.9)
127.9
(0.6)
(46.2)
(17.0)
(0.5)
(51.1)
12.5
n/m
n/m
n/m
83%
29%
n/m
69%
(60%)
117%
(1%)
77%
18%
n/m
n/m
-
16%
100%
-
n/m
143%
1) The BlueScope Steel Australian tax consolidated group is estimated to have carry forward tax losses, as at 30 June 2016, of approximately $2.75Bn. There will be no Australian
income tax payments until these are recovered.
2) These dividend payments primarily relate to dividend payments to Nippon Steel & Sumitomo Metal Corporation (NSSMC) in respect of NS BlueScope Coated Products joint
venture.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 3
GROUP-LEVEL MANAGEMENT DISCUSSION & ANALYSIS FOR FY2016 VS FY2015
BLUESCOPE’S OPERATIONS AND SIGNIFICANT
CHANGES
BlueScope is a technology leader in metal coated and painted steel
building products, principally focused on the Asia-Pacific region, with
a wide range of branded products that include pre-painted
COLORBOND® steel, zinc/aluminium alloy-coated ZINCALUME®
steel and the LYSAGHT® range of building products.
Lower export prices driven by lower global steel prices partly
offset by the weaker AUD:USD exchange rate.
Lower domestic prices due to the influence of lower global steel
prices partly offset by the impact of a weaker AUD:USD.
Lower export volumes due to increased domestic demand at
ASP.
Lower despatch volumes at Buildings North America.
Lower Australian Distribution volumes due to the restructure and
resulting closure of unprofitable sites.
These were partly offset by:
§
§
§
§
§
The Company has an extensive footprint of metallic coating, painting
and steel building product operations in China, India, Indonesia,
Thailand, Vietnam, Malaysia and North America, primarily servicing
the residential and non-residential building and construction
industries across Asia, and the non-residential construction industry
in North America. BlueScope operates across ASEAN and in North
America in partnership with Nippon Steel & Sumitomo Metal
Corporation (NSSMC) and in India with Tata Steel. Both are 50/50
joint ventures with BlueScope controlling and therefore consolidating
the joint venture with NSSMC, and jointly controlling and therefore
equity accounting the joint venture with Tata Steel.
BlueScope is Australia’s largest steel manufacturer, and New
Zealand’s only steel manufacturer. BlueScope’s vertically integrated
operations for flat steel products in Australia and New Zealand
produce value-added metallic coated and painted products, together
with hot rolled coil, cold rolled coil, steel plate and pipe and tube.
BlueScope manufactures and sells steel long products in New
Zealand through its Pacific Steel business. In Australia and New
Zealand, BlueScope serves customers in the building and
construction, manufacturing, automotive and transport, agricultural
and mining industries. In Australia, BlueScope’s steel products are
sold directly to customers from our steel mills and through a national
network of service centres and steel distribution sites.
BlueScope operates two iron sand mines in New Zealand. Waikato
North Head primarily supplies iron sands for our New Zealand steel
making operations and Taharoa supplies iron sands for export.
BlueScope is a leading supplier of engineered building solutions
(EBS) to industrial and commercial markets. Its EBS value
proposition is based on speed of construction, low total cost of
ownership and global delivery capability. Leading brands, including
BUTLER®, VARCO PRUDEN® and PROBUILD®, are supplied from
BlueScope’s global supply chain and major manufacturing and
engineering centres in Asia and North America.
On 30 October 2015 BlueScope acquired full ownership of North Star
BlueScope Steel (NSBSL), previously 50% owned. The Ohio, U.S.
mill is a low cost regional supplier of hot rolled coil. NSBSL is highly
efficient, operates at industry leading utilisation rates and is
strategically located near its customers and in one of the largest
scrap markets of North America.
FINANCIAL PERFORMANCE
Total revenue
The $631.0M (7%) increase in total revenue principally reflects:
§
revenues
100% consolidation of North Star sales
November 2015.
from
§ Favourable translation impacts from a weaker AUD exchange
rate (FY2015 US$0.837; FY2016 US$0.728).
§ Higher domestic volumes mainly
rolled coil,
COLORBOND® steel, ZINCALUME® steel and plate sales in
ASP.
in hot
EBIT performance
A $268.7M higher underlying EBIT reflects:
§ Costs: $335.7M favourable movement, driven by:
−
−
$307.7M benefit from cost improvement initiatives mainly in
ASP, NZPac and Engineered Buildings China
$78.02M net reduction in one-off and other costs
-
lower per unit costs at ASP and iron sands due to
increased volumes.
lower freight costs at ASP and NZPac in line with
softness in global freight markets
-
−
impact of
$58.2M
employment, consumables, freight and other costs.
§ Foreign exchange translation: $18.6M favourable impact of
cost escalation
from utilities,
translating earnings to AUD.
§ Volume and mix: $20.7M increase, comprising:
−
−
−
higher domestic volumes at ASP mainly in hot rolled coil,
COLORBOND® steel and ZINCALUME® steel and plate
higher despatch volumes in Engineered Buildings Asia
lower despatch volumes in Buildings North America.
§ North Star and Tata BlueScope Steel performance: $47.7M
increase at North Star due to the favourable impact of 100%
consolidation of North Star from 30 October 2015 and stronger
performance at the Tata BlueScope Steel joint venture.
§ Other items: $1.0M favourable movement.
Partly offset by $146.9M spread decrease, primarily comprised of:
§
$567.7M unfavourable movement in domestic and export prices
due to lower global steel and iron prices, partly offset by the
favourable influence of a weaker AUD:USD
$420.8M benefit from lower raw material costs, due to:
−
lower USD denominated coal and iron ore purchase prices
at ASP
lower steel feed costs at BP and BB
unfavourable
exchange
foreign
denominated raw material purchases.
on USD
impact
−
−
§
The $324.9M increase in reported EBIT reflects the movement in
underlying EBIT discussed above and $51.2M favourable movement
in underlying adjustments explained in Tables 2A and 2B.
Finance costs
The $32.1M increase in finance costs compared to FY2015 was
largely due to higher average borrowings primarily due to the
acquisition of the remaining 50% of North Star BlueScope Steel
(FY2016 $1,462.3M, FY2015 $926.3M), costs associated with the
redemption of US$190M senior unsecured notes due in May 2018
and establishment costs for the two US$300M bridge facilities.
Partially offset by a lower average cost of debt (FY2016 5.0%,
FY2015 5.9%).
BlueScope Steel Limited – FY2016 Directors’ Report
Page 4
§
§
§
§
§
§
$172.9M increase in retirement benefit liabilities due to lower
discount rates
$140.5M decrease in net tax asset
$105.3M decrease in equity accounted investments mainly due
to the de-recognition of the 50% share in North Star that
BlueScope already owned
$98.1M decrease in inventory, primarily due to a net volume
decrease ($114M), decrease in unit cost ($103M) and a
reallocation of NZ carbon permits ($19M) partially offset by
increases in North Star acquisition ($110M), weaker AUD:USD
exchange rate ($14M) and NRV adjustments ($14M)
$28.3M increase in deferred income
$5.3M reduction in assets held for sale with the sale of the
equity investment in McDonald’s Lime in New Zealand.
Funding
Financial liquidity was $1,813.1M (excludes $52M undrawn capacity
of the off-balance sheet receivables securitisation) at 30 June 2016
($1,276.3M at 31 December 2015 and $1,591.0M at 30 June 2015),
comprised of committed available undrawn capacity under bank debt
facilities of $1,263.3M, plus cash $549.8M. Liquidity in the NS
BlueScope Coated Products JV of $487.8M is included in the group
liquidity measure.
During FY2016 two US$300M bridge facilities (one secured, one
unsecured) were established with a one year maturity to assist in
funding the acquisition of Cargill’s 50% interest in North Star
BlueScope Steel. The bridge facilities were fully repaid during the
year through a combination of:
§
§
an increase to BlueScope’s Syndicated Bank Facility by $350M
an off balance sheet trade receivables securitisation program
established in December 2015 with a limit of $250M
issuance of US$500M of senior unsecured notes to qualified
institutional buyers in the United States. The notes mature in
May 2021 and have a coupon of 6.50% per annum. Proceeds of
the offering were also used to partly redeem existing senior
unsecured notes due in May 2018 which had a coupon of
7.125%.
§
Following the North Star acquisition in October 2015, the Company
indicated its intention to reduce leverage to less than 1.0 times net
debt to EBITDA within 12 to 18 months. This goal was achieved by
30 June 2016, at which point the leverage multiple was 0.8 (net debt
to pro-forma EBITDA).
MATTERS SUBSEQUENT TO THE YEAR ENDED
30 JUNE 2016
On 8 July 2016 BlueScope sold its 47.5% interest in Castrip LLC (a
thin strip casting technology joint venture with Nucor and IHI Ltd) to
Nucor for US$20.0M.
Tax
Net tax expense of $101.4M (FY2015 $46.8M) primarily relates to
income generated in businesses outside of Australia and New
Zealand. FY2016 includes non-taxable gains of $739.5M arising from
the de-recognition and fair value gain on the existing 50% equity
investment in North Star following the acquisition of the remaining
50% on 30 October 2015 and the sale of New Zealand Steel’s 28%
equity investment in McDonald’s Lime. FY2016 also includes
$553.6M of non-tax effected asset impairments in Australia and New
Zealand.
FY2016 includes a $64.7M impairment of New Zealand deferred tax
assets, inclusive of a $33.6M write-off of previously carried forward
tax losses. These were partially offset by a $42.2M (FY2015 $24.8M)
utilisation of previously impaired deferred tax assets in Australia. The
Company has deferred the recognition of any further Australian and
New Zealand tax credits until a sustainable return to taxable profits
has been demonstrated. Australian and New Zealand tax losses are
able to be carried forward indefinitely.
Dividend
In February 2016 the Board of Directors approved payment of a fully
franked interim dividend of three cents per share.
The Board of Directors has approved payment of a final dividend of
3.0 cents per share. The final dividend will have attached 100%
franking credits and imputation credits for Australian and New
Zealand tax purposes respectively. BlueScope’s dividend
reinvestment plan will not be active for the final dividend.
Relevant dates for the final dividend are as follows:
§ Ex-dividend share trading commences: 9 September 2016.
§ Record date for dividend: 12 September 2016.
§ Payment of dividend: 10 October 2016.
BlueScope’s goal is to continue to reduce leverage and target net
debt sustainably lower than 1.0 times underlying EBITDA. The
Company may temporarily increase leverage for value adding
opportunities, subject to seeing a clear pathway to reduce debt.
FINANCIAL POSITION
Net assets
Net assets increased $246.2M to $4,985.3M at 30 June 2016 from
$4,739.1M at 30 June 2015.
Increases in net assets were:
§
$1,255.3M increase in intangible assets, primarily as a result of
the North Star acquisition ($1,313M) partly offset by impairment
of goodwill ($39M) and other items ($19M)
$101.5M increase in property, plant and equipment driven by
the North Star acquisition ($620M), capital expenditure ($351M)
and the weaker AUD:USD ($9M), partly offset by non-current
asset impairment charges ($515M), depreciation ($343M) and
other movements ($21M)
$70.6M increase in receivables
$39.0M decrease in provisions
$12.1M increase in net derivative asset
$16.7M increase in other assets.
Decreases in net assets were :
§
$502.9M increase in net debt. This increase was primarily due
to the acquisition of the remaining 50% of North Star
$196.0M increase in payables
§
§
§
§
§
§
BlueScope Steel Limited – FY2016 Directors’ Report
Page 5
1H FY2017 OUTLOOK
Expectations for the performance of our businesses in 1H FY2017
are as follows:
§ ASP: expect higher steel pricing with the impact of lagged
regional steel pricing
typical
seasonality in volumes, noting a strong 2H FY2016. Maintaining
the strong cost performance delivered in 2H FY2016.
from 4Q FY2016; expect
§ NZPac: expect slight improvement over 2H FY2016: (i) benefit
of full Pacific Steel / billet caster economics; (ii) higher steel
pricing with impact of lagged regional steel pricing from 4Q
FY2016; (iii) one-off benefits of provision adjustments in 2H
FY2016 not repeated.
§ BP: expect continued growth driven by volume and mix, noting
2H FY2016 delivered particularly strong margins (especially in
North America due to spread expansion in supply chain).
in brand, channel and product
Continued
development.
investment
§ BB: in North America, expect seasonally stronger volumes
combined with benefits from improvement programs; at Asia
Buildings, expect benefit of improvement program combined
with seasonally higher volumes, but competitive pressure on
margins; continued strong performance expected at China
Coated.
§ HRP North America: expect continued full despatch rate; strong
spreads to continue in 1Q; expecting softening spreads in 2Q.
Group outlook:
§ We expect 1H FY2017 underlying EBIT to be around 50%
higher than 2H FY2016 which was $340.4M. This is based on
assumption of average (all prices on a metric tonne basis):
− East Asian HRC price of ~US$350/t
−
62% Fe iron ore price of ~US$50/t CFR China
− Hard coking coal price of ~US$100/t FOB Australia
− U.S. mini-mill spreads in 2Q reducing by 10-20% from
current spot (US$360-380/t)
− AUD:USD at US$0.75
§ Expect 1H FY2017 underlying net finance costs to be lower than
2H FY2016 due to lower average borrowings; expect slightly
higher underlying tax rate and similar profit attributable to non-
controlling interests to 2H FY2016.
§ Expectations are subject to spread, FX and market conditions.
BUSINESS STRATEGIES AND PROSPECTS
The Company’s target is to deliver top quartile shareholder returns
with safe operations.
BlueScope’s strategy focuses on the following areas:
§ Growing premium branded steel businesses with strong
channels to market. In particular:
− Drive growth in premium branded coated and painted steel
markets in Asia-Pacific.
− For our engineered buildings segment, drive growth in
North America and turn around China.
§ Delivering competitive commodity steel supply in our local
markets. Current priorities under this banner are:
− Maximise value of North Star.
− Deliver value
from Australian and New Zealand
steelmaking and iron sands through game-changing cost
reductions, or pursue alternative models.
§ Ensuring ongoing financial strength by maintaining a strong
balance sheet.
FUTURE PROSPECTS AND RISKS
BlueScope’s financial performance since the global financial crisis in
FY2009 has been impacted by slower demand for its products in
Australia and North America, lower global commodity steel prices
relative to raw material costs, and until late calendar year 2014, a
stronger Australian dollar relative to the U.S. dollar. These are the
external macroeconomic factors to which BlueScope is exposed.
While there has been some improvement in external macroeconomic
factors, there continues to be significant short-term fluctuation.
The Company has undertaken significant restructuring and other
initiatives in recent years across all its operating segments to offset
these macroeconomic factors. This has resulted in BlueScope
returning an underlying profit in FY2013, which has continued to
improve through to FY2016.
BlueScope has regard to a number of recognised external
forecasters when assessing possible future operating and market
conditions. These forecasters expect a general slow-down in steel
demand impacting our Australian business over the next few years,
an improvement in global commodity steel prices relative to iron ore
and coking coal raw material costs, and a relatively stable Australian
dollar. In addition, recognised external forecasters expect a
continued improvement in non-residential building and construction
activity in North America but not at the pace experienced in recent
years.
BlueScope is also exposed to a range of market, operational,
financial, compliance, conduct and external risks common to a
multinational company. The Company has risk management and
internal control systems to identify material business risks and where
possible take mitigating actions.
The nature and potential impact of risks changes over time. There
are various risks that could impact the achievement of BlueScope's
strategies and financial prospects. These include, but are not limited
to:
(a) Continuing weak economic conditions or another economic
downturn.
The global financial crisis in FY2009 caused a reduction in
worldwide demand for steel, and the subsequent recovery has
been slow and uncertain. Although the global economy has
improved to some extent since FY2009, there is no assurance
that this trend will continue. Another 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 Company’s products and financial prospects.
(b) A significant cyclical or permanent downturn in the industries in
which the Company operates.
The Company’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. Because many of the Company’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 Company’s financial prospects, as would the
permanent closure of significant manufacturing operations in
response to a sustained weak economic outlook or loss of key
customer relationships.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 6
Other risks that could affect BlueScope include:
§
§
§
§
§
§
§
§
§
§
§
§
§
including
not being able to realise or sustain expected benefits of
internal restructuring, project developments, joint ventures or
future acquisitions
significant asset impairment, particularly if weak market
conditions prevail
an inability to maintain a competitive cost base, particularly at
Port Kembla and Glenbrook, including maintaining, extending
or renewing key raw materials, operational supplies, services
and funding on acceptable terms
a major operational failure or disruption to our manufacturing
facilities or supply chain
the conduct of our employees or disruptive behaviours by
external parties impacting our business or supply chain
the Company is subject to extensive government laws and
regulation,
gas
emissions, tax, occupational health and safety, competition
law and trade restrictions in each of the countries in which it
operates. The Company is also subject to the risk of
regulatory investigations into compliance with these laws and
regulations which could be lengthy and costly
political, social and economic policies and uncertainties in the
countries in which we operate
potential product warranty and legal claims
loss of key Board, management or operational personnel
substantial Company contributions to its employees’ defined
benefit funds, which are currently underfunded
the impact on reported earnings and financial position of the
Company from changes to accounting standards
industrial disputes with unions that disrupt operations
failure to maintain occupational health and safety systems and
practices.
environmental,
greenhouse
This document sets out information on the business strategies and
prospects for future financial years, and refers to likely developments
in BlueScope’s operations and the expected results of those
operations in future financial years. This information is provided to
enable shareholders to make an informed assessment about the
business strategies and prospects for future financial years of
BlueScope. Detail that could give rise to likely material detriment to
BlueScope, for example, information that is commercially sensitive,
confidential or could give a third party a commercial advantage has
not been included. Other than the information set out in this
document, information about other likely developments in
BlueScope’s operations in future financial years has not been
included.
(c) 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 Company’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 Company’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.
In addition to these long-term trends, the price of raw materials
and steel products can fluctuate significantly in a reasonably
short period of time affecting the Company’s short-term financial
performance. In particular this relates to commodity products
such as slab, plate, hot rolled coil, cold rolled coil, and some
metallic coated steel products.
The Company is monitoring the general trend of lower steel
prices since the GFC coinciding with a slowing in Chinese
domestic steel demand growth, increased steel exports from
China and broader over-capacity in steelmaking globally. These
trends, if sustained, could impact the long term competitiveness
of supply of steel from its Australian and New Zealand
steelmaking businesses and impact ongoing reinvestment.
(d) The Company is exposed to the effects of exchange rate
fluctuations.
The Company’s financial prospects are sensitive to foreign
exchange rate movements, in particular the Australian dollar
relative to the U.S. dollar. A strengthening of the Australian dollar
relative to the U.S. dollar could have an adverse effect on the
Company. This is because:
§ export sales are typically denominated in U.S. dollars
§ a strong Australian dollar makes imported steel products less
expensive to Australian customers, potentially resulting in
more imports of steel products into Australia
§ a strong Australian dollar affects the pricing of steel products
in some Australian market segments where pricing is linked
to international steel prices
§ earnings from its international businesses must be translated
into Australian dollars for financial reporting purposes
§ these are offset in part by a significant amount of raw material
purchases being denominated in U.S. dollars.
(e) Competition from other materials and from other steel producers
could significantly reduce market prices and demand for the
Company’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.
In addition, the global steel industry is currently characterised by
significant excess capacity and the Company 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 Company’s products. If the Company is unable to
maintain its current market position or to develop new channels
to market for its existing product range, its financial prospects
could be adversely impacted.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 7
BUSINESS UNIT REVIEWS
AUSTRALIAN STEEL PRODUCTS (ASP)
ASP produces and markets a range of high value coated and painted
flat steel products for Australian building and construction customers,
together with providing a broader offering of commodity flat steel
products. Products are sold mainly to the Australian domestic
markets, with some volume exported. Key brands include
zinc/aluminium alloy-coated ZINCALUME® steel and galvanised and
zinc/aluminium alloy-coated pre-painted COLORBOND® steel. The
segment’s main manufacturing facilities are at Port Kembla (NSW)
and Western Port (Victoria).
ASP also operates pipe and tube manufacturing, and a network of
rollforming and distribution sites throughout Australia, acting as a
major steel product supplier to the building and construction,
manufacturing, automotive and transport, agriculture and mining
industries.
§
These were partly offset by:
§
higher domestic volumes across most categories, in particular
hot rolled coil, metal coated steels (ZINCALUME® steel and
galvanised) and COLORBOND® steel, driven by residential
construction (new-start and alterations and additions) and
distributor demand.
EBIT performance
The $211.1M increase in underlying EBIT was largely due to:
§
lower costs driven by:
−
cost reductions realised through delivery on the cost-out
program
lower unit costs with higher production volumes
−
favourable volume/mix from higher domestic volumes across
most categories, in particular hot rolled coil, metal coated steels
(ZINCALUME® steel and galvanised) and COLORBOND®
steel.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 4: Segment financial performance
$M
FY2016
FY2015
Var %
2H
FY2016
Sales revenue
4,437.4
4,792.1
(7%)
2,135.3
Reported EBIT
77.7
128.4
(39%)
173.6
Underlying EBIT
361.4
150.3
140%
187.8
NOA (pre-tax)
2,088.7
2,432.8
(14%)
2,088.7
Table 5: Steel sales volume
000 tonnes
FY2016
FY2015
Var %
2H
FY2016
Domestic
- ex-mill
- ext sourced
Export
Total
2,008.5
1,833.3
10%
1,001.7
182.7
695.5
258.8
(29%)
91.8
801.6
(13%)
409.3
2,886.7
2,893.8
-
1,502.8
Chart 1: ASP domestic steel sales volume mix FY2016
Total: 2,191.2Kt
HRC
Plate
CRC
Metal coated
Painted
Ext sourced
FINANCIAL PERFORMANCE – FY2016 VS. FY2015
Sales revenue
The $354.7M decrease in sales revenue is primarily due to:
§
lower domestic and export prices driven by lower global steel
prices partly offset by the weaker AUD:USD exchange rate
lower Australian Distribution volumes due to the restructure and
resulting closure of unprofitable sites
lower export volumes due to increased domestic demand
§
BlueScope Steel Limited – FY2016 Directors’ Report
§
These were partly offset by:
§
lower spread from:
−
lower domestic and export prices driven by lower global
steel prices partly offset by
the weaker AUD:USD
exchange rate
partly offset by lower USD denominated iron ore and coal
purchase prices partly offset by unfavourable foreign
exchange impact.
−
Underlying adjustments in reported EBIT are set out in Tables 2A
and 2B.
FINANCIAL POSITION
Net operating assets were $344.1M lower than at 30 June 2015
primarily due to:
§
lower fixed assets, mainly due to an impairment charge of
$189.0M taken at 31 December 2015 following the review of
steel and iron ore price forecasts and discount rates in light of
macroeconomic and global steel market changes
§
lower receivables and inventories.
These were partly offset by lower provisions.
MARKETS AND OPERATIONS
Sales direct to Australian building sector
§ Domestic building sector direct sales volumes strengthened in
FY2016 compared to FY2015.
§ The residential construction market continues to be a major
driver of growth for the Australian economy.
− Strong investor demand, historically low interest rates and
robust population growth has resulted in growth in new
residential development.
− Sales of COLORBOND® steel continue to strengthen
supported by the detached dwelling market, which has
grown above the long term mean.
− New South Wales, Victoria and Queensland continue to
deliver strong sales growth. Conditions in South Australia
have stabilised, whilst other states remain relatively
subdued.
− Alterations and additions activity recovered strongly in
FY2016 supported by robust house price growth and
record low interest rates.
§ Non-residential construction activity has been relatively flat in
FY2016.
Page 8
− We are now targeting cost savings of $280M in FY2017
over the FY2015 cost base, or an incremental $45M over
the FY2016 cost base.
§ Australian Distribution restructure:
− Progress
is being made on
rationalisation of
Distribution operations into two streamlined businesses,
with 18 sites out of a targeted 20 now exited.
the
− The business
unprofitable.
is also exiting product
lines
that are
− The restructure program remains on track to deliver a net
ongoing EBIT improvement of $20M per annum from
FY2017 – this number is part of the cost saving target
mentioned above.
− Activity within commercial and
industrial construction
applications such as accommodation has
increased
through volume growth initiatives. Offset by a reduction in
offices and transport as projects reach completion.
− Social and institutional building weakened with a decline in
education and health construction, however strengthening
aged care and entertainment construction partly offset the
fall.
Sales direct to domestic non-building sector customers
§ Sales volumes to distributors and non-building sector customers
were strong in FY2016 compared to FY2015.
§ All of our domestic non-building
sectors
(excluding
Manufacturing) have either increased their domestic sales or
remained stable.
− The decline in the Australian dollar has improved market
increasing domestic pricing
confidence as well as
competitiveness against imported steel products.
through
to Distribution customers have grown
focusing on increasing flexibility in our service offerings and
from end market
through demand
encouraging pull
customers. Distribution customers have also increased
inventory levels with pricing conditions becoming more
favourable.
− Sales
− Pipe and Tube sales grew through initiatives to improve
share competing against imported finished goods. Sales
volumes further benefitted by customer re-stocking activity
in 4Q FY2016.
− Despite the decline in automotive manufacturer activity in
recent years, ASP’s sales to the automotive industry grew
slightly in FY2016 through enhancements to its product
offering, with the launch of a new product called V-Coat for
use by Toyota.
− Manufacturing volumes declined due to some customer
closure and offshoring of production during FY2016. There
are however positive signs of
improving sentiment
emerging with the AiGroup Performance of Manufacturing
Index finishing FY2016 in net expansionary territory.
Mill sales to export markets
§ Despatches to export market customers in FY2016 were
695.5kt, 13% lower than FY2015 due to increased demand in
the domestic market.
§ Prices in export markets were significantly weaker in FY2016
compared with FY2015 with lower global steel prices driven by
the continued oversupply of steel in global markets.
Restructuring update
§ Australian steelmaking strategic review:
− To address continued steel spread weakness arising from
excess regional steel supply and the scale of Chinese steel
export volumes, ASP was set the challenge of delivering a
game-changing approach to deliver significantly reduced
costs to be cost competitive relative to international
competitors.
cost-out
In October 2015, with
commitments would deliver more
in
operational savings in Australia by FY2017, the BlueScope
Board made the decision to pursue Plan A, being to
continue steelmaking at Port Kembla subject to formal
ratification of the new enterprise agreements, which was
achieved in November 2015.
than $200M
confidence
that
−
− Cost savings of $95M were delivered in 1H FY2016 and
$140M in 2H FY2016, for a total of $235M in FY2016.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 9
NEW ZEALAND AND PACIFIC STEEL
New Zealand and Pacific Steel consists of four primary business
areas; New Zealand Steel; Pacific Steel; New Zealand Minerals; and
BlueScope Pacific Islands.
New Zealand Steel is the only steel producer in New Zealand,
producing slab, billet, hot rolled coil and value-added coated and
painted products for both domestic and export markets across the
Pacific Region. Operations include the manufacture and distribution
of the LYSAGHT® range of products in Fiji, New Caledonia and
Vanuatu.
Supplied with billet from New Zealand Steel, Pacific Steel is the sole
producer of long steel products such as rod, bar, reinforcing coil and
wire in New Zealand.
This segment includes the Waikato North Head iron sands mine
which supplies iron sands to the Glenbrook Steelworks and for
export, and the Taharoa iron sands mine which supplies iron sands
for export.
§
§
.
These were partly offset by lower costs due to cost reduction
initiatives.
Underlying adjustments in reported EBIT are set out in Tables 2A
and 2B.
FINANCIAL POSITION
Net operating assets were $448.2M lower than at 30 June 2015
primarily due to:
§
lower fixed assets mainly due to an impairment charge of
$364.6M, of which $182.4M relates to the full write-down of
Taharoa export iron sands non-current assets, following the
review of steel and iron ore price forecasts and discount rates in
light of macroeconomic and global steel market changes
an increase in provisions
a reduction in inventory.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 6: Segment financial performance
$M
FY2016
FY2015
Var %
Sales revenue
887.3
972.1
Reported EBIT
(397.3)
(30.3)
(9%)
n/m
Underlying EBIT
(53.5)
(33.2)
(61%)
2H
FY2016
435.8
(31.6)
(6.4)
NOA (pre-tax)
186.6
634.8
(71%)
186.6
Table 7: Sales volume
000 tonnes
FY2016
FY2015
Var %
Domestic flats
Domestic longs
Domestic (steel)
Export flat
Export longs
Export (steel)
258.0
169.2
427.2
205.6
64.3
269.9
260.6
173.0
433.6
259.7
89.3
349.0
(1%)
(2%)
(1%)
(21%)
(28%)
(23%)
2H
FY2016
125.4
90.2
215.6
93.4
22.3
115.7
Iron sands
3,201.1
1,629.7
96%
1,806.5
FINANCIAL PERFORMANCE – FY2016 VS. FY2015
Sales revenue
The $84.8M decrease in sales revenue was primarily due to lower
steel and iron sands prices reducing in line with global price falls and
lower despatches of flat and long steel products. (Lower total
despatches were in part due Pacific Steel’s move late in the FY2016
year to billet sourced from New Zealand Steel with the
commissioning of the billet caster). This was partly offset by the
impact of a weaker NZD:USD and higher iron sands despatch
volumes.
EBIT performance
The $20.3M decrease in underlying EBIT was largely due to lower
realised iron sands and steel pricing reflecting lower global prices
partly offset by lower costs and favourable impacts from a weaker
NZD:USD.
MARKETS & OPERATIONS
Steel products (flat and long)
§ Domestic market
− Flat product sales volume was in line with FY2015, with
higher building volumes and flat manufacturing offset by
weaker agriculture.
− Domestic long product steel sales were lower than FY2015,
coming off peak demand in that prior period.
− Domestic residential building activity continues to grow. For
the 12 months ended June 2016, new building consents
are up 16% on the same period in 2015.
− Domestic non-residential building is showing signs of
recovery with the value up 14% in the 12 months to June
2016 compared to the previous 12 month period.
In Canterbury, non-residential construction continues to
grow with the total value of all new non-residential consents
up 12.8% in FY2016. Residential consents are slowing,
down 7.1% for the 12 months.
−
− Our Pacific Steel long products mills in Auckland are now
being supplied with billet from Glenbrook and the full
earnings run-rate potential of the Pacific Steel acquisition
has been visible from 4Q FY2016. This results in a better
overall domestic/export sales mix on lower overall volumes.
§ Export market
− Despite global price increases across the last half, overall
export markets continue to be under significant pricing
pressure due to weaker regional steel prices and excess
supply.
Iron sands
§ FY2016 exports:
−
−
Iron sands exports from Taharoa and Waikato North Head
in FY2016 were 3.2mt up 1.6mt on FY2015. Taharoa
exports were up 1.8mt with the entry of additional ships in
operation whilst Waikato North Head exports were down
262kt.
Iron sands prices were down consistent with the decrease
in global iron ore pricing.
§ Taharoa update:
− Second ship commenced operating in August 2015 and the
third ship commenced operations in December 2015.
− Underlying EBIT loss of $14.2M in 1H FY2016, and EBIT
profit of $0.9M in 2H FY2016 for full year FY2016
underlying EBIT loss of $13.3m.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 10
− Achieved 2H FY2016 EBIT break-even at an average index
iron ore price of US$47.5/t1
− Expected 1H FY2017 export volume of 1.7Mt.
− Taharoa export iron sands operations sale process remains
underway.
− Growth capital expenditure remains under review.
§ Waikato North Head update:
− Minimal exports due to low prices.
Restructurings
§ Update on New Zealand steelmaking strategic review:
− As with the Australian steelmaking operation, the New
Zealand steelmaking operations were set the challenge of
delivering a game-changing approach that will significantly
reduce costs to ensure they are internationally competitive,
profitable and support reinvestment.
− Cost savings of NZ$13M were delivered in 1H FY2016 and
NZ$32M in 2H FY2016.
− We are now targeting cost savings of at least NZ$60M in
FY2017 over the FY2015 cost base, or at least an
incremental NZ$15M over the FY2016 cost base.
− There is still further work to be done to determine whether
the Glenbrook operations can be internationally competitive
and profitable.
§ Sale of interest in McDonald’s Lime:
−
In December 2014, New Zealand Steel agreed to sell its
non-core 28 per cent shareholding in McDonald’s Lime
Limited to Graymont Limited.
− Upon final completion in October 2015, New Zealand Steel
received NZ$41M in cash and recognised a NZ$36M pre-
tax profit on sale.
1 Reference is to 62% Fe CFR China iron ore index price. Break-even
analysis excludes hedging adjustments.
BUILDING PRODUCTS ASEAN, NORTH
AMERICA & INDIA
BlueScope is a technology leader in metal coated and painted steel
building products, principally focused on the Asia-Pacific region, with
a wide range of branded products that include pre-painted
COLORBOND® steel, zinc/aluminium alloy-coated ZINCALUME®
steel and the LYSAGHT® range of building products.
The Company has an extensive footprint of metallic coating, painting
and steel building product operations in Thailand, Indonesia,
Vietnam, Malaysia, India and North America, primarily servicing the
residential and non-residential building and construction industries
across Asia, and the non-residential construction industry in North
America. BlueScope operates in ASEAN and North America in
partnership with Nippon Steel & Sumitomo Metal Corporation
(NSSMC) and in India with Tata Steel. Both are 50/50 joint ventures,
with BlueScope controlling and therefore consolidating the joint
venture with NSSMC, and jointly controlling and therefore equity
accounting the joint venture with Tata Steel.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 8: Segment performance
$M unless
marked
FY2016
FY2015
Var %
Sales revenue
1,766.8
1,790.8
Reported EBIT
Underlying EBIT
149.3
149.3
97.1
98.3
NOA (pre-tax)
1,009.7
1,006.0
Despatches
1,369.5
1,330.2
(1%)
54%
52%
-
3%
2H
FY2016
888.2
83.9
83.9
1,009.7
728.1
Chart 2: Segment geographic sales revenue FY2016, $M 1
Total: $1,806.8M
657.8
439.6
306.7
Thailand
Indonesia
Malaysia
Vietnam
167.4
235.3
North America
1) Chart does not include $40.0M of eliminations (which balances back to total
segment revenue of $1,766.8M). Chart also does not include India, which is equity
accounted.
FINANCIAL PERFORMANCE – FY2016 VS. FY2015
Sales revenue
The $24.0M decrease in sales revenue was mainly driven by lower
steel prices impacting all regions. These were partly offset by
favourable foreign exchange rate impacts (against the AUD) in all
regions.
EBIT performance
The $51.0M increase in underlying EBIT was largely due to:
§
higher margins across most businesses with lower raw material
purchase prices more than offsetting lower selling prices
BlueScope Steel Limited – FY2016 Directors’ Report
Page 11
§ The business continues to target margin expansion in the
project market and increased utilisation of its in-line painting
capability to drive painted volumes in the retail segment.
North America (Steelscape & ASC Profiles)
§ FY2016 despatch volume was higher than FY2015 driven by
stronger domestic market demand and an increase in pre-
painted market share. Margins improved due to strong pricing,
lower raw material cost, and tight cost control.
§ U.S. anti-dumping duties have been imposed on the business’s
imported hot rolled coil feed. A sourcing strategy has been
developed to reduce the impact on the business.
§ The business continues to target product
innovation and
continuous cost improvement to further improve its financial
performance.
India (in joint venture with Tata Steel (50/50) for all operations)
§ The joint venture recorded 6% revenue growth in FY2016 with a
positive and growing EBIT.
§ Domestic prime coated steel sales volume grew by 13%
compared to FY2015 with 9% growth in painted products and
27% growth in bare products. During the period, project market
sales grew by 12% and retail sales grew at by approximately
10%.
§
§
in BlueScope’s share of equity
favourable movements
accounted profits from the India joint venture
favourable translation of earnings from a weaker AUD:USD
exchange rate.
These were partly offset by cost escalation.
FINANCIAL POSITION
Net operating assets have increased $3.7M since 30 June 2015
mainly reflecting lower creditors partly offset by lower inventories.
MARKETS AND OPERATIONS
Thailand
§ FY2016 despatch volume grew 5% from FY2015. Industrial,
commercial and retail demand was soft in 1H FY2016 but
recovered strongly in 2H FY2016 driven by positive effect of
improved government spending and foreign direct investment.
§ The business has successfully entered the Home Appliance
market with sales of ViewKote® and SuperDyma® products.
Noting production of SuperDyma® commenced in October 2015
and sales continue to grow in line with business case.
§ The business continues to expand its retail channel via
authorised dealers and distributor loyalty program.
§ Third metal coating line at Map Ta Phut, Thailand:
− Feasibility study completed. BlueScope board has given in-
principle approval subject to finalisation of contracts and
NS BlueScope joint venture board approval, which is
expected in 1Q FY2017.
− Coating with in-line painting with output up to 140kt.
Investment of US$125M including working capital. Expect
commercial production in early FY2019.
− The line will deliver added capacity to grow presence in the
growing Retail/SME construction market.
Indonesia
§ FY2016 volume was slightly lower than FY2015 amid overall
weak market demand. This was offset
through margin
expansion delivered by better product mix, enhanced market
offerings and lower raw material prices.
§ The business continues to focus efforts on growth in strategic
market segments and strengthening brand position.
Vietnam
§ FY2016 despatch volume grew 1% from FY2015 on the back of
higher domestic premium dispatches. Margins improved due to
reduced raw material costs and better product mix.
§ The domestic market continues to benefit from growing foreign
direct investment and improved consumer confidence.
§ The business continues to target growth through expanding
retail channel footprint, building brand value and new product
development.
Malaysia
§ FY2016 despatch volume was marginally lower than FY2015
with the backdrop of political uncertainty and weaker oil prices
slowing growth in demand. Margins grew by early price
leadership and increased premiums, enhanced by flat cost base
and lower raw material costs.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 12
This was partly offset by:
§
§
lower despatch volumes in North America
the benefit in FY2015 of an initiative to de-risk pension fund
obligations by $11.0M.
Underlying adjustments in reported EBIT are set out in Tables 2A
and 2B.
FINANCIAL POSITION
Net operating assets have decreased $123.7M since 30 June 2015
mainly reflecting higher creditors, provisions and lower net fixed
assets. This was partly offset by higher receivables.
MARKETS AND OPERATIONS
Engineered Buildings North America
§ Despatch volumes were down 5% in FY2016 relative to FY2015
driven by a slowing in U.S. non-residential construction market
activity, particularly in the manufacturing end-use segment, and
a focus on improving margins. Better margin performance was
also achieved through a continued focus on product innovation
as well as manufacturing efficiencies.
§ General indicators of activity, such as Dodge Data & Analytics,
FMI and the Architectural Billings Index, point to continued,
albeit moderating, growth
the U.S. non-residential
in
construction market.
Engineered Buildings Asia (China & ASEAN)
§ Restructuring initiatives in the China business are delivering
improved results. Despite weak building and construction
activity in the premium market across private and government
participants, despatch volumes increased by 46% relative to
FY2015.
Building Products China (coating, painting and rollforming)
§ Volumes increased 17% relative to FY2015, driven by an
increase in internal demand from the Engineered Buildings
China business and external pre-engineering customers. This
was partly offset by a decline in rollformer demand.
§ Sales and marketing initiatives continue to increase external
sales of higher value-added product.
.
BLUESCOPE BUILDINGS
BlueScope Buildings is a leader in engineered building solutions
(EBS), servicing the low-rise non-residential construction needs of
customers from engineering and manufacturing bases in Asia and
North America. EBS plants are located in China, Thailand, Vietnam,
North America, Saudi Arabia and India. As part of the integrated
value chain feeding the EBS operations, this segment includes
BlueScope’s metal coating, painting and Lysaght operations in China
(Building Products China).
BlueScope Buildings is expanding its engineering capabilities through
the roll-out of a common engineering software system across
BlueScope’s Buildings businesses. This system is in place in North
America and is currently being installed across businesses in Asia.
This segment was formerly known as Global Building Solutions.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 9: Segment performance
$M unless
marked
FY2016
FY2015
Var %
2H
FY2016
Sales revenue
1,705.9
1,538.1
11%
816.1
Reported EBIT
Underlying EBIT
NOA (pre-tax)
Despatches
39.0
49.2
603.3
601.9
56.0
43.7
727.1
529.6
(30%)
13%
(17%)
14%
12.6
15.0
603.3
306.9
Chart 3: Segment geographic sales revenue FY2016, $M 1
Total: $1,783.8M
240.0
428.6
1,115.2
Engineered Buildings
North America
Engineered Buildings
Asia
Building Products
China (coated steel)
1) Chart does not include $77.9M of eliminations (which balances back to total
segment revenue of $1,705.9M).
FINANCIAL PERFORMANCE – FY2016 VS. FY2015
Sales revenue
The $167.8M increase in sales revenue was mainly due to favourable
foreign exchange rate impacts (against the AUD) in all regions and
higher despatch volumes in Engineered Buildings Asia and Building
Products China. This was partly offset by lower steel prices across all
regions and lower despatch volumes in North America.
EBIT performance
The $5.5M increase in underlying EBIT was largely due to:
§
§
higher net margins in North America and Asia
favourable translation of earnings from a weaker AUD:USD
exchange rate
lower costs in Engineered Buildings Asia delivered through
restructuring initiatives combined with higher despatch volumes.
§
BlueScope Steel Limited – FY2016 Directors’ Report
Page 13
FINANCIAL POSITION
Segment net operating assets increased from $112.8M at 30 June
2015 to $1,862.3M at 30 June 2016 mainly due to the consolidation
of North Star effective 30 October 2015. At 30 June 2016, segment
net operating assets comprised mainly: $1,248.4M intangible assets,
$595.6M fixed assets, $109.8M inventories, $119.7M receivables,
$204.5M creditors and $7.7M provisions.
MARKETS AND OPERATIONS
North Star BlueScope Steel
§ North Star sells approximately 80% of its production in the
Midwest U.S., with its end customer segment mix being broadly
45% automotive, 25% construction, 10% agricultural and 20%
manufacturing/industrial applications.
§ North Star continues to benefit from strength in the automotive
sector as well as continued recovery in the construction sector.
§ High capacity utilisation rates have been maintained by NSBSL
through an ability to retain existing customers and win new
customers by consistent high performance in on-time delivery,
service and quality.
§ On 7 May 2016 a refractory failure allowed a wash-out of molten
steel from North Star’s south EAF shell, resulting in an explosion
and fire. The south EAF was repaired and fully operational by 16
May 2016. The total cost, including the value of lost production
and capital repairs, was approximately US$5.0M.
§ Despatches for FY2016 of 2,021.6kt were 0.2% higher than
FY2015.
§ Work continues on incremental expansion projects to increase
hot strip mill and caster capacity.
HOT ROLLED PRODUCTS NORTH AMERICA
During FY2016 this segment comprised North Star BlueScope Steel
and BlueScope’s 47.5% interest in Castrip LLC (a thin strip casting
technology joint venture with Nucor and IHI Ltd).
North Star is a single site electric arc furnace producer of hot rolled
coil in Ohio, in the U.S. On 30 October 2015, BlueScope acquired the
50% of North Star that was previously owned by Cargill. BlueScope’s
50% interest in North Star was equity accounted up to 30 October
2015 and has been consolidated in BlueScope’s accounts thereafter.
Castrip LLC is a thin strip casting technology business. BlueScope
sold its interest in Castrip to Nucor on 8 July 2016 for US$20.0M.
This segment will be known as North Star BlueScope Steel from
FY2017 onwards.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 10: Segment performance
$M unless
marked
Sales revenue 1
Reported EBIT 2
Underlying EBIT 2
FY2016
FY2015
Var %
847.3
847.3
146.5
-
107.3
107.3
112.8
-
n/m
37%
n/m
2H
FY2016
660.2
104.2
104.1
1,862.3
NOA (pre-tax)
1,862.3
1) Excludes the Company’s 50% share of NSBSL’s sales revenue prior to 30 October
2)
2015.
Includes 50% share of net profit before tax from NSBSL of A$28.7M in the four
months ending 30 Oct 2015 and A$112.5M in FY2015.
FINANCIAL PERFORMANCE – FY2016 VS. FY2015
Sales revenue
Until November 2015 the segment was comprised of two equity
accounted investments and as such had no sales revenue recorded
in the Group accounts. Segment revenue reflects consolidation of
North Star from November 2015.
Earnings performance
The $39.2M increase in underlying EBIT was largely due to the
favourable impact of 100% consolidation from November 2015 and
favourable translation impacts from a weaker AUD exchange rate.
These were partly offset by weaker USD realised steel spreads with
Midwest hot rolled coil prices falling more that raw material costs.
Underlying adjustments in reported EBIT are set out in Tables 2A
and 2B.
Table 11: North Star BlueScope Steel – pro-forma performance
(100% basis)
US$M unless
marked
Sales revenue
FY2016
FY2015
Var %
959.6
1,280.4
(25%)
2H
FY2016
(1,280.4)
Underlying EBITDA
163.4
205.5
(20%)
98.6
Production (kt)
2,075.8
2,061.2
1%
1,039.1
Despatches (kt)
2,021.6
2,018.0
-
1,022.6
BlueScope Steel Limited – FY2016 Directors’ Report
Page 14
OTHER INFORMATION
SAFETY
SAFETY MANAGEMENT
§ The Company remains committed to its goal of Zero Harm.
§ Our safety beliefs form the basis for achieving this goal:
− Working safely is a condition of employment.
− Employee involvement is essential.
− Management is accountable for safety performance.
− All injuries can be prevented.
− Training employees to work safely is essential.
− All operating exposures can be safeguarded.
§ BlueScope’s comprehensive Occupational Health and Safety
Management System is mandatory in all operations under our
control. The system focuses on three basic areas:
− Safe and healthy people.
− Safe systems.
− Safe and tidy plant.
§ Safety Management Standards have been established under
this Management System, to which each business is required to
demonstrate compliance.
§ Also essential to our safety performance is the continuing
development of our leaders, implementation of risk management
practices, behavioural safety audits, reporting of incidents and
near misses, and identifying and preventing ‘at risk’ behaviour
and conditions.
FY2016 SAFETY PERFORMANCE
§ The Lost Time Injury Frequency Rate was stable at 0.6 in
FY2016 compared to 0.6 in FY2015. An LTIFR performance of
below 1.0 has been maintained for more than ten years
§ The Medical Treated Injury Frequency Rate was 5.1 in FY2016
compared to 4.6 in FY2015; it has been below 7.0 for more than
ten years.
§ Pacific Steel, Fielders and Orrcon acquisitions were included in
BlueScope statistics from July 2015.
§ During FY2016, businesses have been concentrating on
improving employee engagement, felt leadership and hand
safety. The construction businesses have also been focusing on
implementation and auditing of the BlueScope Construction
Global Requirements, a set of consistent standards across all
businesses.
§ External recognition in FY2016 to date includes:
− Steelscape Kalama (NS BlueScope North America) was
awarded “Best Safety Practices” by the National Coil
Coaters Association).
− Michael Farrelly
(BANZ Manufacturing Senior HSE
Professional) received the Individual Practitioner Award at
the annual Australian Steel Institute Health & Safety
Excellence Awards.
− Richard Beker (BANZ Manufacturing Victoria Processing
Leader) received a special commendation for “Individual
Safety Leader” at the 2015 Steel Transport Safety Awards.
− Chennai (Tata BlueScope Building Products) received a
“Best Safety Practice Award” from SAFE Association.
Jamshedpur (Tata BlueScope Building Products) received
the Confederation of Indian Industry Eastern Region SHE
Award (large scale manufacturing category).
−
§ Safety achievements in FY2016 include:
− BlueScope China: Suzhou – 10 years LTI free.
− NS BlueScope Lysaght Vietnam – 20 years LTI free.
− Buildings North America: Visalia – 9 years LTI free.
− NS BlueScope North America: Kalama – 11 years LTI free.
− BANZ Distribution: Ballarat – 17 years LTI free.
− BANZ Manufacturing: Western Port Paint Lines – 7 years
LTI free.
ENVIRONMENT
ENVIRONMENTAL MANAGEMENT
§ The BlueScope Environment Management System comprises
the following major elements:
− Our Bond
− Health, Safety, Environment and Community Policy
− Environment Principles
− Health, Safety and Environment Standards
− BlueScope procedures and guidelines
− Operational procedures.
§ BlueScope continues to manage its environmental performance
through the implementation of its business planning process,
compliance systems, risk management practices, governance
programs and management review.
AUSTRALIAN CLIMATE CHANGE POLICY
§ During FY2015 the Australian Federal Government introduced
its Direct Action policy, which includes the Emissions Reduction
Fund (ERF), allowing companies to bid for funding for emissions
reduction projects through a reverse auction process, and a
Safeguard (baseline and compliance) Mechanism
limit
emissions growth.
to
§ The Safeguard Mechanism came into effect in July 2016.
§ Reported emissions baseline determinations
the Port
Kembla Steel Works and Western Port Works are currently
being finalised by the Clean Energy Regulator.
for
§ The Emissions Reduction Fund and Safeguard Mechanism are
to be reviewed in 2017, in line with Australia meeting its post
2020
the
Government on
these policy
instruments.
targets. BlueScope will continue
future development of
to work with
the
§ The Company remains focused on improving the energy and
carbon efficiency of all its operations.
NEW ZEALAND EMISSIONS TRADING SCHEME
§ The Company is a liable entity under New Zealand’s ETS.
§ The activity of iron and steel manufacturing from iron sands as
undertaken by New Zealand Steel has been assessed to be
highly emissions-intensive and
trade-exposed, and New
Zealand Steel therefore qualifies for the allocation of Emission
Units at the maximum rate (currently 90%).
§ The ETS is a domestic-only scheme from June 2015, but the
initial scheme transition measures currently remain in place.
During this period participants must surrender one emission unit
tonnes of carbon dioxide equivalent emissions.
for
Correspondingly the allocation of units to energy-intensive and
trade-exposed activities is halved, but remains at the 90%
allocation rate. It is possible to buy units at market price or at a
fixed price of NZ$25 per tonne from the government.
two
§ The Government’s 2015/16 review of the NZ ETS to assess its
operation and effectiveness to 2020 and beyond continues, but
the Government has announced it is phasing out the one-for-two
transitional measure from 1 January 2017. The current 50%
surrender obligation will increase to 67% from 1 January 2017,
83% from 1 January 2018, and a full surrender obligation from 1
January 2019 for all sectors in the NZ ETS. New Zealand Steel
allocations will increase proportionally with the removal of one-
the
for-two. The Company will continue
Government, seeking acceptable financial outcomes from the
ETS until the rest of the global steel industry faces the same
responsibilities for emissions.
to engage with
BlueScope Steel Limited – FY2016 Directors’ Report
Page 15
ABBREVIATIONS
1H
1H FY2016
1H FY2017
2H FY2015
2H FY2016
ADC
ASEAN
ASP
AUD, A$, $
BANZ
BB
BCDA
BP or Building Products
BSL or BlueScope
CIPA
CRC
DPS
EAF
EBIT
EBITDA
EBS
EITE
EPS
FDI
FY2015
FY2016
FY2017
Gearing ratio
Group, Company
HRC
HRPNA, HRP North America
IFRS
Leverage, or leverage ratio
Net debt
n/m
NOA
NPAT
NRV
NSBCP
NSBSL
NSSMC
NZD
NZPac
ROIC
STP
TBSL
U.S.
USD, US$
Six months ended 31 December in the relevant financial year
Six months ended 31 December 2015
Six months ended 31 December 2016
Six months ended 30 June 2015
Six months ending 30 June 2016
Anti-Dumping Commission
Association of South East Asian Nations
Australian Steel Products segment
Australian dollar
BlueScope Australia and New Zealand (comprising ASP and NZPac segments)
BlueScope Buildings segment
Former Building Components & Distribution Australia segment
Building Products, ASEAN, North America and India segment
BlueScope Steel Limited and its subsidiaries
Former Coated & Industrial Products Australia segment
Cold rolled coil steel
Dividend per share
Electric arc furnace
Earnings before interest and tax
Earnings before interest, tax, depreciation and amortisation
Engineered building solutions, a key product offering of the BlueScope Buildings segment
Emissions-intensive, trade-exposed
Earnings per share
Foreign direct investment
12 months ended 30 June 2015
12 months ending 30 June 2016
12 months ending 30 June 2017
Net debt divided by the sum of net debt and equity
BlueScope Steel Limited and its subsidiaries
Hot rolled coil steel
Hot Rolled Products North America segment
International Financial Reporting Standards
Net debt over underlying EBITDA
Gross debt less cash
Not meaningful
Net operating assets pre-tax
Net profit after tax
Net realisable value adjustment
NS BlueScope Coated Products joint venture
North Star BlueScope Steel
Nippon Steel & Sumitomo Metal Corporation
New Zealand dollar
New Zealand & Pacific Steel segment
Return on invested capital (or ROIC) – underlying EBIT (annualised in case of half year
comparison) over average monthly capital employed
Steel Transformation Plan
Tata BlueScope Steel
United States of America
United States dollar
BlueScope Steel Limited – FY2016 Directors’ Report
Page 16
BOARD COMPOSITION
The following were Directors for the full year ended 30 June 2016: John Andrew Bevan (Chairman), Daniel Bruno Grollo, Kenneth Alfred Dean,
Paul Francis O’Malley (Managing Director and Chief Executive Officer), Penelope Bingham-Hall, Ewen Graham Wolseley Crouch AM, Lloyd
Hartley Jones, and Rebecca Patricia Dee-Bradbury. Graham John Kraehe AO (Chairman) ceased to be a Director on 19 November 2015.
Particulars of the skills, experience, expertise and special responsibilities of the Directors are set out below.
DIRECTORS’ BIOGRAPHIES
John Bevan, Chairman (Independent)
Age 59, BCom (Mkt)
Director since: March 2014
Directorships of other Australian listed entities in the past three years: Ansell Limited (August 2012 to date), Nuplex Industries Limited
(September 2015 to date) and Alumina Limited (June 2008 to January 2014).
Mr Bevan was CEO of Alumina Limited from 2008 to 2014. Before joining Alumina Limited in 2008 Mr Bevan spent 29 years in a variety of senior
management roles with BOC Group, including as a director on The BOC Group plc Board, Chief Executive Process Gas Solutions with
responsibility for the bulk and tonnage business for the entire BOC group, Chief Executive Asia and country lead roles in the United Kingdom,
Thailand and Korea. Mr Bevan is also a non-executive director of Ansell Limited and Nuplex Industries Limited.
He brings to the Board extensive experience in international business and heavy industrial operations.
Mr Bevan is also Chair of the Nomination Committee.
Daniel Grollo, Non-Executive Director (Independent)
Age 46
Director since: September 2006
Directorships of other listed entities in the past three years: Nil
Mr Grollo is Executive Chairman of Grocon Group Holdings Pty Ltd, Australia's largest privately owned development and construction company,
and is also a Non-Executive Director of UBS Grocon Real Estate. He brings extensive knowledge of the building and construction industry to the
Board.
Mr Grollo has previously held positions as Chairman of the Green Building Council of Australia and National President of the Property Council of
Australia and Member of the Prime Minister’s Business Advisory Council.
Mr Grollo is also Chair of the Health, Safety and Environment Committee.
Paul O’Malley, Managing Director and Chief Executive Officer
Age 52, BCom, M. App Finance, ACA
Director since: August 2007
Directorships of other Australian listed entities in the past three years: Nil
Mr O'Malley was appointed a Director of the Board, and Managing Director and Chief Executive Officer of BlueScope Steel, in 2007.
Mr O'Malley joined BlueScope as its Chief Financial Officer in December 2005. He was formerly the Chief Executive Officer of TXU Energy, a
subsidiary of TXU Corp based in Dallas, Texas, and held other senior management roles within TXU. Before joining TXU, he worked in
investment banking and consulting.
Mr O’Malley is also Chairman of the Worldsteel Association Nominating Committee and a Trustee of the Melbourne Cricket Ground Trust.
Ken Dean, Non-Executive Director (Independent)
Age 63, BCom (Hons), FCPA, FAICD
Director since: April 2009
Directorships of other Australian listed entities in the past three years: Santos Limited (February 2005 to May 2016)
Mr Dean is a Director of Energy Australia Holdings Ltd and Mission Australia, and is a member of the Director Advisory Panel of the Australian
Securities & Investments Commission. He has held directorships with Santos Limited, Alcoa of Australia Limited, Woodside Petroleum Limited
and Shell Australia Limited. He spent more than 30 years in a variety of senior management roles with Shell in Australia and the United
Kingdom. His last position with Shell, which he held for five years, was Chief Executive Officer of Shell Finance Services based in London.
Mr Dean was Chief Financial Officer of Alumina Limited from 2005 to 2009. He brings extensive international financial and commercial
experience to the Board.
Mr Dean is also Chair of the Audit and Risk Committee.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 17
Penny Bingham-Hall, Non-Executive Director (Independent)
Age 56, BA (Ind.Des) FAICD, SF(Fin)
Director since: March 2011
Directorships of other Australian listed entities in the past three years: DEXUS Funds Management Limited (responsible entity for the DEXUS
Property Group) (June 2014 to date)
Ms Bingham-Hall is a director of DEXUS Property Group, the Port Authority of NSW and Macquarie Specialised Asset Management, and is a
former director of Australia Post and The Global Foundation. She is a director of Taronga Conservation Society Australia and has previously held
non-executive directorships with other industry and community organisations, including the Tourism & Transport Forum, Infrastructure
Partnerships Australia and as the inaugural Chairman of Advocacy Services Australia.
Ms Bingham-Hall spent more than 20 years in a variety of roles with Leighton Holdings (now Cimic Group) prior to retiring from the company at
the end of 2009. Senior positions held with Leighton include Executive General Manager Strategy, responsible for Leighton Group's overall
business strategy and Executive General Manager Corporate, responsible for business planning and corporate affairs. She brings extensive
knowledge of the building and construction industry in both Australia and Asian markets.
Ms Bingham-Hall is Chair of the Remuneration and Organisation Committee.
Ewen Crouch AM, Non-Executive Director (Independent)
Age 60, BEc (Hons) LLB, FAICD
Director since: March 2013
Directorships of other listed entities in the past three years: Westpac Banking Corporation (February 2013 to date)
Mr Crouch is a Director of Westpac Banking Corporation. He is a member of the Commonwealth Remuneration Tribunal, Chairman of Mission
Australia and a board member of Sydney Symphony Orchestra and Jawun.
Mr Crouch was a Partner at Allens from 1998 to 2013 where he was one of Australia’s leading M&A lawyers. His roles at Allens included
Chairman of Partners, Co-Head Mergers and Acquisitions and Equity Capital markets, Executive Partner – Asian Offices and Deputy Managing
Partner, as well as 11 years’ service on its board.
He was a member of the Takeovers Panel from 2010 to 2015. He is a Fellow of the Australian Institute of Company Directors and a member of its
Law Committee.
Mr Crouch brings to the Board the breadth of his experience in financial markets, governance and risk together with his knowledge of strategic
mergers, acquisitions and cross border finance transactions.
Lloyd Jones, Non-Executive Director (Independent)
Age 63, BEng, MBA
Director since: September 2013
Directorships of other Australian listed entities in past three years: RCR Tomlinson Ltd (November 2013 to date)
Mr Jones is a director of Myer Family Investments Pty Ltd and RCR Tomlinson Ltd. He is also an advisory director to a division of Deutsche Bank
in Australia and a member of the Advisory Council to the Dean of Mathematics, Computing Science and Engineering at the University of Western
Australia.
Mr Jones is a qualified engineer and spent 25 years of his career in a variety of senior management roles with Alcoa including General Manager
of WA Operations, President of US Smelting and President Asia Pacific (based in Tokyo and Beijing). Most recently Mr Jones has served as
President of Cerberus Capital Management's Asia Advisors Unit. His experience encompasses metals, smelting and roll forming, plant
operations, energy, construction, mergers and acquisitions, corporate affairs and finance.
Rebecca Dee-Bradbury, Non-Executive Director (Independent)
Age 48, BBus (Mkt), GAICD
Director since: April 2014
Directorships of other Australian listed entities in the past three years: TOWER Limited (15 August 2014 to date), GrainCorp Limited (30
September 2014 to date)
Ms Dee-Bradbury was Chief Executive Officer/President Developed Markets Asia Pacific and ANZ for Kraft/Cadbury from 2010 to 2014, leading
the business through significant transformational change. Before joining Kraft/Cadbury Ms Dee-Bradbury was Group CEO of the global
Barbeques Galore group, and has held other senior executive roles in organisations including Maxxium, Burger King Corporation and Lion
Nathan/Pepsi Cola Bottlers.
Ms Dee-Bradbury is a Non-Executive Director of TOWER Limited and GrainCorp Limited. She is also an inaugural Member of the Business
Advisory Board for the Monash Business School, and a former member of the Federal Government's Asian Century Strategic Advisory
Board. Ms Dee-Bradbury brings to the Board significant experience in strategic brand marketing, customer relationship management and
innovation.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 18
COMPANY SECRETARIES
Michael Barron, Chief Legal Officer and Company Secretary, BEc, LLB, AGIA, ACIS
Responsible for the legal affairs of BlueScope Steel and for company secretarial matters. Joined the Company as Chief Legal Officer and
Company Secretary in January 2002. Prior to that occupied position of Group General Counsel for Orica.
Clayton McCormack, BCom, LLB
Senior Corporate Counsel, Governance with BlueScope Steel. A lawyer with over 20 years’ experience in private practice and corporate roles.
Darren Mackenzie, BA, LLB (Hons)
General Counsel, BANZ with BlueScope Steel. A lawyer with 20 years’ experience in private practice and corporate roles.
PARTICULARS OF DIRECTORS' INTERESTS IN SHARES AND OPTIONS OF
BLUESCOPE STEEL
As at the date of this report the interests of the Directors in shares and options of BlueScope Steel are:
Director
J A Bevan
P F O’Malley
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch
L H Jones
R P Dee-Bradbury
Ordinary shares
46,126
871,183
38,447
40,488
57,834
32,500
42,000
27,300
Share rights
-
4,119,653
-
-
-
-
-
-
BlueScope Steel Limited – FY2016 Directors’ Report
Page 19
MEETINGS OF DIRECTORS
Attendance of the current Directors at Board and Board Committee meetings from 1 July 2015 to 30 June 2016 is as follows:
Board
meetings
Audit and
Risk
Committee
Remuneration
and
Organisation
Committee
Health, Safety
and
Environment
Committee
Nomination
Committee
Other Sub-
Committees
Annual
General
Meeting
A
12
12
12
12
12
12
12
12
B
114
12
12
12
12
12
12
12
A
1
-
-
4
-
4
4
1
B
41
33
-
4
-
4
4
1
A
4
-
6
-
6
-
-
6
B
62
63
55
1
6
-
-
6
A
4
4
4
4
4
4
4
4
B
4
4
4
4
4
4
4
4
A
5
-
5
5
5
5
5
5
B
5
23
5
5
5
5
5
5
A
2
2
-
1
1
2
-
-
B
2
2
-
1
1
2
-
-
A
1
1
1
1
1
1
1
1
B
1
1
1
1
1
1
1
1
J A Bevan
P F O’Malley
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch
L H Jones
R P Dee-
Bradbury
All current Directors have held office for the entire year ended 30 June 2016.
A = number of meetings held in the period 1 July 2015 to 30 June 2016 during which time the relevant Director was a member of the Board or the
Committee, as the case may be.
B = number of meetings attended by the relevant Director from 1 July 2015 to 30 June 2016.
1 Mr Bevan came off this Committee when he became Chairman and continues to attend as part of his duties as Chairman.
2 Mr Bevan joined this Committee when he became Chairman.
3 The Managing Director and Chief Executive Officer is not a Committee member and attends by invitation as required.
4 A special purpose Board meeting was missed through unavailability due to other prior commitments. Special purpose meetings are generally
held by telephone and often called at short notice to provide updates on particular matters. The relevant special purpose meeting took place
prior to Mr Bevan’s appointment as Chairman and he was provided with a separate briefing.
5 A special purpose Remuneration & Organisation Committee (ROC) meeting was missed through unavailability due to other prior commitments.
Special purpose meetings are generally held by telephone and often called at short notice to provide updates on particular matters. Mr Grollo
was provided with separate briefing.
There were 4 special purpose Board meetings and 1 special purpose ROC meeting held during the year.
The Non-Executive Directors met three times during the year ended 30 June 2016 (without the presence of management). Non-Executive
Directors’ meetings are chaired by the Chairman of the Board.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 20
REMUNERATION REPORT (AUDITED)
Letter from the Chair of the Remuneration and Organisation Committee
Dear fellow Shareholder
I am pleased to present our Remuneration Report for 2016.
BlueScope is a global company operating in 17 countries around the world with a large and successful presence throughout Asia and the United
States, in addition to its operations in Australia and New Zealand. During FY2016 the Company grew across its Asian and US operations in what
continues to be challenging times for the global steel industry. In FY2016 BlueScope delivered a $293.1M underlying net profit after tax, a $159M
increase from FY2015 including growing underlying EBIT by 89% to $570.5M.
BlueScope is one of the few steel companies in the world that is not only profitable but also improving its profitability. Driving this was:
• Continued growth and investment in our Asian and North American Coated and Buildings businesses.
• Significant progress made in restructuring our Australian and New Zealand steel-making operations to improve cost competitiveness during a
very difficult time in the global steel-making industry. The restructuring was achieved with the support of our employees, the local community,
unions and governments. The significant progress made in the restructuring initiatives saved 4,500 direct jobs in the Illawarra by avoiding a
closure of the Port Kembla Steelworks, and along with productivity improvements in our Buildings businesses in the United States and China,
delivered a total of $327.5M of management initiated cost savings across the company. This is net of escalation during the year.
• Acquisition of the 50% share that we did not own in the North Star BlueScope Steel business based in Delta, Ohio in the United States. The
business was acquired at a time of low industry margins. Since the acquisition, industry margins in the United States have improved
dramatically, and as a result the business is delivering pleasing financial performance.
Recognising the profitable performance outside Australia, and the challenges in Australia and New Zealand, the compensation arrangements for
the Managing Director and Chief Executive Officer (MD & CEO), and the other Key Management Personnel (KMP) Executives, were adjusted at the
start of the year to ensure ongoing and close alignment with shareholders and to reflect the company’s transition. These arrangements, detailed
below, were approved with a 95% vote of support from shareholders at last year’s AGM:
• A fixed pay freeze for FY2016 and FY2017 for the MD & CEO and KMP Executives.
• Performance based incentive packages rewarded entirely in equity with no cash payments.
• No Short Term Incentives (STI) for the MD & CEO in FY2016. In its place a two year equity STI program was established with
performance to be measured over the two year period to the end of FY2017.
• No STI for the Chief Executive BlueScope Australia & New Zealand (BANZ) for FY2016.
• Other KMP participated in the same two year equity STI program as the MD & CEO with performance measured over the two year period to
the end of FY2017, with the exception of the portion related to FY2016 financial performance which is assessed at the end of FY2016.
• The Long Term Incentive Plan (LTI) was amended to introduce a second performance condition as a response to shareholder feedback. Half
of the share rights are subject to a relative Total Shareholder Return (TSR) condition and the other half are subject to a compound annual
growth rate of Earnings per Share (EPS) condition.
• The FY2017 LTI Plan award was brought forward to coincide with the FY2016 award. The performance period commenced one year early
on 1 September 2015, with a four year term to 31 August 2019 (plus one retest on the relative TSR component only).
As Chair of the Board’s Remuneration and Organisation Committee, I worked closely with my fellow Directors, our external advisers and
management to ensure we have an effective remuneration program which continues to motivate our people to deliver results.
The Board believes that the arrangements detailed above maximise the alignment of remuneration for executives with the interests of
shareholders and are supporting the successful implementation of our two year strategy programme. Based on the Board’s interim
assessment against the targets set for the two year STI program, performance is currently tracking well above Target and this is likely
to result in strong outcomes. The final assessment will be reflected in the FY2017 Report when details of actual performance outcomes
against the two year targets will be disclosed.
I trust you, our shareholders, find the 2016 Remuneration Report provides clear and informative insights into our executive remuneration policies,
practices and outcomes.
Penny Bingham-Hall
Chair of the Remuneration & Organisation Committee
BlueScope Steel Limited – FY2016 Directors’ Report
Page 21
CONTENTS
1.
2.
3.
4.
5.
6.
7.
Introduction ................................................................................................................................................................................................. 22
Remuneration framework and policy .......................................................................................................................................................... 23
Reward outcomes - the link between remuneration and performance ....................................................................................................... 27
Executive remuneration tables .................................................................................................................................................................... 30
Non-executive directors’ remuneration ....................................................................................................................................................... 34
Remuneration governance .......................................................................................................................................................................... 35
Related party transactions .......................................................................................................................................................................... 37
INTRODUCTION
1.
The Directors of the Company present the Remuneration Report prepared in accordance with section 300A of the Corporations Act 2001 for the
Company and the consolidated entity for the year ended 30 June 2016. The information provided in this Remuneration Report has been audited
as required by section 308(3C) of the Corporations Act 2001. This Remuneration Report forms part of the Directors’ Report.
1.1 KEY MANAGEMENT PERSONNEL
This Report focuses on the remuneration of Key Management Personnel (KMP) of BlueScope Steel Limited. These KMP include those members
of the Executive Leadership Team (KMP Executives) who have the authority and responsibility for planning, directing and controlling the activities
of the Company.
The following table lists the KMP for FY20161.
Name
Position
Senior Executives
Mr Paul O'Malley
Managing Director & CEO
Mr Sanjay Dayal
Mr Charlie Elias
Mr Pat Finan
Mr Mark Vassella
Mr Bob Moore
Non-executive Directors
Chief Executive, NS BlueScope
Chief Financial Officer
Chief Executive, BlueScope Buildings
Chief Executive, BlueScope Australia and New
Zealand
Chief Executive, Global Building Solutions
Dates position held during year
(if not the full year)
1 July - 30 November 2015
Mr John Bevan
Chairman of the Board
Appointed Chairman 19 November 2015
Ms Penny Bingham-Hall
Non-Executive Director
Mr Ewen Crouch AM
Non-Executive Director
Mr Ken Dean
Non-Executive Director
Ms Rebecca Dee-Bradbury
Non-Executive Director
Mr Daniel Grollo
Mr Lloyd Jones
Non-Executive Director
Non-Executive Director
Mr Graham Kraehe AO
Former Chairman of the Board
1 July – 19 November 2015
1) A review of all existing KMP roles was conducted, and concluded that the following Executives no longer met the criteria for consideration as KMP- Chief Legal Officer and
Company Secretary, and Executive General Manager, People & Performance.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 22
1.2 CONTEXT
BlueScope’s remuneration structures play an important role in motivating executives to deliver the business strategy and deliver results that
reward shareholders. The Board therefore takes great care to ensure that, as the business priorities evolve, so too do BlueScope’s remuneration
arrangements.
Over recent years, BlueScope has successfully navigated the challenges of a global steel industry undergoing fundamental change. In the years
ahead, it will be even more critical for BlueScope to deliver game-changing cost and revenue improvements. The Board reviewed the Company’s
remuneration arrangements, and as foreshadowed in the FY2015 Remuneration Report and Annual General Meeting, a number of special
arrangements have been implemented for FY2016 and FY2017 to increase the alignment of executive remuneration with shareholder
experience.
The new reward arrangements have shifted the performance emphasis to strategic outcomes over a two year timeframe, linked to earnings
growth and share price performance over four years. This provides even closer alignment with shareholder experiences.
Key features of the FY2016 and FY2017 reward arrangements for the MD & CEO and other KMP Executives are outlined below:
§ The base pay of the MD & CEO was frozen at FY2015 levels for two years. All FY2016 and FY2017 STI and LTI awards, where provided to
the MD & CEO, are equity awards with no cash incentives paid in respect of FY2016 or FY2017.
§ The only compensation paid to the MD & CEO, solely related to FY2016, is base pay and superannuation frozen at FY2015 levels. All equity
awards disclosed were approved by shareholders at the AGM in November 2015.
§ Fixed pay was also frozen for FY2016 and FY2017 for all KMP Executives.
§ The FY2016 and FY2017 STI opportunities have been merged into a single incentive and delivered entirely as share rights (no cash
payments will be made). The rights are awarded up-front and may vest subject to performance assessed at the end of two years. The
performance conditions are assessed 50% against Company-wide underlying Net Profit After Tax (NPAT) and Business Unit underlying
Earnings Before Interest and Tax (EBIT) and Free Cash Flow (FCF) targets, and 50% against safety and other strategic objectives based on
business priorities.
§ Mark Vassella the Chief Executive of BlueScope ANZ will not receive an STI for FY2016. This is consistent with the interventions in the
Australian and New Zealand business restructures announced in August 2015. Other KMP Executives are eligible for awards for the FY2016
financial component of their STI (underlying NPAT / EBIT and FCF) which have a one year deferral. The remainder of their award and all of
the MD & CEO’s award will be assessed at the conclusion of FY2017.
§ The LTI plan has been amended to introduce a second performance condition. Half of the share rights are subject to a relative TSR
condition and the other half are subject to a compound annual growth rate of Earnings per Share (EPS) condition.
§ The FY2017 LTI plan award has been brought forward to coincide with the FY2016 award. The performance period commenced one year
early on 1 September 2015, with a four year term to 31 August 2019 (plus one retest on the relative TSR component only).
The Board is confident these changes will enhance the alignment between shareholder and executive interests and will motivate executives to
achieve the Company’s strategy.
2. REMUNERATION FRAMEWORK AND POLICY
2.1 FRAMEWORK AND PURPOSE
At BlueScope, executive remuneration packages typically comprise three elements – fixed pay, short term incentives and long term incentives,
the purpose of which is to align executive reward with shareholder outcomes, executive performance, and the retention of key talent. Although
these elements are described separately, they must nevertheless be viewed as part of an integrated package:
Remuneration Framework
Purpose
Fixed pay
Base pay
Superannuation
Short term
incentives
Equity only for
FY2016 and FY2017
Long term
incentives
Equity
Total reward at BlueScope
• Aligns executives with the interests of shareholders;
• Competitively rewards executives in response to the
external market conditions, as well as their performance
and accountability;
• Encourages the retention of highly capable leaders; and
• Provides incentive to take well managed risks.
In exceptional circumstances, a further element relating to targeted retention may also be applied. No retention awards were made to KMP
during FY2016.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 23
The mix of elements differs depending on the level in the organisation with a higher skew towards fixed pay at lower levels. Overall the aim is to
provide executives the opportunity to earn top quartile remuneration for stretch performance. While there have been changes to BlueScope’s
reward structure in FY2016, the reward mix has not changed. For KMP the usual mix of elements as a proportion of total remuneration at target
in FY2016 is shown below:
MD & CEO
40%
30%
30%
KMP Executives
50%
30%
20%
Fixed Pay %
Target STI %
Target LTI* %
*
Target LTI value based on an estimate of the fair value of target awards. Face value is used for allocation purposes.
2.2 FIXED PAY
Fixed pay recognises the market value of an individual’s skills, experience, accountability and their expected sustained contribution in delivering
the fundamental requirements of their role. In order to attract and retain skilled leaders, BlueScope aims to maintain a competitive position for
fixed pay – around the 60th percentile of the peer group noted at section 6.3. Fixed pay is base pay plus superannuation.
In FY2016, fixed pay was frozen for the MD & CEO and other KMP Executives.
2.3 SHORT TERM INCENTIVE (STI)
The following table summarises the STI plan that applied in FY2016.
Feature
Purpose
Eligibility
Value/opportunity
Performance conditions
Description
To achieve BlueScope’s overall strategic objectives by motivating executives to deliver on priority team-
based outcomes.
All KMP Executives disclosed in this report.
Target STI levels are set having regard to appropriate levels in the market and are:
§
80% of base pay (or 70% of fixed pay) for the MD & CEO
§
60% of base pay (or 53% of fixed pay) for the other KMP Executives
Maximum STI (for outstanding results or stretch outcomes) are capped at:
§
§
As previously flagged, changes were made to the STI plan for FY2016 and FY2017. The key changes to the
performance conditions are as follows:
§ As foreshadowed at the 2015 AGM, financial and strategic STI objectives to be measured over two
120% of base pay for the MD & CEO
90% of base pay for the other KMP Executives
years to FY2017 for the MD & CEO
§ To retain focus on annual financial performance, financial objectives to be measured over one year for
other KMP Executives (except Mark Vassella, Chief Executive BANZ, who did not participate in the
FY2016 STI Plan) covering both company-wide performance and Business Unit performance, with
strategic objectives to be measured over two years
The table below outlines the performance measures and relative weightings for the FY2016 / FY2017 STI
Plan:
Performance measures
Financial
performance
Zero harm
Strategy
Company-wide underlying Net Profit After Tax
(2/3rds), Cash Flow from Operations (1/3rd)
Controllable Business Unit underlying Earnings
Before Interest and Tax (2/3rds), Cash Flow
from Operations (1/3rd)
Safety performance measures, including Lost
Time Injury Frequency Rates (LTIFR) and
Medical Treatment Injury Frequency Rates
(MTIFR) – see below
Performance measures based on results from
the execution and implementation of business
priorities included in the strategic plan
MD & CEO
weighting
50%
0%
Other KMP
Executives
weighting
25%
25%
5%
5%
45%
45%
BlueScope Steel Limited – FY2016 Directors’ Report
Page 24
Feature
Description
For FY2016, only the financial component of the performance conditions for other KMP Executives was
eligible for assessment. No assessment of performance for the MD & CEO will be made until the conclusion
of FY2017.
Safety-related performance conditions in the STI plan
BlueScope is proud of its world leading safety performance and safety remains its first priority and core
value. Historically, the Company has set percentage improvement targets on Lost Time Injury Frequency
Rates (LTIFR) and Medical Treatment Injury Frequency Rates (MTIFR) to support our journey to Zero Harm
by encouraging a safe and healthy work environment. Over time, and as performance has improved,
targets, including performance hurdles, have been introduced to allow businesses to nominate performance
indicators appropriate to their level of safety maturity, risk profile and priority focus. Safety is our number
one priority, and the Board and Management are committed to ensuring that cost savings are not
implemented at the expense of safety.
This approach accommodates businesses with low or zero LTIFR and MTIFR performance, where these
metrics are no longer appropriate measures of safety improvement. It also allows our diverse businesses to
select from a range of performance indicators the most appropriate ones for their business to measure and
reward safety improvement.
For KMP Executives, a performance hurdle of no fatality and a LTIFR of <1 is in place. MTIFR improvement
targets are established against the previous year’s performance.
For individual business units, a benchmark (Best practice LTIFR and MTIFR) is set at the highest business
level (NS BlueScope, BlueScope Buildings, North Star BlueScope or BANZ) based on the previous year’s
results. Business Units whose performance is worse than the best practice benchmark are required to
maintain improvement targets focused on output (LTIFR/MTIFR) measures. Business Units performing at or
better than the best practice benchmark can substitute output measures with input measures better suited to
their individual circumstances and drive improved performance These businesses select from an approved
list of leading indicators.
Performance targets for FY2016 have been set in the context of the specific business strategy and new
priorities. Performance conditions, including Threshold, Target and Stretch hurdles, are set for each plan
and approved by the Board for all KMP Executives. If the Threshold level is not reached, no payment is
made in respect of that goal.
In prior financial years, two-thirds of any STI payment was made in cash, and one third was withheld and
awarded in restricted equity with a one year trading lock. In FY2016, STI payment takes the form of
equity only, and no cash payments will be made. Share rights have been awarded upfront, and will
only vest to the extent that the performance conditions have been achieved.
For each performance condition, the number of share rights that will vest will be determined as follows:
Performance condition target
% of share rights that vest
Below threshold
Threshold
Target
Maximum
0%
33%
67%
100%
Mechanics and target
setting
Payment/deferral
For FY2016, the financial component of the performance conditions for KMP Executives was assessed, with
the STI outcomes provided in section 3.1.
The Board continues to have discretion to clawback STI equity awards in the event of serious misconduct by
management which undermines the Company’s performance, financial soundness and reputation. These
events include misrepresentation or material misstatements due to errors, omissions or negligence.
Governance
The Board retains the discretion to limit, defer or cancel any STI awards in exceptional circumstances,
including determining that a reduced award or even no award should vest.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 25
2.4 LONG TERM INCENTIVE (LTI)
The following table summarises the LTI plan that applied in FY2016.
Feature
Purpose
Eligibility
Value/opportunity
Description
LTI is one of the means of aligning executives with the experience of shareholders.
All KMP Executives disclosed in this report.
The quantum of LTI awards is calculated based on an agreed percentage of base salary divided by the face
value of shares using the volume weighted average price over the three months prior to the commencement
of the performance period. The LTI award level for the MD & CEO is 155% of base pay and for the KMP
Executives is 80% of base pay. Fair value is used for reporting purposes as required by accounting
standards, and is also used in benchmarking executive remuneration against the selected peer group which
reports fair value. These levels are reviewed annually.
Instrument
Share rights vest into fully paid ordinary BSL shares subject to time and performance conditions being met.
Performance conditions
As previously communicated, BlueScope has introduced an Earnings Per Share (EPS) hurdle to
complement relative Total Shareholder Return (TSR) in FY2016. The Board has given careful consideration
to the selection of this new second performance condition recognising some shareholders have a
preference for EPS measures and others for capital return-based measures. EPS has been selected as the
additional performance condition as the Board considers that return-based measures can be directly
influenced by particular strategic decisions. EPS better measures financial results delivered by the
Company, irrespective of particular strategy initiatives. The Board will review the appropriateness of EPS (or
an alternative performance condition) for future awards.
For the FY2016 LTI award:
§
50% is assessed against relative TSR compared to the ASX 100 over a three year period, plus a single
retest which reflects the ongoing impact of volatility on the retention and incentive value of the LTI, and
operates to extend the performance period from three years to four years. The re-test requires
significant outperformance in the fourth year before any vesting. In the absence of a relevant local or
global peer group, the ASX 100 is considered to be appropriate given BlueScope’s relative market
positioning and best reflects the markets where we compete for capital.
50% is assessed against the compound annual growth rate (CAGR) in EPS over a three year period
and refers to underlying EPS, and does not include a re-test.
§
In order to further enhance the alignment of long term incentives with shareholder reward the FY2017 LTI
award has been brought forward and granted at the same date as the FY2016 award, with the performance
period on both the TSR and EPS hurdles increasing to four years (with one re-test on the TSR portion).
This of course resulted in a grant of two LTIP tranches in FY2016, doubling the number in this particular
year as shown in table 4.3.
Relative TSR vesting schedule:
Percentile achievement
Less than 51st percentile
51st percentile
Vesting outcome (% of award that vests)
0%
40%
Between 51st percentile and 75th percentile
Straight line vesting
75th percentile and above
100%
The EPS performance condition provides that no EPS share rights vest until the Company’s EPS CAGR
reaches a “threshold” level. At this level, 40% of the EPS share rights vest. At a “maximum” level, 100% of
the EPS share rights will vest. If the Company’s EPS CAGR is between the “threshold” and “maximum”
levels, the number of EPS share rights that vest will be pro-rated on a straight-line basis.
The Company has a policy not to provide earnings guidance to the market. The Board has established EPS
CAGR targets and set the “threshold” and “maximum” levels, which will require a significant uplift in the
Company’s earnings and will take account of the Company’s long-term business plans and financial
projections, market practice and consensus forecasts. EPS CAGR targets were set on the basis of a starting
point that included an assumed 100% ownership of North Star for FY2015 – in other words the earnings
impact from the acquisition of the remaining 50% of North Star during FY2016 has been taken into account
in establishing the starting point for the EPS targets. The Board will advise details of the specific underlying
EPS CAGR targets and performance against the targets following the end of the performance period/s.
Hedging
Executives are not permitted to hedge (such as ‘cap and collar’ arrangements) LTI awards.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 26
Feature
Governance
Description
The Board retains the discretion to limit, defer or cancel any LTI awards in exceptional circumstances (such
as change of control), including determining that a reduced award or even no award is paid.
2.5 EXECUTIVE SHAREHOLDING GUIDELINES
The Board considers executive shareholdings as a simple and transparent means of aligning the interests of shareholders and executives. To
support this principle, an executive shareholding policy has been put in place which requires the MD & CEO to build a minimum value of shares
equivalent to 100% of base pay to be accumulated over time and for the KMP Executives a minimum of 50% of base pay.
3. REWARD OUTCOMES - THE LINK BETWEEN REMUNERATION AND PERFORMANCE
3.1 OVERVIEW OF BUSINESS PERFORMANCE
FY2016 performance is being considered in the context of the delivery of significant improvements in overall Company financial performance.
§ Despite the weakest regional commodity steel spreads since BlueScope listed in 2002, delivery on management initiatives led to strong
growth underlying NPAT (up 119% on FY2015 to $293.1M). Underlying EBIT was up 89% on FY2015 to $570.5M
§ Net debt at 30 June 2016 was $778.0M, up on 30 June 2015 primarily due to the acquisition of 50 per cent of North Star BlueScope Steel,
but reduced by $595.4M from 31 December 2015. The leverage ratio (net debt to proforma underlying EBITDA) at 30 June 2016 of 0.8, was
halved from the position at 31 December 2015 of 1.6. The Company achieved strong cash flow in the second half, driven by stronger cash
earnings and timing of working capital reductions.
The following table outlines financial achievement for the other KMP Executives under the FY2016 STI plan. The remainder of the FY2016 award
will be assessed at the conclusion of FY2017. All of the MD & CEO’s FY2017 award will be assessed at the conclusion of FY2017 having regard
to performance over the two year period.
KMP STI outcomes for FY2016 financial performance
Company wide
NS BlueScope
BlueScope
Buildings
North Star
BlueScope 1
Underlying NPAT
Free Cash Flow
(FCF)
Underlying EBIT
FCF
Underlying EBIT
FCF
Underlying EBIT
FCF
Australia and New
Zealand
Underlying EBIT
FCF
Below threshold
Threshold
Target
Above target
1. Financial targets for FY2016 were set and performance was measured on the basis of an assumed 50% ownership of North Star for the
entire year.
The Board also set challenging targets for the MD & CEO to be achieved by 30 June 2017 for a range of strategic priorities. Significant progress
has been made during FY2016 in the delivery of these projects and the Board anticipates that the targets established at the start of FY2016 are
likely to be exceeded by 30 June 2017. Achievements to date include:
§ Coated & Painted growth in ASEAN, North America & India underlying EBIT; home appliance steels (SuperDyma®) in production in
Thailand; growth in Australian domestic coated product sales.
§ Building Solutions: continued growth in North America earnings; total China earnings turning the corner, with reduced losses at China
Buildings.
§ North Star BlueScope Steel: acquired Cargill’s 50% share on 30 Oct 2015, to move to full ownership; steel spreads strengthened
considerably going into FY2017.
§ Australia & New Zealand Steelmaking: delivered $235M cost savings in FY2016: saving 4,500 jobs, avoiding an estimated $750M
mothballing/closure costs at Port Kembla and preserving benefit of exposure to higher Australian steel prices. Good progress on NZ cost
savings.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 27
The chart below shows the management initiatives in FY2016 to reduce costs have significantly benefited the company in a year when the macro
environment for steel was at record lows.
Significant earnings growth driven by Company initiatives despite weakest macro conditions since 2002
FY2015 underlying EBIT
$M
301.8
Ø Macro conditions (spread & FX) difficult
(127.2)
Ø Implementation of cost improvements:
- PKSW: saved 4,500 jobs; on track for $280M in FY2017
- NZ Steel: on track for at least NZ$60M in FY2017
- Buildings China restructuring
Ø Growing volumes and improving mix
327.5
20.7
+89%
Ø North Star – acquisition of 50%
Ø India gathering momentum
FY2016 underlying EBIT
38.2
9.5
570.5
Our reward arrangements are aligned with a combination of the measures shown in the table and graph below:
§ Significantly below target STI Awards were made in FY2012 with higher STI awards made in FY2013 and FY2014 reflecting the significant
improvement in performance in those years.
§ Notwithstanding the improvements in financial performance in FY2015, STI Awards were less than 50% of target reflecting the challenging
business circumstances faced by the Company, particularly in New Zealand, China and the lower than expected spreads in the Australian
business.
§ No LTI Awards vested between 2008 and 2014. Details of awards which vested in FY2016 are included in table 3.3 below.
The table and graph below summarises the Company’s performance for FY2016 and the previous four years.
Measure
30 June 2012
30 June 2013 1
30 June 2014
30 June 2015
30 June 2016
Share price ($) 2
Dividend per Ordinary Share (cents)
Earnings per Share (cents)
1.80
0
-234.6
4.67
0
-19.1
5.42
0
-14.8
3.00
6
24.3
6.37
6
62.1
800
600
400
200
0
3
m
$
D
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6
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1
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30 June 2012
30 June 2013
30 June 2014
Financial years ended
30 June 2015
30 June 2016
Underlying NPAT $ M
Underlying EBIT $ M
Share Price $
1) Changes to AASB 119 Employee Benefits came into effect for BlueScope on 1 July 2013. The impact of this revised accounting standard is to increase defined benefit plan
pension expense. Australian Accounting Standards require that comparative period financial information be adjusted to reflect the revised approach. Accordingly, each of the FY
2013 earnings metrics are adjusted down by $28.7M pre-tax and $23.0M post-tax compared to those reported in the FY2013 financial statements. The comparative figures for
FY2011 and FY2012 have not been restated.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 28
2) On 19 December 2012, the Company consolidated its share capital through the conversion of every six shares in the Company into one ordinary share in the Company. As a
result, share prices and earnings per share for the prior periods have been restated to reflect this change.
3) Underlying earnings (NPAT and EBIT) are categorised as non-IFRS financial information prepared in accordance with ASIC Regulatory Guide 230 – Disclosing non-IFRS
financial information, issued in December 2011. Non-IFRS financial information while not subject to audit or review has been extracted from the financial report which has been
audited by our external auditors. Underlying adjustments have been considered in relation to their size and nature, to assist readers to better understand the financial
performance of the underlying business. These adjustments are assessed on a consistent basis from period to period and include both favourable and unfavourable items.
3.2 SHORT TERM INCENTIVE (STI) OUTCOMES
Mr O’Malley and Mr Vassella are not eligible to receive an STI payment in FY2016. Consistent with the FY2016 STI plan detailed in section
2.3, the Board has resolved that the STI outcomes for FY2016 financial performance set out in section 3.1 were achieved for the year.
KMP
% of target STI
assessed
% of STI to be assessed
in FY2017
Paul O'Malley
Sanjay Dayal
Charlie Elias
Pat Finan
Bob Moore
Mark Vassella
N/A
25%
25%
25%
N/A
N/A
100%
75%
75%
75%
N/A
See comment1
1. Consistent with the decision not to operate an STI Plan in BANZ business in FY2016, Mr Vassella did not participate in the STI programme.
Following the reintroduction of incentives in that business for FY2017, Mr Vassella will participate in the STI Plan for FY2017.
3.3 LONG TERM INCENTIVE (LTI) OUTCOMES
The table below shows the results of LTI awards made in prior years, and those that remain outstanding:
Allocation year:
LTI award vesting status
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
Lapsed in full
Lapsed in full
Lapsed in full
Lapsed in full
No award was made to the MD & CEO. For KMP Executives other than the MD & CEO, the award vested in full in
FY2015 with a 12 month holding condition which was released during FY2016.
100% of the MD & CEO’s FY2013 award vested in FY2016, 94.44% vested on 1 September 2015 and the balance vested
on retest on 1 March 2016. This was the MD & CEO’s first LTI award to vest in seven years.
100% of the FY2013 Retention Rights award to the other KMP Executives vested on 1 September 2015 and 81.95% of
the FY2013 Share Rights award vested in FY2016 with a 24 month holding condition to be released in FY2018. The only
exception was to permit the release of a portion of the shares to pay tax liabilities incurred on vesting.
To be tested during FY2017
To be tested during FY2018
To be tested during FY2019
To be tested during FY2020
Vesting is subject to relative TSR performance against the companies in the ASX100. Refer to section 4.2 for details.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 29
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D
4.3 SHARE RIGHTS AWARDED AS REMUNERATION AND HOLDINGS
The numbers of rights over ordinary shares in the Company held during the financial year by each Director of BlueScope Steel Limited and other
Key Management Personnel of the Group, including their related parties, as well as the value of share rights granted and exercised, are set out in
the tables below. The Share Rights granted during FY2016 were in respect of the deferred component of the FY2015 STI Plan and the FY2016/
FY2017 STI Plan, the FY2016 LTI Plan and the FY2017 LTI Plan. Vesting is subject to achieving challenging performance targets over a two to
four year period consistent with the terms approved by shareholders at the November 2015 AGM:
• The FY2016 and FY2017 STI Plan will be assessed at the end of FY2017. No STI will be payable in cash for either FY2016 or FY2017 and
the share rights will only vest if the financial and strategic performance hurdles are achieved.
• The FY2016 LTI Plan was awarded in two tranches and vesting is subject to achieving relative TSR and EPS CAGR targets over three years.
• The FY2017 LTI Plan was awarded in two tranches and vesting is subject to achieving relative TSR and EPS CAGR targets over a four year
timeframe. This award was granted during FY2016 and no further awards will be granted during FY2017.
Share Rights holdings for FY2016
Balance at
30 June 2015
Granted in year
ended
30 June 2016 1
Vested and
exercised in
year ended
30 June 20162
Lapsed in year
ended 30 June
2016
Balance at
30 June 2016
Vested and not
yet exercised
in year ended
30 June 2016
Unvested at 30
June 2016
Total Share
Rights vested in
year ended 30
June 2016
Value of Share
Rights granted
during the year at
grant date 3
Value of Share Rights
exercised during the
year 4
#
#
#
#
#
#
#
#
$
$
2,728,837
3,050,642
1,459,789
200,037
4,119,653
693,708
770,631
545,544
841,922
615,921
969,764
350,903
785,570
490,074
17,084
303,370
236,391
265,722
136,831
201,980
75,053
63,863
67,359
43,332
147,676
1,085,916
1,087,212
1,252,604
956,310
157,502
-
-
-
-
-
-
4,119,653
1,459,789
10,349,890
2,310,993
1,085,916
1,087,212
1,252,604
956,310
157,502
303,370
236,391
265,722
136,831
201,980
2,384,063
2,914,939
3,356,712
2,717,563
70,337
499,442
408,033
432,694
203,586
292,733
2016
Executive Director
P F O'Malley
KMP Executives
M R Vassella
S R Elias
S Dayal
P J Finan
R J Moore
1)
2)
3)
The number of share rights granted includes rights awarded under the FY2015 Short Term Incentive (STI) plan disclosed in the FY2015 Remuneration Report and share
rights which are subject to Company performance hurdles, which were awarded under the FY2016/ FY2017 two year STI Award, the FY2016 and FY2017 LTI Awards
consistent with shareholder approval at the 2015 AGM.
The number of shares issued is equal to the number of rights exercised and no amount was paid or remains unpaid for each share issued. Due to restrictions relating to
awards of equity in Singapore, Mr Dayal was awarded Cash Rights in 2013 which delivers a cash payment on vesting.
External advice from PWC Securities Limited has been used to determine the value of share rights awarded in the year ended 30 June 2016. The valuation has been made
using the Black-Scholes Options Pricing Model (BSM) that includes a Monte Carlo simulation analysis.
Share Rights vested during the year under the FY2014 STI Awards and FY2013 Long Term Incentive Plan.
4)
The table below sets out the details of each specific share right tranche and awards granted and vested during FY2016 for each KMP Executive.
2016
Award Details
Executive Director
Number of Share
Rights awarded
Date of grant
% vested in year
ended
30 June 2016
% forfeited in year
ended
30 June 2016
Share Rights yet
to vest
Financial year in
which awards may
vest
P F O'Malley
FY11 LTI Award (TSR) - 3 yr
200,037
30-Nov-10
FY13 LTI Award (TSR) - 3 yr
1,367,464
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
FY14 Deferred STI Rights - 1 yr
FY15 LTI Award (TSR) - 3 yr
FY15 Deferred STI Rights - 1 yr
568,126
14-Nov-13
92,325
22-Aug-14
500,885
01-Sep-14
58,442
24-Aug-15
FY16 & FY17 STI Award - 2 yr
1,305,680
26-Nov-15
FY16 LTI Award (TSR) - 3 yr
FY16 LTI Award (EPS) - 3 yr
FY17 LTI Award (TSR) - 4 yr
FY17 LTI Award (EPS) - 4 yr
421,630
421,630
421,630
421,630
26-Nov-15
26-Nov-15
26-Nov-15
26-Nov-15
KMP Executives
M R Vassella
FY11 LTI Award (TSR) - 3 yr
44,969
30-Nov-10
FY13 LTI Award (TSR) - 3 yr
166,667
01-Sep-12
FY13 LTI Award (Retention) - 3 yr
125,000
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
167,560
01-Sep-13
FY14 Deferred STI Rights - 1 yr
41,787
22-Aug-14
FY15 LTI Award (TSR) - 3 yr
147,725
01-Sep-14
FY15 Deferred STI Rights - 1 yr
24,531
24-Aug-15
FY16 LTI Award (TSR) - 3 yr
186,525
26-Nov-15
FY16 LTI Award (EPS) - 3 yr
186,525
26-Nov-15
FY17 LTI Award (TSR) - 4 yr
186,525
26-Nov-15
FY17 LTI Award (EPS) - 4 yr
186,525
26-Nov-15
-
100
-
100
-
-
-
-
-
-
81.95
100
-
100
-
-
-
-
-
-
100
-
-
-
-
-
-
-
-
100
18.05
-
-
-
-
-
-
-
-
-
0
0
568,126
0
500,885
58,442
1,305,680
421,630
421,630
421,630
421,630
0
0
0
167,560
0
147,725
24,531
186,525
186,525
186,525
186,525
-
-
2017
-
2018
2017
2018
2019
2019
2020
2020
-
-
-
2017
-
2018
2017
2019
2019
2020
2020
BlueScope Steel Limited – FY2016 Directors’ Report
Page 32
2016
Award Details
KMP Executives
Number of Share
Rights awarded
Date of grant
% vested in year
ended
30 June 2016
% forfeited in year
ended
30 June 2016
Share Rights yet
to vest
Financial year in
which awards may
vest
S R Elias
FY11 LTI Award (TSR) - 3 yr
40,909
30-Nov-10
FY13 LTI Award (TSR) - 3 yr
127,167
01-Sep-12
FY13 LTI Award (Retention) - 3 yr
95,375
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
130,385
01-Sep-13
FY14 Deferred STI Rights - 1 yr
36,803
22-Aug-14
FY15 LTI Award (TSR) - 3 yr
114,905
01-Sep-14
FY15 Deferred STI Rights - 1 yr
19,802
24-Aug-15
FY16 & FY17 STI Award - 2 yr
435,240
26-Nov-15
FY16 LTI Award (TSR) - 3 yr
96,720
26-Nov-15
FY16 LTI Award (EPS) - 3 yr
96,720
26-Nov-15
FY17 LTI Award (TSR) - 4 yr
96,720
26-Nov-15
FY17 LTI Award (EPS) - 4 yr
96,720
26-Nov-15
S Dayal 2
FY11 LTI Award (TSR) - 3 yr
40,885
30-Nov-10
FY13 LTI Award (TSR) - 3 yr
146,667
01-Sep-12
FY13 LTI Award (Retention) - 3 yr
110,000
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
150,315
01-Sep-13
FY14 Deferred STI Rights - 1 yr
35,529
22-Aug-14
FY15 LTI Award (TSR) - 3 yr
132,525
01-Sep-14
FY15 Deferred STI Rights - 1 yr
21,544
24-Aug-15
FY16 & FY17 STI Award - 2 yr
502,000
26-Nov-15
FY16 LTI Award (TSR) - 3 yr
111,555
26-Nov-15
FY16 LTI Award (EPS) - 3 yr
111,555
26-Nov-15
FY17 LTI Award (TSR) - 4 yr
111,555
26-Nov-15
FY17 LTI Award (EPS) - 4 yr
111,555
26-Nov-15
P J Finan
FY11 LTI Award (TSR) - 3 yr
29,202
30-Nov-10
FY13 LTI Award (TSR) - 3 yr
78,280
01-Sep-12
FY13 LTI Award (Retention) - 3 yr
58,710
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
90,750
01-Sep-13
FY14 Deferred STI Rights - 1 yr
13,971
22-Aug-14
FY15 LTI Award (TSR) - 3 yr
79,990
01-Sep-14
FY15 Deferred STI Rights - 1 yr
15,090
24-Aug-15
FY16 & FY17 STI Award - 2 yr
407,900
26-Nov-15
FY16 LTI Award (TSR) - 3 yr
90,645
26-Nov-15
FY16 LTI Award (EPS) - 3 yr
90,645
26-Nov-15
FY17 LTI Award (TSR) - 4 yr
90,645
26-Nov-15
FY17 LTI Award (EPS) - 4 yr
90,645
26-Nov-15
R J Moore
FY11 LTI Award (TSR) - 3 yr
30,570
30-Nov-10
-
81.95
100
-
100
-
-
-
-
-
-
81.95
100
-
100
-
-
-
-
-
-
-
-
81.95
100
-
100
-
-
-
-
-
-
-
-
FY13 LTI Award (TSR) - 3 yr
116,667
01-Sep-12
81.95
FY13 LTI Award (Retention) - 3 yr
87,500
01-Sep-12
FY14 LTI Award (TSR) - 3 yr
125,670
01-Sep-13
FY14 Deferred STI Rights - 1 yr
18,872
22-Aug-14
FY15 LTI Award (TSR) - 3 yr
110,795
01-Sep-14
FY15 Deferred STI Rights - 1 yr
17,084
24-Aug-15
100
-
100
-
-
100
18.05
-
-
-
-
-
-
-
-
100
18.05
-
-
-
-
-
-
-
-
-
-
100
18.05
-
-
-
-
-
-
-
-
-
-
100
18.05
-
0
0
0
130,385
0
114,905
19,802
435,240
96,720
96,720
96,720
96,720
0
0
0
150,315
0
132,525
21,544
502,000
111,555
111,555
111,555
111,555
0
0
0
90,750
0
79,990
15,090
407,900
90,645
90,645
90,645
90,645
0
0
0
25.00
94,253
-
58.33
-
0
46,165
17,084
-
-
-
2017
-
2018
2017
2018
2019
2019
2020
2020
-
-
-
2017
-
2018
2017
2018
2019
2019
2020
2020
-
-
-
2017
-
2018
2017
2018
2019
2019
2020
2020
-
-
-
2017
-
2018
2017
1) External valuation advice from PWC Securities Limited has been used to determine the value of Share Rights held by KMP at 30 June 2016.
2) Due to restrictions relating to awards of equity in Singapore, S Dayal was awarded Cash Rights in FY2013 and FY2014 which delivers a cash payment on vesting. As such, he
holds 120,193 Cash Rights that were awarded under the LTIP FY2013. Under the terms of LTIP FY2013, these shares are held in restriction for 24 months until 1 September
2017.
3) P F O’Malley received 212,108 shares during FY2016 upon exercise of Share Rights received under the FY2013 LTI Award and FY2014 STI Award.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 33
4.4 SHARE HOLDINGS IN BLUESCOPE STEEL LIMITED
The numbers of shares in the Company held during the financial year by each Director of BlueScope Steel Limited and other Key Management
Personnel of the Group, including their personally related parties are set out below: 1
Name
Non-executive Directors
J A Bevan
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch
L H Jones
R P Dee-Bradbury
G J Kraehe 4
Executive Director
P F O'Malley
KMP Executives
M R Vassella
S R Elias
S Dayal
P J Finan
R J Moore 5
Ordinary shares held as at 30 June
2015
Received during the year on the
exercise of share rights2
Shares granted as
compensation
Net changes (other)3
Ordinary shares held as at 30
June 2016
22,926
38,447
40,488
57,834
30,000
32,000
22,300
106,883
189,394
338,529
399,010
70,103
188,053
246,044
-
-
-
-
-
-
-
-
1,459,789
303,370
236,391
35,529
136,831
201,980
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,200
-
-
-
2,500
10,000
5,000
-
(778,000)
(322,062)
(250,000)
0
(134,957)
0
46,126
38,447
40,488
57,834
32,500
42,000
27,300
106,883
871,183
319,837
385,401
105,632
189,927
448,024
Including related party interests.
1)
2) Exercise of share rights awarded under the FY2014 STI Plan and FY2013 Long Term Incentive Plan.
3) These amounts represent on market acquisitions and disposals of shares including shares sold to fund payment of income tax liabilities arising from vesting of share right
awards.
4) Mr Kraehe retired from the Board effective 19 November 2015. The share holding is represented as at 19 November 2015.
5) Mr Moore retired effective 30 November 2015. The share holding is represented as at 30 November 2015.
5. NON-EXECUTIVE DIRECTORS’ REMUNERATION
5.1 OVERVIEW
Fees are normally reviewed annually on 1 January. Following a
review this year, the Board decided that there would be no increase in
Directors’ base or Committee fees for 2016.
Non-executive Directors are expected to build a shareholding in the
Company equivalent to one year’s base fees.
The schedule of fees (exclusive of superannuation) effective 1
January 2016, and which currently applies, is as follows:
The maximum fee pool limit is currently $2,925,000 per annum
(inclusive of superannuation) as approved by shareholders at the
Annual General Meeting in 2008. Total fees paid to Directors for the
year ended 30 June 2016 amounted to $1,922,708 (FY2015
$2,229,714).
Compulsory superannuation contributions per Director capped at
$19,616 per annum (commencing 1 July 2016) are paid on behalf of
each Director. Compulsory superannuation contributions for the year
ended 30 June 2016 were $19,308 per annum. Non-executive
Directors do not receive any other retirement benefits.
Role
Chairman 1
Non-executive Director
Audit and Risk Committee
Chair
Member
Remuneration and Organisation Committee
Chair
Health, Safety and Environment Committee
Chair
Member
Member
Fees effective 1
Jan 2016
$472,500
$157,500
$40,000
$20,000
$34,000
$16,000
$28,000
$14,000
1)
Additional fees are not payable to the Chairman for membership of Committees
BlueScope Steel Limited – FY2016 Directors’ Report
Page 34
5.2 DIRECTORS’ REMUNERATION TABLE
Details of the audited remuneration for FY2016 for each Non-executive Director of BlueScope are set out in the following table.
Name
Non-executive Directors
J A Bevan 3
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch
L H Jones
R P Dee-Bradbury
G J Kraehe 4
R J McNeilly 5
Total 2016
Total 2015
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Short-term benefits
Fees1
$
Non-monetary
Sub-total
$
$
Post-employment benefits 2
$
Total
$
364,176
190,767
201,500
199,426
211,500
209,679
205,500
201,403
191,500
190,767
191,500
190,767
194,676
186,134
196,574
472,500
-
210,241
1,756,926
2,051,684
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,232
10,913
-
5,498
26,232
16,411
364,176
190,767
201,500
199,426
211,500
209,679
205,500
201,403
191,500
190,767
191,500
190,767
194,676
186,134
222,806
483,413
-
215,739
1,783,158
2,068,095
18,878
18,123
19,143
18,768
19,308
18,783
19,308
18,768
18,193
18,123
18,193
18,123
18,494
17,683
8,033
18,783
-
14,465
139,550
161,619
383,054
208,890
220,643
218,194
230,808
228,462
224,808
220,171
209,693
208,890
209,693
208,890
213,170
203,817
230,839
502,196
-
230,204
1,922,708
2,229,714
1) There was no increase in Directors' base fees or committee fees during the year.
2) Post-employment benefits relate to government compulsory superannuation contributions.
3) J A Bevan was appointed Chairman with effect from 19 November 2015.
4) G J Kraehe retired with effect 19 November 2015.
5) R J McNeilly retired with effect 7 April 2015.
6. REMUNERATION GOVERNANCE
6.1 ROLE OF THE REMUNERATION AND ORGANISATION COMMITTEE
The Board oversees the BlueScope human resources strategy, both directly and through the Remuneration and Organisation Committee of the
Board (the Committee). The Committee consists entirely of independent Non-executive Directors.
The Committee’s purview extends beyond remuneration matters and includes human resources strategy, policies, diversity, talent development,
and the development and succession of executives. With respect to remuneration specifically, the Committee has responsibility for overseeing
and recommending to the Board remuneration strategy, policies and practices applicable to Non-executive Directors, the MD & CEO, KMP
Executives, senior managers and employees generally, and focuses on the following activities:
§ An annual review of the Company’s remuneration strategy (including consultation with shareholders and proxy advisors);
§ Approving the terms of employment of the KMP, including determining the levels of remuneration;
§ Ensuring a robust approach to performance management through approval of the STI objectives and awards and reviewing performance of
KMP Executives;
§ Considering all matters relating to the remuneration and performance of the MD & CEO prior to Board approval;
§ Approving awards of equity to employees; and
§ Ensuring the Company’s remuneration policies and practices operate in accordance with good corporate governance standards, including
approval of the Remuneration Report and communications to shareholders on remuneration matters.
The Committee seeks input from the MD & CEO and the Executive General Manager People & Performance, who attend Committee meetings,
except where matters relating to their own remuneration are considered.
6.2 INDEPENDENT REMUNERATION CONSULTANT
The Committee engages and considers advice from independent remuneration consultants where appropriate. Remuneration consultants are
engaged by, and report directly to, the Committee. Potential conflicts of interest are considered when remuneration consultants are selected and
their terms of engagement regulate their level of access to, and require independence from, BlueScope’s management. Any advice from external
consultants is used as a guide, and is not a substitute for thorough consideration of all the issues by the Committee.
The Committee, on behalf of the Board, also seeks the advice of expert external remuneration consultants to ensure that Director fees and
payments reflect the duties of Board members and are in line with the market. The Chairman of the Board does not participate in any discussions
relating to the determination of his own fees.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 35
During FY2016, the Remuneration and Organisation Committee proactively sought external perspectives on executive remuneration matters,
employing the services of PwC to provide information and advice on remuneration strategy and structure including market practice which covers
KMP. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were provided.
PwC attended selected Committee meetings during the year, providing an independent perspective on matters of quantum and structure of
executive remuneration. The Board is satisfied that any advice provided to the Committee was made free from undue influence from any
members of the KMP.
6.3 BLUESCOPE STEEL REMUNERATION PEER GROUP
The Board has selected (and reviews annually) a peer group of companies for the purposes of benchmarking remuneration that reflects the size
and complexity of BlueScope with similarities on one or more of the following dimensions: operate in multiple geographies, have manufacturing or
logistics operations in Australia, are involved in the building and construction industry, have similar number of employees, have similar revenue,
or similar market capitalisation on the ASX.
The Board believes that the more traditional reliance on market capitalisation as the sole criteria is not appropriate for establishing BlueScope’s
remuneration benchmarks and would lead to unmanageable fluctuations in executive remuneration, and could result in an inability to attract and
retain the skills required to manage a business operating in the complex and volatile environment in which BlueScope operates globally.
The current peer group is listed below:
Adelaide Brighton Ltd
Amcor Ltd
Arrium Ltd
Asciano Group
Aurizon Holdings Ltd
Boral Ltd
Brambles Ltd
Broadspectrum Ltd
Caltex Australia Ltd
CSR Ltd
Downer EDI Ltd
Fletcher Building Ltd
Incitec Pivot Ltd
CIMIC Group Ltd
Lend Lease Corp Ltd
Orica Ltd
Qantas Airways Ltd
WorleyParsons Ltd
6.4 SUMMARY TERMS OF EMPLOYMENT
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
The following table outlines the summary terms of employment for the MD & CEO:
Feature
Description
Contract term and
notice period
Paul O’Malley was appointed to the position of Managing Director and Chief Executive Officer effective from 1
November 2007 and his contract is ongoing. The contract can be terminated by either party at any time on six
months’ notice.
Termination (without
cause)
If BlueScope terminates Mr O’Malley’s employment by notice, it may provide payment in lieu of notice and must
make an additional payment of 12 months’ annual base pay.
Termination (with
cause)
Mr O’Malley will be immediately terminated by BlueScope if, among other things, he wilfully breaches his Service
Contract, is convicted of various offences for which he can be imprisoned or is disqualified from managing a
corporation, or engages in conduct which is likely to adversely impact the reputation of BlueScope. In this
circumstance, Mr O’Malley will only be entitled to his annual base pay up to the date of termination.
Illness or disablement
BlueScope may terminate Mr O’Malley’s employment if he becomes incapacitated by physical or mental illness,
accident or any other circumstances beyond his control for an accumulated period of six months in any 12 month
period and, in this circumstance, will make payment of six months’ notice based on annual base pay.
Fundamental change of
employment terms
Mr O’Malley may resign if a fundamental change in his employment terms occurs and within three months of the
fundamental change Mr O’Malley gives notice to BlueScope. In this event, the Company will provide Mr O’Malley
with six months’ notice, or a payment in lieu of that notice, and a termination payment of 12 months’ annual base
pay.
Change of control
Mr O’Malley is entitled to early vesting, subject to satisfying performance testing requirements, of LTIP awards on
a change of control.
Non-compete restriction
Mr O’Malley is subject to a 12 month non-compete restriction after his employment ceases with BlueScope. Mr
O’Malley cannot solicit or entice away from BlueScope any supplier, customer or employee or participate in a
business that competes with BlueScope during the 12 month period.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 36
OTHER KMP EXECUTIVES
Key features of the terms of employment for disclosed KMP Executives (other than the Managing Director and Chief Executive Officer) include
the following:
§ Employment continues until terminated by either the executive or BlueScope, with six months’ notice required of both parties. In the event of
termination by the Company other than for cause, a termination payment of 12 months’ pay applies. The maximum amount payable on
termination will not exceed 12 month’s fixed pay.
§ Agreements are also in place for KMP Executives detailing the approach the Company will take with respect to payment of their termination
payments and with respect to exercising its discretion on the vesting of Share Rights in the event of a ‘Change of Control’ of the organisation
7. RELATED PARTY TRANSACTIONS
7.1 LOANS TO KEY MANAGEMENT PERSONNEL
There have been no loans granted to directors and executives or their related entities.
7.2 OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Mr Daniel Grollo is a director of Grocon Group Holdings Pty Ltd, a privately owned company. Grocon occasionally purchases Lysaght building
products from the BlueScope Steel Group on normal terms and conditions. There were no amounts purchased from the BlueScope Steel Group
by Grocon for FY2016 (2015: less than $1,000).
In the normal course of business the Company occasionally enters into transactions with various entities that have directors in common with
BlueScope Steel. Transactions with these entities are made on commercial arm’s length terms and conditions. The relevant directors do not
participate in any decisions regarding these transactions.
BlueScope Steel Limited – FY2016 Directors’ Report
Page 37
OTHER MATTERS
ENVIRONMENTAL REGULATION
BlueScope’s Australian manufacturing operations are subject to significant environmental regulation. Throughout its Australian operations in the
12 months to 30 June 2016, the Company notified relevant authorities of 13 incidents resulting in statutory non-compliances. The Company
notified its site at Erskine Park, Sydney as a contaminated site; the EPA is currently investigating whether the contamination has migrated from
an adjacent site not owned or operated by BlueScope. The Company also notified its No.1 Works site (the original location of steelmaking) at
Port Kembla and part of its Steelhaven site at Port Kembla as contaminated sites. Boundary remediation has continued at the former Stainless
steel manufacturing site at Port Kembla, which had been previously notified to NSW EPA and declared as ‘significantly contaminated’ by NSW
EPA. Investigations at the Stainless site have continued pursuant to a Voluntary Management Proposal accepted by the NSW EPA. In
December 2014, the Victorian EPA served two Clean-Up Notices on BlueScope relating to its site at Sunshine, Victoria, requiring the assessment
of asbestos contamination at the site. The site is adjacent to a former asbestos factory. Following submission of assessment reports by
BlueScope, the Clean-Up Notices were revoked and a further Clean-Up Notice issued requiring BlueScope to appoint an independent auditor to
recommend management options for the site. The auditor’s report was lodged with the Victorian EPA in June 2016. During the period there
were no environmental prosecutions against the Company.
BlueScope submits annual reports under the National Greenhouse Gas and Energy Reporting Scheme (greenhouse gas emissions and energy
consumption and production for all Australian facilities), and the National Pollutant Inventory (substance emissions to air and water for a number
of facilities).
Each year BlueScope publishes a Community Safety and Environment Report, which is available on our website. The report provides further
details of the Company’s environmental performance and initiatives.
INDEMNIFICATION AND INSURANCE OF OFFICERS
BlueScope Steel has entered into directors' and officers' insurance policies and paid an insurance premium in respect of the insurance policies,
to the extent permitted by the Corporations Act 2001. The insurance policies cover former Directors of BlueScope Steel along with the current
Directors of BlueScope Steel (listed on page 18). Executive officers and employees of BlueScope Steel and its related bodies corporate are also
covered.
In accordance with Rule 21 of its Constitution, BlueScope Steel to the maximum extent permitted by law:
§ must indemnify any current or former Director or Secretary; and
§ may indemnify current or former executive officers,
of BlueScope Steel or any of its subsidiaries, against all liabilities (and certain legal costs) incurred in those capacities to a person, including a
liability incurred as a result of appointment or nomination by BlueScope Steel or its subsidiaries as a trustee or as a director, officer or employee
of another corporation.
Directors of BlueScope Steel, the Chief Financial Officer and the Chief Legal Officer and Company Secretary have entered into an Access,
Insurance and Indemnity Deed with BlueScope Steel. The Deed addresses the matters set out in Rule 21 of the Constitution and includes,
among other things, provisions requiring BlueScope Steel to indemnify an officer to the extent to which they are not already indemnified as
permitted under law, and to use its best endeavours to maintain an insurance policy covering the period while they are in office and seven years
after ceasing to hold office.
The Directors have not included details of the nature of the liabilities covered or the amount of the premium paid in respect of the directors' and
officers' liability insurance contract, as (in accordance with normal commercial practice) such disclosure is prohibited under the terms of the
contract.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement
agreement against claims by third parties arising from the audit. No payment has been made to indemnify Ernst & Young during or since the
financial year.
PROCEEDINGS ON BEHALF OF BLUESCOPE STEEL
As at the date of this report, there are no leave applications or proceedings brought on behalf of BlueScope Steel under section 237 of the
Corporations Act 2001.
ROUNDING OF AMOUNTS
Amounts in the Directors' Report are presented in Australian dollars with values rounded to the nearest hundred thousand dollars, or in certain
cases,
in
Financial/Directors’ Reports) instrument 2016/91.
Investments Commission Corporations (Rounding
the Australian Securities and
in accordance with
the nearest dollar,
BlueScope Steel Limited – FY2016 Directors’ Report
Page 38
AUDITOR INDEPENDENCE DECLARATION
Ernst & Young was appointed as auditor for BlueScope Steel at the 2002 Annual General Meeting.
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The Auditor’s Independence Declaration for the year ended 30 June 2016 has been received from Ernst & Young. This is set out at page 41 of
the Directors’ Report. Ernst & Young provided $1,173,000 of non-audit services during the year ended 30 June 2016, comprising:
Assurance Related Services
$633,000 for debt funding assurance services
$60,000 for restructuring assurance services
$33,000 for environmental compliance services
Taxation Related Services
$401,000 for taxation compliance services
Advisory Services
$46,000 for market research advisory services
The Directors are satisfied that the provision of these non-audit services is compatible with the general standard of independence for auditors in
accordance with the Corporations Act 2001. The nature, value and scope of each type of non-audit service provided is considered by the
Directors not to have compromised auditor independence.
This report is made in accordance with a resolution of the Directors.
J A BEVAN
Chairman
P F O’MALLEY
Managing Director and Chief Executive Officer
Melbourne
22 August 2016
BlueScope Steel Limited – FY2016 Directors’ Report
Page 39
FINANCIAL
REPORT
2015/2016
BlueScope Steel Limited ABN 16 000 011 058
Annual Financial Report - 30 June 2016
Contents
Financial statements
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
About this report
Notes to the consolidated financial statements
Financial
performance
1. Segment
information
Working capital
and provisions
6. Trade and other
receivables
2. Revenue
7. Inventories
Invested Capital
12. Property, plant
and equipment
13. Intangible
assets
Capital structure
and financing
activities
15. Cash and cash
equivalents
Group structure
Unrecognised
items
20. Business
25. Contingencies
combinations
16. Borrowings
21. Subsidiaries and
26. Commitments
non-controlling
interests
Other information
28. Share based
payments
29. Related party
transactions
3. Other Income
8. Operating
14. Carrying value
intangible assets
of non-financial
assets
17. Contributed
Equity
22. Investment in
associates
27. Events occurring
after balance
date
30. Parent entity
financial
information
4. Income tax
5. Earnings (loss)
per share
9. Trade and other
payables
10. Provisions
18. Reserves
23. Investment in
joint ventures
19. Dividends
24. Discontinued
operations
11. Retirement
benefit
obligations
Signed Reports
Directors' declaration
Independent audit report to the members
31. Deed of cross -
guarantee
32. Financial
instruments and
risk
33. Remuneration of
auditors
34. Other accounting
policies
1
2
3
4
5
6
67
68
Statement of Comprehensive Income
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2016
Revenue from continuing operations
Other income
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Net impairment (expense) of non-current assets
Freight on external despatches
External services
Net restructuring costs
Finance costs
Other expenses
Share of net profits (losses) of associates and joint venture partnerships
accounted for using the equity method
Profit before income tax
Income tax expense
Profit from continuing operations
Profit (loss) from discontinued operations after income tax
Net profit for the year
Items that may be reclassified to profit or loss
Net gain (loss) on cash flow hedges
- Income tax (expense)
Net gain (loss) on net investments in foreign subsidiaries
Exchange fluctuations on translation of foreign operations attributable to
BlueScope Steel Limited
Items that will not be reclassified to profit or loss
Actuarial gain (loss) on defined benefit superannuation plans
- Income tax (expense) benefit
Exchange fluctuations on translation of foreign operations attributable to
non-controlling interests
Other comprehensive income (loss) for the year
Total comprehensive income for the year
Profit is attributable to:
Owners of BlueScope Steel Limited
Non-controlling interests
Total comprehensive income for the year is attributable to:
Owners of BlueScope Steel Limited
Non-controlling interests
Earnings per share for profit attributable to ordinary equity holders of the
Company from:
Continuing operations:
Basic earnings (loss) per share
Diluted earnings (loss) per share
Total operations:
Basic earnings (loss) per share
Diluted earnings (loss) per share
-1-
Notes
2
3
12, 13
14(e), 23(e)
10(e)
16(d)
22(a), 23(a)
4(a)
24(b)
18(a)
18(a)
18(a)
11(i)
21
21
Notes
5
5
5
5
Consolidated
2016
$M
2015
$M
9,202.7
8,540.1
762.1
20.3
(195.7)
(4,817.7)
(1,684.9)
(388.1)
(554.8)
(500.3)
(927.9)
(55.4)
(109.1)
(252.4)
39.9
518.4
(101.5)
416.9
(0.6)
416.3
9.2
(1.3)
(0.2)
(19.5)
(160.6)
48.3
1.2
(122.9)
293.4
353.8
62.5
416.3
230.1
63.3
293.4
(86.9)
(4,750.5)
(1,581.0)
(343.0)
(2.7)
(527.2)
(888.3)
(5.2)
(76.8)
(192.2)
115.7
222.3
(47.4)
174.9
2.2
177.1
(4.9)
-
53.1
101.3
(93.6)
23.5
74.5
153.9
331.0
136.3
40.8
177.1
216.6
114.4
331.0
2016
Cents
2015
Cents
62.2
60.2
62.1
60.1
23.9
23.2
24.3
23.6
Statement of Financial Position
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Operating intangible assets
Derivative financial instruments
Deferred charges and prepayments
Non-current assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Inventories
Operating intangible assets
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Deferred charges and prepayments
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Deferred income
Derivative financial instruments
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Provisions
Retirement benefit obligations
Deferred income
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained losses
Parent entity interest
Non-controlling interests
Total equity
-2-
Notes
15
6
7
8
32(d)
22(a)
6
7
8
22, 23
12
13
4(c)
9
16
10
32(d)
9
16
4(c)
10
11
17(a)
18
21
Consolidated
2016
$M
2015
$M
549.8
1,158.4
1,391.5
8.3
5.1
93.0
3,206.1
-
3,206.1
35.8
71.1
25.9
39.3
3,834.1
1,736.5
196.7
3.1
5,942.5
9,148.6
1,480.7
228.6
11.6
379.1
181.8
2.2
2,284.0
32.8
1,099.2
162.4
191.2
390.8
2.9
1,879.3
4,163.3
4,985.3
4,688.1
224.9
(415.8)
4,497.2
488.1
4,985.3
518.5
1,087.4
1,496.7
5.3
1.4
71.2
3,180.5
5.3
3,185.8
36.2
63.9
-
144.6
3,732.6
510.0
196.0
8.4
4,691.7
7,877.5
1,306.1
107.6
8.6
419.2
153.2
10.6
2,005.3
11.5
686.1
24.2
190.2
217.9
3.2
1,133.1
3,138.4
4,739.1
4,673.8
225.1
(623.3)
4,275.6
463.5
4,739.1
Statement of Changes to Equity
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2016
Consolidated - 30 June 2016
Notes
x
Balance at 1 July 2015
Profit for the period
Other comprehensive income (loss)
Total comprehensive income for the
year
Transactions with owners in their capacity
as owners:
Issue of share awards
Share-based payment expense
Dividends paid
Tax credit recognised directly in equity
Other
17(b)
18(a)
17(b)
Contributed
equity
$M
Reserves
$M
Retained
losses
$M
Non-
controlling
interests
$M
Total
$M
4,673.8
225.1
(623.3)
463.5
4,739.1
-
-
-
12.9
-
-
1.4
-
14.3
-
(12.4)
353.8
(111.4)
(12.4)
242.4
(11.8)
23.2
-
-
0.8
12.2
-
-
(34.2)
-
(0.7)
(34.9)
62.5
0.9
63.4
-
-
(38.8)
-
-
(38.8)
416.3
(122.9)
293.4
1.1
23.2
(73.0)
1.4
0.1
(47.2)
Balance at 30 June 2016
4,688.1
224.9
(415.8)
488.1
4,985.3
Consolidated - 30 June 2015
Notes
x
Balance at 1 July 2014
Profit for the period
Other comprehensive income (loss)
Total comprehensive income (loss) for
the year
Transactions with owners in their capacity
as owners:
Issue of share awards
Share-based payment expense
Dividends paid
Tax credit recognised directly in equity
Transactions with non-controlling interests
Other
18(a)
17(b)
Contributed
equity
$M
Reserves
$M
Retained
losses
$M
Non-
controlling
interests
$M
Total
$M
4,659.4
73.8
(671.7)
395.2
4,456.7
-
-
-
12.5
-
-
1.9
-
-
14.4
-
150.0
150.0
(12.0)
12.7
-
-
(0.5)
1.1
1.3
136.3
(69.7)
40.8
73.6
66.6
114.4
-
-
(17.0)
-
-
(1.2)
(18.2)
-
-
(46.2)
-
-
0.1
(46.1)
177.1
153.9
331.0
0.5
12.7
(63.2)
1.9
(0.5)
-
(48.6)
Balance at 30 June 2015
4,673.8
225.1
(623.3)
463.5
4,739.1
-3-
Statement of Cash Flows
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2016
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Associate dividends received
Joint venture partnership distributions received
Interest received
Other revenue
Finance costs paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Payments for purchase of subsidiaries, net of cash acquired
Payments for purchase of business assets, net of cash acquired
Payments for investments in joint venture partnerships
Payments for property, plant and equipment
Payments for intangibles
Proceeds from sale of property, plant and equipment
Proceeds from sale of business
Proceeds from sale of investments
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to Company's shareholders
Dividends paid to non-controlling interests in subsidiaries
Transactions with non-controlling interests
Share buybacks
Net cash inflow (outflow) from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of financial year
Financing arrangements
Non-cash financing activities
Notes
Consolidated
2016
$M
2015
$M
9,867.1
(8,810.6)
1,056.5
3.3
24.2
6.5
22.7
(111.2)
(50.0)
952.0
(987.7)
(33.8)
(2.3)
(288.9)
(25.0)
10.1
-
38.1
(1,289.5)
4,290.7
(3,849.8)
(34.2)
(38.8)
-
-
367.9
30.4
517.9
0.6
548.9
8,989.0
(8,482.5)
506.5
4.6
127.3
3.0
16.6
(69.6)
(49.7)
538.7
-
(52.7)
(2.5)
(375.8)
(9.1)
22.1
7.2
-
(410.8)
2,114.8
(2,165.9)
(17.0)
(46.2)
(0.5)
(0.6)
(115.4)
12.5
465.9
39.5
517.9
15(a)
20(b)
20(a)(i)
24(a)
22(a)
19(a)
15
16(b)
16(e)
-4-
BlueScope Steel Limited
30 June 2016
About this report
BlueScope Steel Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian
Securities Exchange. The registered office of the Company is Level 11, 120 Collins Street, Melbourne, Victoria, Australia 3000. The
nature of the operations and principal activities of the Group are described in note 1(a) and the Directors' Report.
The financial report of BlueScope Steel Limited for the year ended 30 June 2016 was authorised for issue in accordance with a
resolution of the Directors on 22 August 2016.
Basis of preparation
This financial report is a general purpose financial report, prepared by a for-profit entity, which:
•
•
•
•
•
•
•
Has been prepared in accordance with the requirements of the Australian Corporations Act 2001, Australian Accounting
Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Includes consolidated financial statements, incorporating the assets and liabilities of all subsidiaries of BlueScope Steel Limited
('Company' or 'parent entity') as at 30 June 2016 and the results of all subsidiaries for the year then ended. BlueScope Steel
Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.
Has been prepared on a historical cost basis, except for derivative financial instruments and New Zealand emission unit permits
that are held for trading which have been measured at fair value.
Is presented in Australian dollars with values rounded to the nearest hundred thousand dollars or in certain cases, the nearest
dollar, in accordance with the Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191.
Presents comparative information where required for consistency with the current year's presentation.
Adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the operations of
the Group and effective for reporting periods beginning on or after 1 July 2015.
Does not early adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective as
disclosed in note 34(b), except for the the amendments as disclosed in note 34(a).
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic
environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Australian
dollars, which is BlueScope Steel Limited's functional and presentation currency.
Key estimates and judgements
In the process of applying the Group's accounting policies, management has made a number of judgements and applied estimates
of future events. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements, are disclosed in the following notes:
Note 4: Income Tax
Note 10: Provisions
Note 11: Retirement benefit obligations
Note 12: Property, plant and equipment
Note 14: Carrying value of non-financial assets
Note 28: Share based payments
-5-
Contents to the notes to the consolidated financial statements
Page
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Financial Performance
1
2
3
4
5
Segment information
Revenue
Other income
Income tax
Earnings (loss) per share
Working capital and provisions
6
7
8
9
10
11
Trade and other receivables
Inventories
Operating intangible assets
Trade and other payables
Provisions
Retirement benefit obligations
Invested capital
12
13
14
Property, plant and equipment
Intangible assets
Carrying value of non-financial assets
Capital structure and financing activities
15
16
17
18
19
Cash and cash equivalents
Borrowings
Contributed equity
Reserves
Dividends
Group structure
20
21
22
23
24
Business combinations
Subsidiaries and non-controlling interests
Investment in associates
Investment in joint ventures
Discontinued operations
Unrecognised items
25
26
27
Contingencies
Commitments
Events occurring after balance date
Other Information
28
29
30
31
32
33
34
Share-based payments
Related party transactions
Parent entity financial information
Deed of cross - guarantee
Financial instruments and risk
Remuneration of auditors
Other accounting policies
-6-
7
11
11
12
15
16
18
18
19
19
21
25
27
28
30
31
35
36
38
38
40
44
45
48
48
49
50
51
53
55
57
59
63
64
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Financial Performance
This section of the notes includes segment information and provides further information on key line items relevant to financial
performance that the directors consider most relevant, including accounting policies, key judgements and estimates relevant to
understanding these items.
1 Segment information
(a) Description of segments
The Group's operating segments are reported in a manner which is materially consistent with the internal reporting provided to the
chief operating decision maker. The Managing Director and Chief Executive Officer is responsible for allocating resources and
assessing performance of the operating segments.
Segment
Description
Australian Steel Products
and construction customers as well as providing a broader offering of commodity flat steel products.
- Produces and markets a range of high valued coated and painted flat steel products for Australian building
- Products are primarily sold to the Australian domestic market, with some volume exported.
- Key brands include zinc/aluminium alloy coated - ZINCALUME® steel and galvanised and zinc/aluminium
alloy-coated pre-painted COLORBOND® steel.
- Main manufacturing facilities are at Port Kembla (NSW) and Western Port (Victoria).
- Segment also operates a network of roll-forming and distribution sites throughout Australia, acting as a
major steel product supplier to the building and construction, manufacturing, automotive and transport,
agriculture and mining industries.
x
x
New Zealand & Pacific Steel
BlueScope Pacific Islands.
- Consists of four primary business areas: New Zealand Steel, Pacific Steel, New Zealand Minerals, and
- New Zealand steel is the only steel producer in New Zealand, producing slab, billet, hot rolled coil and value
added coated and painted products for both domestic and export markets across the Pacific Region.
Operations include the manufacture and distribution of the LYSAGHT® range of products in Fiji, New
Caledonia and Vanuatu.
- Pacific Steel is the sole producer of long steel products such as rod, bar, reinforcing coil and wire in New
Zealand.
- Segment also includes the Waikato North Head iron sands mine which supplies iron sands to the Glenbrook
Steelworks and for export, and the Taharoa iron sands mine which supplies iron sands for export.
x
X
x
BlueScope Buildings
(Previously named Global
Building Solutions)
- Leader in engineered building solutions (EBS), servicing the low-rise non-residential construction needs of
customers from engineering and manufacturing bases in Asia and North America. EBS plants are located in
China, Thailand,Vietnam, North America, Saudi Arabia and India.
- The segment also includes BlueScope's metal coating, painting and Lysaght operations in China.
Building Products ASEAN,
North America & India
Asia-Pacific region, with a wide range of branded products that include pre-painted COLORBOND® steel,
zinc/aluminium alloy-coated ZINCALUME® steel and the LYSAGHT® range of products.
- Technology leader in metal coated and painted steel building products, principally focused on the
- Segment has an extensive footprint of metallic coating, painting and steel building product operations in
Thailand, Indonesia, Vietnam, Malaysia, India and North America, primarily servicing the residential and
non-residential building and construction industries across Asia, and the non-residential building and
construction industry in North America.
- BlueScope operates in ASEAN and North America in partnership with Nippon Steel & Sumitomo Metal
Corporation (NSSMC) and in India with Tata Steel. Both are 50/50 joint ventures, with BlueScope controlling
and therefore consolidating the joint venture with NSSMC, and jointly controlling and therefore equity
accounting the joint venture with Tata Steel.
- Segment is comprised of North Star BlueScope Steel (North Star) and 47.5% interest in Castrip LLC (a thin
strip casting technology joint venture with Nucor and IHI Ltd). On 8 July 2016, BlueScope Steel Limited sold
it's 47.5% interest in Castrip to Nucor for US$20M.
- North Star is a single site electric arc furnace producer of hot rolled coil in Ohio, in the US. On 30 October
2015, BlueScope acquired the remaining 50% interest and from the date of acquiring full ownership, North
Star has been consolidated in BlueScope's financial statements.
- Prior to North Star acquisition and Castrip sale, these businesses were jointly controlled and therefore
equity accounted in the Group Financial Statements.
Hot Rolled Products North
America
-7-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
1 Segment information (continued)
(b) Reportable segments
The segment information provided to the Managing Director and Chief Executive Officer for the reportable segments for the year
ended 30 June 2016 is as follows:
30 June 2016
Australian
Steel
Products
$M
New
Zealand &
Pacific
Steel
$M
BlueScope
Buildings
$M
Building
Products
ASEAN,
North
America &
India
$M
Hot Rolled
Products
North
America
$M
Discontinued
Operations
$M
Total
$M
Total segment sales revenue
Intersegment revenue
Revenue from external customers
4,437.4
(259.5)
4,177.9
887.3
(106.3)
781.0
1,705.9
(0.1)
1,705.8
1,766.8
(96.1)
1,670.7
847.3
-
847.3
-
-
-
9,644.7
(462.0)
9,182.7
Segment EBIT
77.7
(397.3)
Depreciation and amortisation
Impairment expense (write-back) of non-current
assets
Share of profit (loss) from associates and joint
venture partnerships
187.3
189.0
-
53.6
364.6
2.5
39.0
44.4
(1.1)
1.2
149.3
847.3
(0.7)
61.6
-
7.5
40.8
2.3
28.7
-
-
-
715.3
387.7
554.8
39.9
Total segment assets
3,062.7
696.7
1,325.3
1,266.1
2,074.5
0.3
8,425.6
Total assets includes:
Investments in associates and joint venture
partnerships
Additions to non-current assets (other than financial
assets and deferred tax)
Total segment liabilities
-
164.4
973.9
4.8
116.4
2.5
27.4
32.0
48.3
-
1,029.4
-
-
39.3
1,385.9
510.1
721.9
256.5
212.2
4.1
2,678.7
(8,292.2)
(1,590.5)
(3,792.0)
(3,342.6)
(3,981.3)
(3.7)
(21,002.3)
Australian
Steel
Products
$M
New
Zealand &
Pacific
Steel
$M
BlueScope
Buildings
$M
Building
Products
ASEAN,
North
America &
India
$M
Hot Rolled
Products
North
America
$M
Discontinued
Operations
$M
Total
$M
4,792.1
(363.4)
4,428.7
128.4
189.1
0.2
-
972.1
(112.1)
860.0
(30.3)
60.0
-
4.1
1,538.1
(0.4)
1,537.7
1,790.8
(96.5)
1,694.3
97.1
55.0
-
56.0
38.5
-
1.2
-
-
-
107.3
-
2.5
(2.1)
112.5
31.6
-
31.6
1.8
-
-
-
9,124.7
(572.4)
8,552.3
360.3
342.6
2.7
115.7
30 June 2015
Total segment sales revenue
Intersegment revenue
Revenue from external customers
Segment EBIT
Depreciation and amortisation
Impairment expense (write-back) of non-current
assets
Share of profit (loss) from associates and joint
venture partnerships
Total segment assets
3,491.4
998.8
1,294.1
1,352.9
112.8
1.4
7,251.4
Total assets includes:
Investments in associates and joint venture
partnerships
Additions to non-current assets (other than
financial assets and deferred tax)
-
3.8
172.8
104.1
2.2
30.3
25.8
72.8
Total segment liabilities
1,058.6
364.0
567.0
346.9
112.8
-
-
-
-
144.6
380.0
16.6
2,353.1
(9,107.1)
(2,192.5)
(3,454.8)
(3,491.2)
(220.1)
(51.4)
(18,517.1)
-8-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
1 Segment information (continued)
(c) Geographical information
The Group's geographical regions are based on the location of markets and customers. Segment non-current assets exclude tax
assets and are allocated based on where the assets are located.
(d) Other segment information
(i) Segment revenue
Sales between segments are carried out at arm's length and are eliminated on consolidation. The revenue from external parties is
measured in a manner that is consistent with the statement of comprehensive income.
Total segment revenue
Intersegment eliminations
Discontinued operations
Other revenue
Total revenue from continuing operations
Notes
24(b)
Consolidated
2016
$M
2015
$M
9,644.7
(462.0)
-
20.0
9,202.7
9,124.7
(572.4)
(31.6)
19.4
8,540.1
-9-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
1 Segment information (continued)
(ii) Segment EBIT
Performance of the operating segments is based on EBIT which excludes the effects of Group financing (including interest expense
and interest income) and income taxes as these items are managed on a Group basis.
Total segment EBIT
Intersegment eliminations
Interest income
Finance costs
Discontinued operations
Corporate operations
Profit before income tax from continuing operations
Consolidated
2016
$M
2015
$M
715.3
(1.4)
5.2
(109.1)
0.7
(92.3)
518.4
360.3
0.1
4.3
(76.8)
(1.8)
(63.8)
222.3
(iii) Segment assets and liabilities
Segment assets and liabilities are measured in a manner consistent with the financial statements and are allocated based on the
operations.
Cash and liabilities arising from borrowing and funding initiatives, including deferred purchase price on business acquisitions, are not
considered to be segment assets and liabilities respectively due to these being managed by the Group's centralised treasury function.
Consolidated
2016
$M
2015
$M
8,425.6
(43.5)
196.7
549.8
20.0
9,148.6
7,251.4
(112.2)
196.0
518.5
23.8
7,877.5
Consolidated
2016
$M
2015
$M
2,678.7
(41.1)
1,327.8
174.0
9.8
14.1
-
4,163.3
2,353.1
(111.3)
793.7
32.8
5.7
31.7
32.7
3,138.4
Segment assets
Intersegment eliminations
Unallocated:
Deferred tax assets
Cash
Corporate operations
Total assets
Segment liabilities
Intersegment eliminations
Unallocated:
Borrowings
Current and deferred tax liabilities
Accrued borrowing costs payable
Corporate operations
Deferred purchase price on business acquisition
Total liabilities
-10-
2 Revenue
Sales revenue
Other revenue
Interest
Other
Total revenue from continuing operations
From discontinued operations
Sales revenue
(a) Recognition and measurement
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Note
Consolidated
2016
$M
2015
$M
9,182.7
8,520.7
5.2
14.8
20.0
4.3
15.1
19.4
9,202.7
8,540.1
24(b)
-
31.6
Sales revenue is measured at the fair value of the consideration received or receivable and is presented net of returns, trade
allowances, rebates and amounts collected on behalf of third parties.
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. This is considered
to have occurred when legal title of the product is transferred to the customer and the Group is no longer responsible for the product.
The point at which title is transferred is dependent upon the specific terms and conditions of the contract of sale. The Group
recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the
entity and specific criteria have been met.
Contract revenue is recognised using the percentage of completion method.
Advance payments received from customers are recognised as a liability on the Statement of Financial Position as deferred income,
until goods have been sold or services rendered.
3 Other income
Net gain on re-measurement of equity investment
Net gain on sale of investment
Net gain on disposal of non-current assets
Carbon permit income
Government grant - other
Proceeds from sale of held for sale non-current asset
Insurance recoveries
Foreign exchange gains (net)
Notes
20(a)(ii)
22(a)
Consolidated
2016
$M
2015
$M
706.6
32.9
-
8.5
2.1
-
5.7
6.3
762.1
-
-
11.3
4.4
0.7
0.7
0.1
3.1
20.3
-11-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
4 Income tax
(a)
Income tax expense (benefit)
Current tax
Deferred tax
Adjustments for current tax of prior periods
Income tax expense is attributable to:
Profit from continuing operations
Profit (loss) from discontinued operations
Total income tax expense
Note
24(b)
(b) Reconciliation of income tax expense to prima facie tax payable
Profit from continuing operations before income tax expense
Profit (loss) from discontinuing operations before income tax expense
Tax at the Australian tax rate of 30.0% (2015 - 30.0%)
Tax effect of amounts which are not deductible/(taxable):
Depreciation and amortisation
Manufacturing credits
Research and development incentive
Withholding tax
Non-taxable gains
Share of net profits of associates
Sundry items
Difference in overseas tax rates
Adjustments for current tax of prior periods
Temporary differences and tax losses not recognised
Previously unrecognised tax losses now recouped
Deferred tax assets now derecognised
Income tax expense
Consolidated
2016
$M
2015
$M
49.1
45.7
6.6
101.4
101.5
(0.1)
101.4
69.4
(22.9)
0.3
46.8
47.4
(0.6)
46.8
Consolidated
2016
$M
2015
$M
518.4
(0.7)
517.7
155.3
0.6
(2.8)
(4.3)
4.1
(261.2)
(3.3)
5.0
(106.6)
49.0
6.6
180.7
(61.9)
33.6
101.4
222.3
1.6
223.9
67.2
0.3
(4.5)
(4.3)
4.9
(5.2)
(0.5)
3.3
61.2
0.9
0.3
17.2
(36.9)
4.1
46.8
(619.1)
(270.7)
-12-
4 Income tax (continued)
(c) Deferred tax assets (DTA) and liabilities (DTL)
The balance comprises temporary differences attributable to:
Employee benefits provision
Other provisions
Depreciation
Foreign exchange (gains) losses
Intangible assets
Inventory
Tax losses
Other
Movements:
Opening balance at 1 July
Charged/credited:
Charged (credited) to profit or loss
Charged (credited) to other comprehensive income
Acquisitions and disposals
Exchange fluctuation
(d) Tax losses
Unused tax losses for which no deferred tax asset has been recognised
Potential tax benefit
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Consolidated
DTA
2016
$M
2015
$M
DTL
2016
$M
2015
$M
215.6
49.7
(317.9)
(21.3)
(15.7)
(14.5)
285.9
14.9
196.7
131.5
37.5
(209.5)
(66.8)
(8.5)
(13.2)
319.6
5.4
196.0
(2.2)
(4.5)
29.5
-
142.6
(0.7)
(3.1)
0.8
162.4
(52.1)
(5.5)
70.7
0.1
21.2
(3.9)
(5.5)
(0.8)
24.2
Consolidated
DTA
2016
$M
2015
$M
DTL
2016
$M
2015
$M
196.0
(35.7)
33.0
-
3.4
196.7
162.6
20.2
14.4
-
(1.2)
196.0
24.2
10.0
(14.0)
146.5
(4.3)
162.4
31.2
(2.7)
(9.0)
-
4.7
24.2
Consolidated
2016
$M
2015
$M
2,161.3
638.4
2,086.9
619.0
As at 30 June 2016, $42.2M (2015: $24.8M) of Australian deferred tax liabilities generated during the period have been utilised within
tax expense. The Company has deferred the recognition of any further tax asset for the Australian tax Group until a return to taxable
profits has been demonstrated. The Australian consolidated tax Group has $2.75 billion of carried forward tax losses of which
$1,873.4M have been impaired and are not currently carried as a deferred tax asset. These past losses are able to be booked and
used in the future, as Australian tax losses are able to be carried forward indefinitely.
For the year ended 30 June 2016 $64.7M of New Zealand deferred tax assets have been impaired through tax expense, inclusive of a
$33.6M write-off of previously carried forward tax losses. The Company has deferred the recognition of any further New Zealand tax
credits until a sustainable return to taxable profits has been demonstrated. New Zealand tax losses are able to be carried forward
indefinitely.
The Group also has unrecognised tax losses arising in Vietnam of $3.5M (2015: $7.6M) and China of $31.3M (2015: $44.2M) which
are able to be offset against taxable profits within five years of being incurred. Other unrecognised tax losses can be carried forward
indefinitely but can only be utilised in the same tax group in which they are generated.
-13-
4 Income tax (continued)
(e) Unrecognised temporary differences
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Consolidated
2016
$M
2015
$M
Temporary difference relating to investment in subsidiaries for which deferred tax liabilities have not
been recognised
Tax effect of the above unrecognised temporary differences
465.8
52.2
517.1
51.8
Overseas subsidiaries have undistributed earnings, which, if paid out as dividends, would be subject to withholding tax. An assessable
temporary difference exists, however no deferred tax liability has been recognised as the parent entity is able to control the timing of
distributions from their subsidiaries and is not expected to distribute these profits in the foreseeable future.
Unrecognised deferred tax assets for the Group totalling $241.8M (2015: $109.7M) in respect of temporary differences have not been
recognised as they are not probable of realisation.
(f) Recognition and measurement
Current taxes
The income tax expense for the period is the tax payable on the current period's taxable income based on the applicable income tax
rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused
tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting
period in the countries where the Company's subsidiaries and associates operate and generate taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred taxes
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if
they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by
the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to
control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable
future.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.
Offsetting deferred tax balances
Deferred tax assets and liabilities are offset when deferred tax balances relate to the same taxation authority and there is a legally
enforceable right to offset current tax assets and liabilities.
-14-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
4 Income tax (continued)
(g) Key judgements and estimates
The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where
the final tax outcome of these matters is different from the amounts that were initially recorded, these differences will impact the
current and deferred tax provisions in the period in which the determination is made.
In addition, deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future forecast taxable profits are available to utilise those temporary differences and losses, and the tax losses continue to be
available having regard to the relevant tax legislation associated with their recoupment.
The Australian consolidated tax group and New Zealand Steel have recognised a $84.6M and NZ$ 85.8M deferred tax asset at 30
June 2016 respectively (2015: $84.6M, NZ$ 94.7M). The Australian consolidated tax group has incurred taxable losses in the
current and preceding periods. The utilisation of the deferred tax asset amount depends upon future taxable amounts in excess of
profits arising from the reversal of temporary differences. The Group believes these amounts to be recoverable based on taxable
income projections. The Group has deferred the recognition of any further tax credits for both the Australian and New Zealand tax
groups until a sustainable return to taxable profits has been demonstrated.
5 Earnings (loss) per share
Continuing operations
Discontinued operations
Earnings per share
Consolidated
Basic
2016
Cents
2015
Cents
Diluted
2016
Cents
2015
Cents
62.2
(0.1)
62.1
23.9
0.4
24.3
60.2
(0.1)
60.1
23.2
0.4
23.6
(a) Earnings used in calculating earnings (loss) per share
Profit (loss) used in calculating basic earnings (loss) per share:
Continuing operations
Discontinued operations
(b) Weighted average number of shares used as denominator
Weighted average number of ordinary shares (Basic)
Weighted average number of share rights
Weighted average number of ordinary and potential ordinary shares (Diluted)
Consolidated
2016
$M
2015
$M
354.4
(0.6)
353.8
134.1
2.2
136.3
Consolidated
2016
Number
2015
Number
570,111,745
561,285,388
18,199,977
588,311,722
16,602,014
577,887,402
-15-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
5 Earnings (loss) per share (continued)
(c) Calculation of earnings per share
(i)
Basic earnings (loss) per share
Calculated as net profit (loss) attributable to the ordinary equity holders of the Company divided by the weighted average
number of ordinary shares outstanding during the period.
(ii) Diluted earnings (loss) per share
Calculated by dividing the net profit (loss) attributable to the ordinary equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be
issued upon the conversion of all dilutive potential ordinary shares into ordinary shares.
Working capital and provisions
This section of the notes provides further information about the Group's working capital and provisions, including accounting policies
and key judgements and estimates relevant to understanding these items.
6 Trade and other receivables
Trade receivables
Provision for impairment of receivables
Loans to related parties - associates
Workers compensation receivables
Other receivables
(a) Provision for impairment of receivables
Opening balance
Additional provision recognised
Amounts used during the period
Business acquisitions
Unutilised provision written back
Exchange fluctuations
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
1,105.1
(18.0)
1,087.1
1.3
-
70.0
71.3
1,158.4
-
-
-
-
27.4
8.4
35.8
35.8
1,032.5
(15.3)
1,017.2
3.7
-
66.5
70.2
1,087.4
Consolidated
2016
$M
2015
$M
15.3
6.6
(4.7)
1.3
(0.4)
(0.1)
18.0
-
-
-
-
27.8
8.4
36.2
36.2
15.5
6.0
(5.3)
-
(2.1)
1.2
15.3
Notes
6(a)
29(d)
10(g)
-16-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
6 Trade and other receivables (continued)
(b) Past due but not impaired
None of the non-current receivables are impaired or past due.
(c) Transferred financial assets which remain recognised
BlueScope Distribution has entered into a sale of receivables securitisation program on a recourse basis. The business acts as a
servicer under the program and continues to collect cash from its customers and is able to repurchase a receivable by paying the
outstanding amount of that receivable.
The receivables securitisation program does not qualify for derecognition. The Group has retained the credit risk associated with the
trade receivables, by repurchase, and therefore the risks and rewards of the securitisation asset resides with the Group.The total
carrying amount of the trade receivables is $62.6M (2015: $156.1M) and the associated borrowing is $Nil (2015: $Nil).
(d) Transferred financial assets that are derecognised
Lysaght Australia, New Zealand Steel and North Star BlueScope Steel have entered into a sale of receivables securitisation involving
the sale of eligible trade receivables. The business acts as a servicer under the program and continues to collect cash from its
customers.
The receivables securitisation program qualifies for derecognition of trade receivables in their entirety. The Group has transferred the
significant risks and rewards of the trade receivables. In the event bad or doubtful debts exceeds a specified limit, the Group will have
to recognise the trade receivables on the balance sheet. Current experience and bad debt history is significantly below this level. The
carrying amount of the trade receivables de-recognised in entirety as at 30 June 2016 is $198.5M which is reflected by a decrease in
trade receivables of $42.9M, an increase in sundry payables of $162.2M offset by a $6.6M increase in sundry receivables.
The maximum exposure to loss for the Group from its continuing involvement in the de-recognised financial assets is $6.6M which is
determined by the amount funded by BlueScope Steel at sale date, less customer collections during the month.
(e) Recognition and measurement
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment. Trade receivables are generally due for settlement within 30 to 90 days.
Impairment of trade receivables
Debts which are known to be uncollectible are written off when identified. A provision for impairment is recognised when there is
objective evidence that amounts due may not be received. Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade
receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term
receivables are not discounted if the effect of discounting is immaterial.
-17-
7 Inventories
At lower of cost and net realisable value:
Raw materials and stores
Work in progress
Finished goods
Spares and other
Emission unit permits - held for trading
(a)
Inventory expense
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
329.7
466.2
487.8
107.8
-
1,391.5
-
-
-
71.1
-
71.1
252.6
579.4
556.1
90.0
18.6
1,496.7
-
-
-
63.9
-
63.9
Write-downs of inventories to net realisable value recognised as an expense at 30 June 2016 amounted to $31.3M (2015: $45.8M) for
the Group. The expense has been included in ‘raw materials and consumables used’ in the profit and loss.
(b) Recognition and measurement
Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost
comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being
allocated on the basis of normal operating capacity. Cost includes the transfer from equity of any gains/losses on qualifying cash flow
hedges relating to purchases of raw materials. Costs are assigned to inventory on the basis of weighted average costs. Costs of
purchased inventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs to sell.
Emission unit permits that are acquired as part of the New Zealand Emissions Trading Scheme (ETS) are recognised at cost.
Emission unit permits that are held for trading in the ordinary course of business are classified as inventory and subsequently held at
fair value. During the year, the held for sale permits were reclassified to held for acquittal and are now disclosed as an intangible asset
at cost.
8 Operating intangible assets
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
Emission unit permits - not held for trading
8.3
25.9
5.3
-
(a) Recognition and measurement
Emission unit (EU) permits which are not held for trading are classified as intangible assets and are carried at cost. Intangible EU
assets are not amortised or subject to impairment as the economic benefits are realised from surrendering the rights to settle
obligations arising from the ETS.
-18-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Note
20(a)(i)
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
1,201.6
-
279.1
1,480.7
-
-
32.8
32.8
1,158.9
32.7
114.5
1,306.1
-
-
11.5
11.5
9 Trade and other payables
Trade payables
Deferred business acquisition consideration
Other payables
(a) Recognition and measurement
Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to
the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 to 62 days of recognition.
10 Provisions
Annual leave (d) (i)
Long service leave (d) (i)
Redundancy (d) (ii)
Other employee benefits (d) (iii)
Restructure (e)
Product claims (f)
Workers compensation (g)
Restoration and rehabilitation (h)
Carbon emissions (i)
Other provisions
Total provisions
(a) Movements in provisions
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
75.1
122.2
13.3
74.1
21.9
31.2
13.6
7.7
3.6
16.4
379.1
-
19.4
-
11.0
26.5
17.2
77.2
37.8
-
2.1
191.2
76.3
139.7
27.6
87.1
24.3
32.8
12.4
5.3
2.6
11.1
419.2
-
23.6
-
8.1
21.9
21.3
82.9
31.3
-
1.1
190.2
Movement in significant provisions, other than employee benefits, are set out below.
Consolidated - 2016 ($M)
Current and non-current
Carrying amount at start of the year
Additional provisions recognised
Unutilised provisions written back
Amounts used during the period
Exchange fluctuations
Transfers
Business acquisitions
Asset additions
Unwinding of discount
Carrying amount end of year
Restructure Product claims
Workers
compensation
Restoration
and
rehabilitation
46.2
57.1
(1.5)
(52.4)
(2.0)
0.6
-
-
0.4
48.4
54.1
11.0
(3.8)
(14.0)
0.5
-
-
-
0.6
48.4
95.3
5.7
-
(11.8)
0.3
-
0.1
-
1.2
90.8
36.6
3.7
-
(1.0)
1.0
-
-
3.7
1.5
45.5
-19-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
10 Provisions (continued)
(b) Recognition and measurement
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not
recognised for future operating losses. Where the Group expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
(c) Key judgements and estimates
Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present
obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the
passage of time is recognised as interest expense.
(d) Employee benefits
(i) Annual leave and long service leave
The liability for annual leave and long service leave expected to be settled after 12 months is measured as the present value of
expected future payments to be made in respect of services provided by employees up to the end of the reporting period.
Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.
Expected future payments are discounted using interest rates on high quality corporate bonds other than New Zealand where
Government bonds are used, with terms to maturity and currency that match, as closely as possible, the estimated future cash
outflows.
Employee benefit on-costs are recognised and included in employee benefit liabilities and costs when the employee benefits to which
they relate are recognised as liabilities.
Amounts not expected to be settled within 12 months for current leave provisions
The current provision for long service leave includes all unconditional entitlements where employees have completed the required
period of service. The entire annual leave amount and vested portion of long service leave are presented as current. Since the Group
does not have an unconditional right to defer settlement, based on past experience, the Group does not expect all employees to take
the full amount of accrued annual leave and long service leave or require payment within the next 12 months. Current annual leave
and long service leave obligation expected to be settled after 12 months is $94.1M (2015: $119.6M).
(ii) Termination benefits
Liabilities for termination benefits, not in connection with a business combination or the closure of an operation, are recognised when
the Group is demonstrably committed to either terminating the employment of current employees according to a formal plan without
possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits
falling due more than 12 months after the end of the reporting period are discounted to present value.
The employee redundancy provision balance reflects a range of internal reorganisations. All redundancies are expected to take effect
within 12 months of the reporting date.
(iii) Short Term Incentive plans (STI)
The Group recognises a liability and an expense for STI plan payments made to employees. The Group recognises a provision where
past practice and current performance indicates that a probable constructive obligation exists.
(e) Restructuring costs
Liabilities arising directly from undertaking a restructuring program, defined as the closure of an operating site, are recognised when a
detailed plan of the restructuring activity has been developed and implementation of the restructuring program as planned has
commenced, by either entering into contracts to undertake the restructuring activities or making a detailed announcement such that
affected parties are in no doubt the restructuring program will proceed.
The restructuring provisions relate to Australian Steel Products and BlueScope Buildings segments to cover estimated future costs of
announced site closures. The provisions are to be utilised over various terms up to a maximum period of 17 years.
-20-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
10 Provisions (continued)
(f) Product claims
Provision for claims is based on modelled data combining sales volumes with past experiences of repair and replacement levels in
conjunction with any specifically identified product faults.
(g) Workers compensation
In Australia and North America, the Company is a registered self-insurer for workers compensation. Provisions are recognised based
on calculations performed by an external actuary in relation to the expectation of future events. A contingent liability exists in relation
to guarantees given to various state workers compensation authorities, due to self-insurance prerequisites (refer to note 25(a)(ii)).
For the Group, an actuarially determined asset of $27.4M (2015: $27.8M) has been recognised for expected future reimbursements
associated with workers compensation recoveries from third parties. This amount is included in non-current other receivables as there
is no legal right of offset against the workers compensation provision.
(h) Restoration and rehabilitation
Restoration and rehabilitation provisions include $19.5M (2015: $13.3M) for New Zealand & Pacific Steel segment in relation to its
operation of two iron sand mines. These provisions have been classified as non-current as the timing of payments to remedy these
sites will not be made until cessation of their operations, which is not expected for many years. The balance of the provision relates to
leased sites that require rectification and restoration work at the end of their respective lease periods.
Recognising restoration, remediation and rehabilitation provisions requires assumptions to be made as to the application of
environmental legislation, site closure dates, available technologies and engineering cost estimates. These uncertainties may result in
future actual expenditure differing from the amounts currently provided.
(i) Carbon emissions
The Group is a participant in the New Zealand Government’s uncapped Emissions Trading Scheme (ETS).
The emissions liability is recognised as a provision for carbon and is measured at the carrying amount of Emission Units (EUs) held
with excess units, if any, held for trading measured at the current market value of EUs. ETS costs passed through from suppliers are
included as part of the underlying cost of the good or service rendered. The liability is either included within trade creditors or recorded
as an emissions liability within the carbon provision account when an agreement has been reached with the supplier to settle the ETS
cost by transferring EUs.
When EUs are delivered to the government or a third party, the EU asset along with the corresponding carbon provision is
derecognised from the statement of financial position.
11 Retirement benefit obligations
(a) Defined contribution plan
The Group makes superannuation contributions to defined contribution funds in respect of the entity’s employees located in Australia
and other countries. As at 30 June 2016, the defined contribution expense recognised in the profit and loss amounted to $90.1M
(2015: $91.6M).
The defined contribution plans receive fixed contributions from Group companies with the Group's legal obligation limited to these
contributions. Contributions to the defined contribution fund are recognised as an expense as they become payable.
(b) Defined benefit plans
Country
New Zealand
Fund type
Description
Pension Fund and Retirement Savings Plan
(closed to new participants)
New Zealand employees are members of the New Zealand
Steel Pension Fund.
North America
Butler Manufacturing Base Retirement Plan
(closed to new participants)
Employees previously belonging to the Butler Manufacturing
Company are members of the Butler Manufacturing Base
Retirement Plan.
x
x
x
-21-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
11 Retirement benefit obligations (continued)
Defined benefit funds provide defined lump sum benefits based on years of service and final or average salary. Actuarial assessments
of the defined benefit funds are made at no more than three-yearly intervals, with summary assessments performed annually. The last
formal actuarial investigations were made of the New Zealand Steel Pension Fund as at 30 June 2015, and the Butler Base
Retirement Plan as at 1 January 2016.
(c) Statement of financial position amounts
Present value of the defined benefit obligation
Fair value of defined benefit plan assets
Net (liability) asset in the statement of financial position
(d) Defined benefit funds to which BlueScope Steel employees belong
Consolidated
2016
$M
2015
$M
(1,109.5)
718.7
(390.8)
(926.5)
708.6
(217.9)
$M
Present value of the defined benefit
obligation
Fair value of defined benefit plan assets
Net (liability) asset in the statement of
financial position
Defined benefit expense (credit) (i)
Employer contribution
Average duration of defined benefit plan
obligation
Significant actuarial assumptions
Discount rate (gross of tax)
Future salary increases (ii)
BlueScope Steel
Superannuation
Fund (i)
2016
2015
New Zealand Pension
Fund
Butler Manufacturing
Base Retirement Plan
Total
2016
2015
2016
2015
2016
2015
-
-
-
-
-
-
-
-
-
-
-
(20.0)
22.2
(644.0)
402.0
(242.0)
16.7
16.2
(493.8)
383.4
(110.4)
12.4
18.2
(465.5)
316.7
(148.8)
2.8
0.9
(432.7)
325.2
(1,109.5) (926.5)
708.6
718.7
(107.5)
(5.4)
0.1
(390.8)
19.5
17.1
(217.9)
(13.0)
40.5
-
14.1
13.8
13.1
13.1
%
3.0
3.0
%
4.0
3.0
2.9
2.0
%
4.3
-
3.5
-
(i) The defined benefit division of the BlueScope Steel Superannuation Fund closed as at 31 December 2014. A $27.2M curtailment
gain arising from the fund closure was recognised in the profit and loss.
The North American pension plan was amended to allow one-off lump sum payouts to terminated employees with vested benefits. A
$4.9M one-off curtailment gain arising from the difference between the accounting liability (Defined Benefit Obligation) and the lump
sum payout value was recognised in the profit and loss (June 2015: $11.2M).
(ii) Coated and Building Products North America has frozen future salary increases for the purpose of contributions to the
superannuation fund as at 30 June 2013.
The net liability is not immediately payable. Any plan surplus will be realised through reduced future Group contributions.
(e) Categories of plan assets
Cash
Equity instruments
Debt instruments
Property
Other assets
Consolidated
2016
$M
2015
$M
2.8
219.9
441.9
9.6
44.5
718.7
3.1
214.3
434.9
9.8
46.5
708.6
-22-
11 Retirement benefit obligations (continued)
(f) Actuarial assumptions and sensitivity
Discount rate
Salary growth rate
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Impact on defined benefit
obligation
Increase in
assumption
$M
Decrease in
assumption
$M
Change in
assumption
+/- 1%
+/- 1%
(166.8)
24.9
191.9
(23.8)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the net defined benefit
obligation as a result of reasonable changes in key assumptions for the year ended 30 June 2016.
(g) Reconciliations
Consolidated
Plan assets
Defined benefit obligation
2016
$M
2015
$M
2016
$M
2015
$M
708.6
-
26.6
-
-
6.6
36.0
(44.8)
-
17.1
(5.3)
2.7
(25.6)
(3.2)
-
-
718.7
1,083.1
-
33.5
-
-
16.4
53.4
(431.5)
-
40.5
(9.3)
3.6
(77.6)
(3.5)
-
-
708.6
926.5
10.9
-
34.1
13.6
152.6
46.9
(44.8)
0.2
-
-
-
(25.6)
-
-
(4.9)
1,109.5
1,245.7
16.4
-
38.5
23.8
86.2
68.6
(431.5)
(5.2)
-
-
-
(77.6)
-
(27.2)
(11.2)
926.5
Consolidated
2016
$M
2015
$M
10.9
(2.7)
7.5
3.2
5.5
-
(4.9)
19.5
30.0
16.4
(3.6)
5.0
3.5
4.1
(27.2)
(11.2)
(13.0)
46.4
Balance at the beginning of the year
Current service cost
Interest income (net of tax paid)
Interest cost
Actuarial losses (gains) arising from changes in demographic
assumptions
Actuarial losses (gains) arising from changes in financial
assumptions
Foreign currency exchange rate changes
Benefits paid
Allowance for contributions tax on net liability
Contributions by the Group
Tax on employer contributions
Contributions by plan participants
Settlements
Plan expenses
Gain on curtailment - closure of the Australian defined benefit fund
Gain on curtailment - North America
Balance at the end of the year
(h) Amounts recognised in profit or loss
Current service cost
Contributions by plan participants
Net interest
Plan expenses
Allowance for contributions tax on net liability
Gain on curtailment - defined benefit fund closure
Gain on curtailment - North America
Total included in employee benefits expense
Actual return on plan assets
-23-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
11 Retirement benefit obligations (continued)
(i) Amounts recognised in other comprehensive income
Actuarial gains (losses) recognised in other comprehensive income during the year - DB plans
Cumulative actuarial (losses) recognised in other comprehensive income
Consolidated
2016
$M
2015
$M
(160.6)
(526.8)
(93.6)
(366.2)
(j) Employer contributions
Employer contributions to the defined benefit section of the Group's plans are based on recommendations by the plan’s actuaries. The
objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they
become payable.
Total employer contributions expected to be paid for the year ending 30 June 2017 are $19.1M.
(k) Recognition and measurement
A liability or asset in respect of defined benefit superannuation plans is measured as the present value of the defined benefit obligation
less the fair value of the superannuation fund’s assets. The present value of the defined benefit obligation is based on expected future
payments which arise from membership of the fund to the end of the reporting period, calculated half yearly by independent actuaries
using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee
departures and periods of service.
Expected future payments are discounted using market yields on government or corporate bonds where a deep market exists, with
terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in
which they occur, in other comprehensive income.
Past service costs are recognised in profit or loss, unless the changes to the superannuation plan are conditional on the employees
remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a
straight-line basis over the vesting period.
Future taxes that are funded by the entity and are part of the provision of the existing benefit obligation (e.g. taxes on investment
income and employer contributions) are taken into account in measuring the net liability or asset.
-24-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Invested Capital
This section of the notes provides further information about property, plant and equipment, non-current intangibles assets and carrying
amount of these non-financial assets, including accounting policies, key judgements and estimates relevant to understanding these
items.
12 Property, plant and equipment
Land and
Buildings
$M
Plant,
machinery
and
equipment
$M
737.2
25.7
107.5
(38.4)
(7.2)
(24.8)
5.4
-
(0.9)
804.5
2,995.4
325.5
512.2
(304.3)
(8.7)
(489.0)
(5.4)
(5.5)
9.4
3,029.6
Total
$M
3,732.6
351.2
619.7
(342.7)
(15.9)
(513.8)
-
(5.5)
8.5
3,834.1
1,519.0
(714.5)
804.5
10,681.7
(7,652.1)
3,029.6
12,200.7
(8,366.6)
3,834.1
0.1
250.1
250.2
Land and
buildings
$M
Plant,
machinery
and
equipment
$M
Total
$M
1,274.4
(598.2)
676.2
9,553.5
(6,714.4)
2,839.1
10,827.9
(7,312.6)
3,515.3
676.2
7.6
1.8
(32.6)
(1.4)
2.8
-
82.8
737.2
2,839.1
365.8
0.2
(286.4)
(6.1)
(2.8)
(5.3)
90.9
2,995.4
3,515.3
373.4
2.0
(319.0)
(7.5)
-
(5.3)
173.7
3,732.6
1,390.9
(653.7)
737.2
9,854.2
(6,858.8)
2,995.4
11,245.1
(7,512.5)
3,732.6
0.8
381.2
382.0
Year ended 30 June 2016
Opening net book amount
Additions
Business acquisitions (note 20(c))
Depreciation charge
Disposals
Impairment charge (note 14(e))
Asset reclassifications
Asset reclassifications to computer software
Exchange fluctuations
Closing net book amount
At 30 June 2016
Cost
Accumulated depreciation and impairment
Net book amount
Assets under construction included above:
At 1 July 2014
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2015
Opening net book amount
Additions
Business acquisitions (note 20(c))
Depreciation charge
Disposals
Asset reclassifications
Asset reclassifications to computer software
Exchange fluctuations
Closing net book amount
At 30 June 2015
Cost
Accumulated depreciation and impairment
Net book amount
Assets under construction included above:
-25-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
12 Property, plant and equipment (continued)
(a) Leases
Total property, plant and equipment includes the following amounts where the Group is a lessee under a finance lease:
Leasehold assets
Cost
Accumulation depreciation and impairment
Net book amount
(b) Sale and disposal of property, plant and equipment
Consolidated
2016
$M
2015
$M
273.8
(185.0)
88.8
221.2
(64.2)
157.0
Consolidated
2016
$M
2015
$M
Net gain (loss) on sale and disposal of property, plant and equipment
(5.3)
11.3
(c) Recognition and measurement
Property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment. Cost includes
expenditure that is directly attributable to the acquisition of the items. Cost also includes transfers from equity of any gains or losses
on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of a replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during
the reporting period in which they are incurred.
Depreciation
Property, plant and equipment is depreciated on a straight-line basis over their estimated useful lives or, in the case of leasehold
improvements and finance leases, the shorter lease term, unless there is reasonable certainty that the Group will obtain ownership at
the end of the lease term.
The useful lives of major categories of property, plant and equipment are as follows:
Category
Land
Buildings
Iron and steel making plant and machinery
Coating lines
Building components plant and equipment
Other plant and equipment
Useful Life
Not depreciated
30-40 years
20-40 years
20-30 years
12-18 years
5-15 years
Derecognition
Property, plant and equipment is derecognised when it is sold or otherwise disposed of, or when its use is expected to bring no future
economic benefits.
(d) Key estimates
The estimation of the useful lives of plant and machinery has been based on historical experience and judgement with respect to
technical obsolescence, physical deterioration and usage capacity of the asset in addition to any legal restrictions on usage. The
condition of the asset is assessed at least once per year and considered against the remaining useful life.
-26-
13 Intangible assets
Consolidated
Year 30 June 2016
Opening net book amount
Additions
Business acquisitions (note 20 (c))
Impairment charge (note 14 (e))
Amortisation charge
Reclassifications from PP&E
Exchange fluctuations
Closing net book amount
At 30 June 2016
Cost
Accumulated amortisation and
impairment
Net book amount
Consolidated
At 1 July 2014
Cost
Accumulation amortisation and
impairment
Net book amount
Year 30 June 2015
Opening net book amount
Additions
Business acquisitions (note 20 (c))
Amortisation charge
Impairment charge (note 14 (e))
Reclassifications from PP&E
Exchange fluctuations
Closing net book amount
At 30 June 2015
Cost
Accumulation amortisation and
impairment
Net book amount
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Total
$M
510.0
25.0
1,313.4
(38.7)
(45.4)
5.5
(33.3)
1,736.5
2,573.1
(836.6)
1,736.5
Total
$M
1,146.7
(698.0)
448.7
448.7
9.1
0.5
(24.0)
(0.2)
5.3
70.6
510.0
1,260.2
(750.2)
510.0
Patents,
trademarks
and other
rights
$M
Goodwill
$M
Computer
Software
$M
Customer
relationships
$M
Other
intangible
assets
$M
342.4
-
923.2
(38.7)
-
-
(24.4)
1,202.5
1,704.6
(502.1)
1,202.5
7.6
-
-
-
(0.9)
-
0.2
6.9
21.3
(14.4)
6.9
76.8
25.0
0.4
-
(17.5)
5.5
0.6
90.8
321.6
(230.8)
90.8
48.3
-
389.8
-
(25.3)
-
(11.9)
400.9
483.4
(82.5)
400.9
34.9
-
-
-
(1.7)
-
2.2
35.4
42.2
(6.8)
35.4
Patents,
trademarks
and other
rights
$M
Goodwill
$M
Computer
software
$M
Customer
relationships
$M
Other
intangible
assets
$M
263.1
(188.9)
74.2
74.2
9.1
-
(16.9)
-
5.3
5.1
76.8
290.4
(213.6)
76.8
88.9
(45.6)
43.3
43.3
-
0.5
(4.5)
-
-
9.0
48.3
105.1
(56.8)
48.3
39.8
(2.7)
37.1
37.1
-
-
(1.7)
-
-
(0.5)
34.9
39.8
(4.9)
34.9
737.4
(450.4)
287.0
287.0
-
-
-
(0.2)
-
55.6
342.4
804.1
(461.7)
342.4
17.5
(10.4)
7.1
7.1
-
-
(0.9)
-
-
1.4
7.6
20.8
(13.2)
7.6
-27-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
13 Intangible assets (continued)
(a) Recognition and measurement
(i) Goodwill
Goodwill represents the excess of the cost to purchase a business less the fair market value of the tangible assets, identifiable
intangible assets and the liabilities obtained in the purchase. Goodwill is not amortised. Instead, goodwill is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less
accumulated impairment losses.
(ii)
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair market value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less amortisation and any impairment losses. Intangible assets with
finite lives are amortised on a straight line basis over their useful life. The amortisation period and method is reviewed at each financial
year end.
A summary of the useful lives of intangible assets is as follows:
Category
Useful Life
Patents, trademarks and other rights
Computer software
Customer relationships
Indefinite and finite (7-15 years)
Finite (3-10 years)
Finite (10-20 years)
(iii) Research and development
Research expenditure is recognised as an expense as incurred. For the year ended 30 June 2016, $22.1M (2015: $20.1M) was
recognised for research and development expenditure in the profit and loss. Costs incurred on development projects are recognised
as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed
and generate future economic benefits and its costs can be measured reliably.
14 Carrying value of non-financial assets
The Group tests property, plant and equipment (note 12) and intangible assets with definite useful lives (note 13) when there is an
indicator of impairment. Goodwill and other intangible assets with indefinite useful lives are tested at least annually for any impairment.
(a) Allocation of goodwill and intangible assets with indefinite useful lives to cash generating units
Goodwill is allocated to the Group’s cash generating units (CGUs) for impairment testing purposes as follows:
Cash generating units
Reportable segments
Australian Steel Products
Building Products North America
Buildings North America
North Star BlueScope Steel LLC
Buildings China
Total goodwill
Australian Steel Products
Building Products ASEAN, North America & India
BlueScope Buildings
Hot Rolled Products North America
BlueScope Buildings
2016
$M
-
3.7
293.1
890.6
15.1
1,202.5
2015
$M
38.7
3.6
285.3
-
14.8
342.4
The allocation is made to those cash generating units or groups of cash generating units that are expected to benefit from the
business combination in which the goodwill arose. In addition to goodwill, the Group has other intangible assets with indefinite useful
lives of $3.9M (2015: $3.8M) allocated to the Buildings North America CGU which relate to trade names recognised as part of the
IMSA Group business combination acquired in February 2008.
All of the above CGUs were tested for impairment at the reporting date.
-28-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
14 Carrying value of non-financial assets (continued)
(b) Key assumptions and estimates
The recoverable amount of each CGU is determined on the basis of value-in-use (VIU), unless there is evidence to support a higher
fair value less cost to sell. The following table describes assumptions on which the Group has based its projections when
determining the recoverable amount of each CGU.
Key assumptions
Basis of estimation
x
x
x
X
Future cash flows
- VIU calculations use pre-tax cash flows, inclusive of working capital movements which are based on financial
projections approved by the Group covering a three-year period, being the basis of the Group’s forecasting and
planning processes, or up to five years where circumstances pertaining to a specific CGU support a longer period.
- Cash flows beyond the projection period are extrapolated to provide a maximum of 30 years of cash flows with
adjustments where necessary to reflect changes in long-term operating conditions. No terminal value is calculated.
Growth rate
(2015:2.5%).
- The growth rate used to extrapolate the cash flows for each CGU beyond the forecast period does not exceed 2.5%
- The growth rate represents a steady indexation rate which does not exceed the Group's expectations of the
long-term average growth rate for the business in which each CGU operates.
Discount rate
perceived risk profile of the industry in which each CGU operates.
- The discount rate applied to the cash flow projections has been assessed to reflect the time value of money and the
- The base post-tax discount rates range from 8.5% to 9.7% (2015: 7.7% to 9.0%).
- Given the differing characteristics, currencies and geographical locations of the Group's CGUs, where appropriate
the base discount rate is adjusted by a country risk premium (CRP) to reflect country specific risks. Such
adjustments do not reflect risks for which cash flow forecasts have already been adjusted. The CRP is derived from
a range of externally sourced foreign country risk ratings.
- The adjusted post-tax discount rate is translated to a pre-tax rate for each CGU based on the specific tax rate
applicable to where the CGU operates.
Raw material costs - Based on commodity price forecasts derived from a range of external commodity forecasters.
- All foreign currency cash flows are discounted using a discount rate appropriate for that currency.
- Based on management forecasts, taking into account commodity steel price forecasts derived from a range of
Selling prices
external commodity forecasters.
- Based on management forecasts, taking into account external forecasts of underlying economic activity for the
Sales volume
AUD:USD and
NZD:USD
market sectors and geographies in which each CGU operates.
- Based on forecasts derived from a range of external banks.
(c) Cash generating units with significant goodwill
Buildings North America
Buildings North America is tested for impairment on a VIU basis using three year cash flow projections, followed by a long-term growth
rate of 2.5% for a further 27 years. Pre-tax VIU cash flows are discounted utilising a 13.0% pre-tax discount rate (2015: 11.9%).
At 30 June 2016 the recoverable amount of this CGU is 1.6 times the carrying amount of $465.7M, including non-current assets and
net working capital. This CGU is most sensitive to assumptions in relation to North American non-residential building and construction
activity. Taking into account external forecasts, the Group expects non-residential building and construction activity to increase 5.8%
per annum from the current financial year over the three-year projection period.
However, the timing and extent of this increase is uncertain and in the absence of mitigating factors, a 0.8% per annum growth in
non-residential building and construction activity over the three-year projection period, or a five year delay to achieve the projected
increase, could reduce the recoverable amount to be equal to the carrying amount.
North Star BlueScope Steel LLC
The Company acquired a controlling interest in North Star BlueScope Steel LLC on 30 October 2015. This is tested for impairment on
a VIU basis using three year cash flow projections, followed by a long-term growth rate of 2.5% for a further 27 years. Pre-tax VIU
cash flows are discounted utilising pre-tax discount rate of 13.7%.
At 30 June 2016 the recoverable amount of the CGU is 1.2 times the carrying amount of $1,862.4M, including non-current assets and
net working capital. This CGU is most sensitive to assumptions in relation to the spread between North American hot rolled coil and
purchased scrap prices. Taking into account external forecasts, the Group expects spread to increase at 5.4% per annum from current
financial year levels over the three year projection period.
-29-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
14 Carrying value of non-financial assets (continued)
However, the timing and extent of this increase is uncertain and in the absence of mitigating factors, a 3.5% per annum growth in
spread over the three-year projection period, or a four year delay to achieve the projected spread increase, could reduce the
recoverable amount to be equal to the carrying amount.
(d) Sensitivity of carrying amounts
The carrying value of property, plant and equipment of the Group is most sensitive to cash forecasts for the Group's largest CGU,
Australian Steel Products (ASP) which are determined taking into the key assumptions set out above.
Recognised external forecasters estimate the US dollar relative to the Australian dollar to remain around current levels and an
increase in global commodity steel prices in excess of any increase in iron ore and coal raw material costs. The Group believes that
the long term assumptions adopted are appropriate. However, to illustrate the sensitivity of these assumptions, if they were to differ
such that the expected cash flow forecasts for ASP were to decrease by 10% across the forecast period, without implementation of
mitigation plans, the recoverable amount would be equal to the carrying amount.
(e) Recognised impairment charges (write-backs)
Segment
Australian Steel Products - PP&E
Australian Steel Products - Goodwill
New Zealand and Pacific Steel - PP&E
BlueScope Buildings impairment write-back
Net impairment expense of non-financial assets
2016
$M
2015
$M
Discount rates
2016 (%)
2015 (%)
150.3
38.7
364.6
(1.1)
552.5
-
0.2
-
-
0.2
13.7
13.7
13.4
-
12.7
12.7
12.4
-
The current year impairments were primarily recognised in the December 2015 interim financial results based on assumptions which
resulted in $2,202.0M and $365.1M recoverable amounts for the Australian Steel Products and New Zealand and Pacific Steel
segments respectively. This followed a review at that time of steel price assumptions and discount rates in light of ongoing
macroeconomic and global steel market challenges. A subsequent review at June 2016 resulted in a further $19.7M of property, plant
and equipment being impaired in relation to Taharoa iron sand mining assets within the New Zealand and Pacific Steel segment which
were capitalised in the second half of FY2016.
Capital structure and financing activities
This section of the notes provides further information about the Group's cash, borrowings, contributed equity, reserves and dividends,
including accounting policies relevant to understanding these items.
15 Cash and cash equivalents
Cash at bank and on hand
Deposits at call
Bank overdrafts
Balance per statement of cash flows
Consolidated
2016
$M
2015
$M
547.3
2.5
549.8
(0.9)
548.9
516.2
2.3
518.5
(0.6)
517.9
-30-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
15 Cash and cash equivalents (continued)
(a) Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Depreciation and amortisation
Net impairment charge of non-current assets
Non-cash employee benefits expense - share-based payments
Net (gain) on disposal of non-current assets
Share of (profits) losses of associates and joint venture partnership
Associate and joint venture partnership dividends received
Change in operating assets and liabilities:
Decrease (increase) in trade receivables
Decrease (increase) in other receivables
Decrease (increase) in other operating assets
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in other payables
Increase (decrease) in borrowing costs payable
Increase (decrease) in income taxes payable
Increase (decrease) in deferred tax balances
Increase (decrease) in other provisions and liabilities
Other variations
Net cash inflow from operating activities
(b) Recognition and measurement
Consolidated
2016
$M
2015
$M
416.3
388.1
554.8
23.2
(734.3)
(39.9)
27.5
68.3
(1.1)
(44.2)
213.2
(102.5)
170.1
(5.8)
4.3
47.2
(24.6)
(8.6)
952.0
177.1
343.0
2.7
12.7
(16.8)
(115.7)
131.9
83.6
(18.1)
39.5
77.3
44.2
(2.8)
3.9
(3.4)
0.3
(201.9)
(18.8)
538.7
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid
investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current
liabilities in the statement of financial position.
16 Borrowings
Secured
Bank loans
Lease liabilities
Other loans
Total secured borrowings
Unsecured
Bank loans
Other loans
Bank overdrafts
Deferred borrowing costs
Total unsecured borrowings
Total borrowings
Consolidated
2016
2015
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
114.0
13.1
0.9
128.0
104.6
-
0.9
(4.9)
100.6
-
210.6
-
210.6
86.1
816.8
-
(14.3)
888.6
-
9.6
5.4
15.0
93.0
-
0.6
(1.0)
92.6
-
174.5
-
174.5
129.1
391.0
-
(8.5)
511.6
228.6
1,099.2
107.6
686.1
-31-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
16 Borrowings (continued)
(a) Secured liabilities and assets pledged as security
The carrying amounts of assets pledged as security for current and non-current borrowings are:
Bank loans
Trade receivables
Inventories
Lease liabilities
Property, plant and equipment
Total assets pledged as security
Consolidated
2016
$M
2015
$M
380.8
971.6
1,352.4
335.7
1,075.4
1,411.1
88.8
157.0
1,441.2
1,568.1
Lease liabilities are effectively secured as the rights to the leased assets recognised in the financial statements revert to the lessor in
the event of default.
(b) Financing arrangements
Financing facilities available
Description
x
x
x
x
- $850M syndicated bank facility with a syndicate of banks.
- Comprises four tranches, maturing in November 2016, November 2017, December 2018 and November
Australian bank loan
2019.
- Facility is secured against trade receivables and inventories of the Australian, New Zealand and North
American businesses, excluding Building Products North America.
- Three facilities totalling THB 1,800M ($69M), maturing January 2017, December 2017 and March 2019,
available for NS BlueScope Steel (Thailand) Ltd cash requirements.
- One facility totalling MYR 30M ($10M), maturing April 2017, to support working capital and other short-term
Non-Australian bank loans
cash requirements for NS BlueScope Steel (Malaysia) Sdn Bhd.
- One US$21M term facility maturing March 2021 and one US$25M revolving facility maturing March 2019,
available for NS BlueScope Steel (Indonesia) cash requirements.
- Two US$100M revolving facilities maturing March 2017 and March 2018 for NS BlueScope Coated
Products joint venture.
- One US$50M term facility maturing July 2016 for NS BlueScope Coated Products joint venture. This facility
was extended in July 2016 for a further 3 years to July 2019.
- US$110M senior unsecured notes offered to qualified institutional buyers in the United States of America,
which mature May 2018. In June 2016, US$190M of the original US$300M were repaid prior to maturity
date and US$6.8M premium paid on early redemption. Interest of 7.125% on the Notes will be paid
semi-annually on 1 May and 1 November of each year.
- US$500M senior unsecured notes offered to qualified institutional buyers in the United States of America,
issued in May 2016, which mature May 2021. Interest of 6.5% on the Notes will be paid semi-annually on 15
May and 15 November of each year.
Senior Unsecured Notes
Working capital facilities
facility is currently undrawn.
- $150M trade receivables securitisation program for BlueScope Distribution, maturing September 2017. The
- An inventory iron ore financing facility for BlueScope Steel (AIS) was implemented in February 2015,
maturing February 2017. The US$55M (inclusive of GST) facility limit operates as a sale and repurchase
facility whereby the iron ore is sold upon shipment and repurchased by BSL at the point of consumption.
The facility is currently undrawn.
-32-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
16 Borrowings (continued)
Bank overdrafts
Bank overdraft facilities are arranged with a number of banks with the general terms and conditions agreed to on a periodic basis.
Unrestricted access was available at balance date to the following lines of credit:
Bank overdrafts
Bank loan facilities
Total facilities
x
Bank overdrafts
Bank loan facilities
Used at balance date
x
Bank overdrafts
Bank loan facilities
Unused at balance date
(c) Contractual maturity analysis
Consolidated
2016
$M
50.8
1,568.0
1,618.8
0.9
304.7
305.6
49.9
1,263.3
1,313.2
2015
$M
50.5
1,294.6
1,345.1
0.6
222.1
222.7
49.9
1,072.5
1,122.4
The table below reflects all contractual repayments of principal and interest resulting from recognised financial liabilities. The amounts
disclosed represent undiscounted, contractual cash flows for the respective obligations in respect of upcoming fiscal years and
therefore do not equate to the values shown in the statement of financial position.
30 June 2016
Note
< 1 year
$M
1 - 2
years
$M
Contractually maturing in:
4 - 5
3 - 4
2 - 3
years
years
years
$M
$M
$M
> 5 years
$M
Total
$M
Payables
x
Derivative financial
instruments
x
Borrowings
-Principal
-Interest
1,480.7
7.3
13.6
32(d)
2.2
-
-
-
-
-
-
11.9
1,513.5
-
2.2
233.5
75.4
308.9
209.3
71.3
280.6
48.0
60.8
108.8
22.6
59.0
81.6
691.7
51.9
743.6
141.9
71.0
212.9
1,347.0
389.4
1,736.4
30 June 2015
Note
(308.9)
(280.6)
< 1 year
$M
1 - 2
years
$M
(743.6)
(81.6)
(108.8)
Contractually maturing in:
4 - 5
3 - 4
2 - 3
years
years
years
$M
$M
$M
(212.9)
(1,736.4)
> 5 years
$M
Total
$M
Payables
x
Derivative financial
instruments
x
Borrowings
-Principal
-Interest
1,306.1
32(d)
10.6
-
-
-
-
108.6
47.9
156.5
87.9
44.6
132.5
458.2
38.7
496.9
156.5
132.5
496.9
-33-
-
-
13.0
14.1
27.1
27.1
-
-
14.1
12.9
27.0
27.0
11.5
1,317.6
-
10.6
121.4
67.1
188.5
803.2
225.3
1,028.5
188.5
1,028.5
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
16 Borrowings (continued)
(d) Finance costs
Interest and finance charges paid/payable
Ancillary finance charges
Provisions: unwinding of discount
(e) Non-cash financing activities
Consolidated
2016
$M
2015
$M
83.0
22.4
3.7
109.1
55.0
17.4
4.4
76.8
Consolidated
2016
$M
2015
$M
Acquisition of plant and equipment by means of finance leases
40.9
1.1
The current period represents a US$29M finance lease addition in New Zealand steel for the use of equipment associated with the
transport of iron sands.
(f) Recognition and measurement
Borrowings are initially recognised at fair value, net of transaction costs incurred, and are subsequently measured at amortised cost.
Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the
period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are consequently
recognised in profit or loss over the term.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least
12 months after the end of the reporting period.
-34-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
17 Contributed equity
(a) Share capital
Issued fully paid ordinary shares
(b) Movements in ordinary share capital
Parent Entity
Parent Entity
2016
Shares
571,346,300
2015
Shares
565,225,282
2016
$M
4,688.1
2015
$M
4,673.8
Date
Details
Number of shares
Issue Price
$M
1 July 2015
Opening balance
FY14 KMP STI share awards
FY12 KMP LTIP share award
FY12 CEO LTIP share award
FY12 KMP Retention share award
FY12 Retention share award
Forfeited shares utilised
Share rights - Tax deduction (i)
Balance
30 June 2016
565,225,282
154,730
569,918
1,367,464
521,585
3,507,321
-
-
571,346,300
$5.48
$1.01
$1.32
$1.06
$2.52
-
-
4,673.8
0.8
0.6
1.8
0.6
8.8
0.3
1.4
4,688.1
Date
Details
Number of shares
Issue Price
$M
1 July 2014
Opening balance
FY13 KMP STI share awards
FY13 KMP STI share buy-back
FY11 LTIP share award
GESP 2012 share buy-back
Share rights - Tax deduction (i)
Balance
30 June 2015
558,848,896
378,975
-
5,997,411
-
-
565,225,282
$4.95
-
$1.26
-
-
4,663.1
1.9
(0.1)
7.5
(0.5)
1.9
4,673.8
(i) Share rights - Tax deduction
The tax deduction recorded in share capital represents the estimated tax deduction in excess of accounting expense recognised for
share right awards issued to employees in North America.
(c) Capital risk management
Management monitors its capital structure through various key financial ratios with emphasis on the gearing ratio (net debt/total
capital). The Group's gearing ratio is managed through the economic price cycle to ensure access to finance at reasonable cost
regardless of the point in the cycle. On occasions, the Group will take advantage of certain investment opportunities where an
increased level of gearing will be tolerated, provided there is sufficient future cash flow strength and flexibility to be confident of credit
strengthening rather than uncertainty and risk of credit weakening.
In managing equity, all methods of returning funds to shareholders outside of dividend payments or raising funds are considered
within the context of its balance sheet objectives. In managing debt, the Group seeks a diversified range of funding sources and
maturity profiles. Sufficient flexibility is maintained within committed facilities in order to provide the business with the desired liquidity
support for operations and to pursue its strategic objectives.
-35-
17 Contributed equity (continued)
Total borrowings
Less: Cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
(d) Recognition and measurement
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Notes
16
15
Consolidated
2016
$M
2015
$M
1,327.8
(549.8)
778.0
4,985.3
5,763.3
13.5%
793.7
(518.5)
275.2
4,739.1
5,014.3
5.5%
Ordinary shares
Ordinary shares are classified as equity and have no par value. Ordinary shares carry one vote per share, the right to participate in
dividends and entitle the holder to the proceeds on winding up of the Group in proportion to the number of shares held.
The proceeds of share buy-backs are deducted from equity, including directly attributable incremental costs (net of income taxes). No
gain or loss is recognised in profit and loss.
18 Reserves
Hedging (b) (i)
Share-based payments (b) (ii)
Foreign currency translation (b) (iii)
Non-distributable profits (b) (iv)
Asset realisation (b) (v)
Controlled entity acquisition (b) (vi)
(a) Movements in reserves
Consolidated - June 2016 ($M)
Opening balance
Net gain (loss) on cash flow hedges
Net gain (loss) on net investments
in foreign subsidiaries
Share-based payments expense
Vesting of share awards
Deferred tax
Transfer to inventory
Transfer to PP&E
Transfers from retained profits
Exchange fluctuations
Closing balance
Consolidated
2016
$M
2015
$M
1.6
59.5
(19.4)
16.3
188.8
(21.9)
224.9
(5.7)
48.1
0.3
15.5
188.8
(21.9)
225.1
Hedging
Share-based
payments
Foreign
currency
translation
Non-Distributable
profits
Asset
realisation
Controlled
entity
acquisition
Total
(5.7)
(11.6)
-
-
-
(1.3)
19.6
0.6
-
-
1.6
48.1
-
-
23.2
(11.8)
-
-
-
-
-
59.5
0.3
-
(0.2)
-
-
-
-
-
-
(19.5)
(19.4)
15.5
-
-
-
-
-
-
-
0.8
-
16.3
188.8
-
-
-
-
-
-
-
-
-
188.8
(21.9)
-
225.1
(11.6)
-
-
-
-
-
-
-
-
(21.9)
(0.2)
23.2
(11.8)
(1.3)
19.6
0.6
0.8
(19.5)
224.9
-36-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
18 Reserves (continued)
Hedging
Share-based
payments
Foreign
currency
translation
Non-Distributable
profits
Asset
realisation
Controlled
entity
acquisition
Total
Consolidated - June 2015 ($M)
x
Opening balance
Net gain (loss) on cash flow hedges
Net gain (loss) on net investments
in foreign subsidiaries
Share-based payments expense
Vesting of share awards
Transaction costs
Transfer to inventory
Transfer to PP&E
Transfers from retained profits
Exchange fluctuations
Other
Closing balance
(b) Nature and purpose of reserves
(1.2)
(17.2)
-
-
-
-
12.0
0.7
-
-
-
(5.7)
47.4
-
-
12.7
(12.0)
-
-
-
-
-
-
48.1
(154.2)
-
53.1
-
-
-
-
-
-
101.3
0.1
0.3
14.4
-
-
-
-
-
-
-
1.1
-
-
15.5
189.3
-
-
-
-
(0.5)
-
-
-
-
-
188.8
(21.9)
-
-
-
-
-
-
-
-
-
-
(21.9)
73.8
(17.2)
53.1
12.7
(12.0)
(0.5)
12.0
0.7
1.1
101.3
0.1
225.1
(i) Hedging reserve
Records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge
relationship.
(ii) Share-based payments reserve
Recognise the value of equity-settled share-based payments provided to employees, including Key Management Personnel, as part of
their remuneration.
(iii) Foreign currency translation reserve
Record exchange fluctuations arising from the translation of the financial statements of foreign subsidiaries. It is also used to record
the effect of the translation of the net investments in foreign operations. The cumulative amount is reclassified to profit and loss when
the net investment is disposed of.
(iv) Non-distributable profit reserve
In certain overseas operations local regulations require a set amount of retained profit to be set aside and not be distributed as a
dividend.
(v) Asset realisation reserve
Arises from the disposal of 50% interest in BlueScope's ASEAN and North American building product businesses.
(vi) Controlled entity acquisition reserve
Arises from the Group's acquisition of the remaining 40% non-controlling interest in BlueScope Steel (Malaysia) Sdn Bhd and 5% of
Lysaght Thailand Ltd and BlueScope Steel Thailand Ltd, adjusted for the subsequent 50% disposal of their additional interests into
BlueScope and Nippon Steel and Sumitomo Metal Corporation joint venture. This item represents the difference between the amount
paid and the balance of the non-controlling interest acquired.
-37-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
19 Dividends
(a) Ordinary shares
A final dividend of 3 cents per share was paid on the 19 October 2015 in relation to the year ended
30 June 2015 (2015: Nil).
An interim dividend of 3 cents per fully paid ordinary share was paid on 31 March 2016 in relation to
the year ended 30 June 2016 (2015: 3 cents).
Fully franked based on tax paid at 30%
Total dividends paid
Parent entity
2016
$M
2015
$M
17.1
17.1
34.2
-
17.0
17.0
(b) Dividends not recognised at year-end
For the year ended 30 June 2016, the Directors have approved the payment of a final dividend of 3 cents per fully paid ordinary share,
fully franked based on tax paid at 30%.
(c) Franked dividends
Actual franking account balance as at the reporting date
Franking credits available for subsequent financial years based on a tax rate of 30%
Parent entity
2016
$M
2015
$M
31.3
31.3
46.0
46.0
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:
(a)
(b)
(c)
franking credits (debits) that will arise from the payment (receipt) of the amount of the provision for income tax;
franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and
franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date.
(d) Recognition and measurement
A provision for dividends is not recognised as a liability unless the dividends are declared, determined or publicly recommended on or
before the balance sheet date.
Group Structure
This section of the notes provides information which will help users understand how the group structure affects the financial position
and performance of the Group.
20 Business combinations
(a) Summary of acquisitions
(i) In June 2014, BlueScope acquired the Auckland long products rolling mill and wire drawing facility from Pacific Steel Group (PSG),
a division of Fletcher Steel Limited, for a total purchase price of $107.2M, of which $82.2M was deferred as at 30 June 2014. The billet
caster was commissioned in December 2015 and a final acquisition payment of $33.8M was paid by June 2016.
(ii) On 30 October 2015, BlueScope acquired the remaining 50% share of North Star BlueScope Steel LLC for $999.5M (US$720M).
The business is a high quality steel mini mill in the United States which BlueScope has had a 50% interest in since inception.
The existing 50% equity accounted investment share has been derecognised with a fair value net gain of $706.6M (US$509.3M)
recognised in the profit and loss after taking into account the carrying value of the investment and carried forward translation reserves
relating to the translation of the equity investment to AUD. The 100% share of net assets has been recognised at fair value.
-38-
20 Business combinations (continued)
(b) Purchase consideration - cash outflow
Outflow of cash to acquire subsidiaries, net of cash acquired
x
Purchase consideration
Add: Acquisition costs
x
Cash consideration
Less: Cash balances acquired
Outflow of cash
(c) Assets acquired and liabilities assumed
Assets
Cash assets
Trade receivables
Inventories
Property, plant and equipment
Intangible assets
Other assets
x
Liabilities
Payables
Other provisions
Borrowings
Deferred tax
x
Total identifiable net assets at fair value
Goodwill recognised on acquisition (i)
Fair value of net assets and liabilities acquired
x
Less: Carrying value of existing 50% equity investment, net of deferred tax liability
Less : Gain on re-measurement of existing 50% equity investment
Less: Recycling of exchange translation reserve to profit and loss
Purchase consideration transferred
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Note
20 (c)
North Star
BlueScope
Steel LLC
$M
x
999.5
9.4
1,008.9
(21.2)
987.7
North Star
BlueScope
Steel LLC
$M
21.2
131.0
103.4
619.7
390.2
2.3
1,267.8
(121.2)
(8.3)
(69.4)
(159.7)
(358.6)
909.2
923.2
1,832.4
(111.3)
(706.6)
(15.0)
999.5
(i) Goodwill recognised on acquisition of North Star BlueScope Steel LLC represents the premium paid above the fair value of
identifiable net assets acquired. The balance relates to intangible assets acquired as part of the acquisition, which are not separately
identifiable. Management has identified the following reasons for goodwill:
Proximity to major raw material and steel markets;
Product quality;
Delivery performance record;
•
•
•
• Quality workforce;
• Opportunities for major expansion;
• Opportunities for sale of the entire business in the longer term; and
Avoiding potential ownership conflicts with differing strategies.
•
-39-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
20 Business combinations (continued)
(d) Recognition and measurement
The Group applies the acquisition method of accounting for business combinations. The consideration transferred for the acquisition
of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group.
The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration
arrangement and the fair value of pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions,
measured initially at their fair values at the acquisition-date. On an acquisition-by-acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net
identifiable assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the net
identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the
subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a
discount on acquisition.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in profit and loss.
21 Subsidiaries and non-controlling interests
(a)
Investments in subsidiaries
Name of entity
Amari Wolff Steel Pty Ltd
Australian Iron & Steel Pty Ltd
BlueScope Distribution Pty Ltd
BlueScope Steel Asia Holdings Pty Ltd
BlueScope Steel (AIS) Pty Ltd
BlueScope Steel Employee Share Plan Pty Ltd
BlueScope Steel (Finance) Ltd
BlueScope Pacific Steel (Fiji) Pty Limited
BlueScope Steel Americas Holdings Pty Ltd
BlueScope Pty Ltd
BlueScope Solutions Holdings Pty Ltd
BlueScope Water Australia Pty Ltd
BlueScope Building and Construction Ltd
Permalite Aluminium Building Solutions Pty Ltd
Glenbrook Holdings Pty Ltd
Fielders Manufacturing Pty Ltd
John Lysaght (Australia) Pty Ltd
Laser Dynamics Australia Pty Ltd
Lysaght Building Solutions Pty Ltd
Orrcon Distribution Pty Ltd
Orrcon Manufacturing Pty Ltd
Metalcorp Steel Pty Ltd
New Zealand Steel (Aust) Pty Ltd
The Roofing Centre (Tasmania) Pty Ltd
Butler do Brazil Limitada
NS BlueScope Lysaght (Brunei) Sdn Bhd
BlueScope Buildings (Guangzhou) Ltd
BlueScope Lysaght (Shanghai) Ltd
BlueScope Steel (Shanghai) Co Ltd
BlueScope Steel Investment Management (Shanghai) Co Ltd
BlueScope Lysaght (Langfang) Ltd
BlueScope Lysaght (Chengdu) Ltd
-40-
Note
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(g)
(b)
Principal place of
business
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Brazil
Brunei
China
China
China
China
China
China
Equity
holding
2016
%
Equity
holding
2015
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
30
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
30
100
100
100
100
100
100
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
21 Subsidiaries and non-controlling interests (continued)
Name of entity
Note
BlueScope Building Systems (Xi'an) Co Ltd
BlueScope Steel (Suzhou) Ltd
Butler (Shanghai) Inc
Butler (Tianjin) Inc
Shanghai BlueScope Butler Construction Engineering Co. Ltd
BlueScope Lysaght Fiji Ltd
BlueScope Steel North Asia Ltd
BlueScope Steel India (Private) Ltd
PT NS BlueScope Indonesia
PT NS BlueScope Lysaght Indonesia
PT BlueScope Distribution Indonesia
PT NS BlueScope Service Center Indonesia
PT BlueScope Buildings Indonesia
BlueScope Buildings (Malaysia) Sdn Bhd
BlueScope Steel Transport (Malaysia) Sdn Bhd
NS BlueScope Engineering Systems Sdn Bhd (Malaysia)
NS BlueScope (Malaysia) Sdn Bhd
NS BlueScope Lysaght (Malaysia) Sdn Bhd
NS BlueScope Lysaght (Sabah) Sdn Bhd
NS BlueScope Asia Sdn Bhd
Global BMC (Mauritius) Holdings Ltd
Butler Manufacturas S de R.L. de C.V.
Butler de Mexico S. de R.L. de C.V.
BlueScope Acier Nouvelle Caledonie SA
BlueScope Steel Finance NZ Ltd
Tasman Steel Holdings Ltd
New Zealand Steel Holdings Ltd
New Zealand Steel Ltd
Pacific Steel (NZ) Limited
New Zealand Steel Development Ltd
Toward Industries Ltd
Steltech Structural Ltd
BlueScope Steel Trading NZ Ltd
New Zealand Steel Mining Ltd
Waikato North Head Mining Limited
BlueScope Steel International Holdings SA
BlueScope Steel Philippines Inc
BlueScope Buildings (Singapore) Pte Ltd
Steelcap Insurance Pte Ltd
NS BlueScope Lysaght Singapore Pte Ltd
NS BlueScope Pte Ltd
NS BlueScope Holdings Thailand Pte Ltd
BlueScope Steel Southern Africa (Pty) Ltd
BlueScope Lysaght Taiwan Ltd
NS BlueScope Steel (Thailand) Ltd
Steel Holdings Co Ltd
NS BlueScope Lysaght (Thailand) Ltd
BlueScope Buildings (Thailand) Ltd
BlueScope Steel International Ltd
ASC Profiles LLC
BlueScope Steel Finance (USA) LLC
BlueScope Steel Holdings (USA) Partnership
BlueScope Steel North America Corporation
BlueScope Steel Technology Inc
BlueScope Steel Americas LLC
BlueScope Steel Investments Inc
BlueScope Steel Investments 2 LLC
BlueScope Steel Investments 3 LLC
North Star BlueScope Steel LLC
VSMA Inc
BIEC International Inc
-41-
(b)
(b)
(f)
(b)
(b)
(b)
(b)
(b)
(b)
(c)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
(e) (f)
(e) (f)
(e)
Principal place of
business
China
China
China
China
China
Fiji
Hong Kong
India
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Mauritius
Mexico
Mexico
New Caledonia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Panama
Philippines
Singapore
Singapore
Singapore
Singapore
Singapore
South Africa
Taiwan
Thailand
Thailand
Thailand
Thailand
UK
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Equity
holding
2016
%
Equity
holding
2015
%
100
100
100
100
100
64
100
100
50
50
100
50
100
100
100
50
50
30
25
50
100
100
100
65
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
50
100
80
40
50
40
80
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
64
100
100
50
50
-
50
100
100
100
50
50
30
25
50
100
100
100
65
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
50
100
80
40
50
40
80
100
50
100
100
100
100
100
100
-
-
-
100
100
21 Subsidiaries and non-controlling interests (continued)
Name of entity
BMC Real Estate Inc
Butler Holdings Inc
BlueScope Construction Inc
Butler Pacific Inc
Steelscape LLC
Steelscape Washington LLC
BlueScope Buildings North America Inc
NS BlueScope Holdings USA LLC
BlueScope Properties Development LLC
BlueScope Properties Group LLC
BlueScope Properties Holdings LLC
BPG Laredo LLC
BlueScope Lysaght (Vanuatu) Ltd
BlueScope Buildings Vietnam
NS BlueScope Lysaght (Vietnam) Ltd
NS BlueScope Vietnam Ltd
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Note
(b)
(b)
(b)
(f)
(c) (d)
(b)
(b)
Principal place of
business
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Vanuatu
Vietnam
Vietnam
Vietnam
Equity
holding
2016
%
Equity
holding
2015
%
100
100
100
100
50
50
100
50
100
100
100
100
39
100
50
50
100
100
100
100
50
50
100
50
100
100
100
-
39
100
50
50
All subsidiaries incorporated in Australia are members of the BlueScope Steel Limited tax consolidated group. Refer to note 30(d)(ii).
(a) These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class Order
98/1418 (as amended) issued by the Australian Securities and Investments Commission. For further information refer to
note 31.
(b) These entities are part of the joint venture established between BlueScope and Nippon Steel & Sumitomo Metal Corporation
and have been classified as controlled entities because of the Group's unilateral right to appoint the CEO (and other Key
Management Personnel), approval of the operating budget and retaining significant decision making authority.
(c) These controlled entities are audited by firms other than Ernst & Young and affiliates.
(d) The Group's ownership of the ordinary share capital in this entity represents a beneficial interest of 39% represented by its
65% ownership in BlueScope Acier Nouvelle Caledonie SA, which in turn has 60% ownership of the entity.
(e) On 30 October 2015, BlueScope acquired the remaining 50% share of North Star BlueScope Steel LLC, resulting in the
consolidation of the previous 50% held equity accounted investment. As part of this transaction two holding entities, including
BlueScope Steel Investments 2 LLC and BlueScope Steel Investments 3 LLC, were incorporated.
(f) New entities incorporated during the year.
(g) This entity is in the process of being liquidated and deregistered.
(b) Principles of consolidation
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are consolidated from the date on which control is transferred to the
Group.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of
subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
-42-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
21 Subsidiaries and non-controlling interests (continued)
(c) Non-controlling interests (NCI)
Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income,
statement of changes in equity and statement of financial position respectively.
Financial information of subsidiaries that have material non-controlling interests, as determined by reference to the net assets of the
Group, are provided below:
Proportion of equity interest held by non-controlling interests:
Name of entity
NS BlueScope (Steel) Thailand Ltd
Steelscape LLC
Accumulated balances of material non-controlling interest:
NS BlueScope (Steel) Thailand Ltd
Steelscape LLC
Profit (loss) allocated to material non-controlling interest:
NS BlueScope (Steel) Thailand Ltd
Steelscape LLC
Place of
business/
country of
incorporation
2016
%
2015
%
Thailand
USA
60
50
60
50
2016
$M
2015
$M
160.1
146.1
23.6
12.6
159.5
133.3
23.8
1.1
The summarised financial information of these subsidiaries are provided below. This information is based on amounts before
inter-company eliminations.
x
Summarised statement of financial position
Current assets
Non-current assets
Total assets
Current net assets
Current liabilities
Non-current liabilities
Total liabilities
x
Net assets
Attributable to:
Owners of BlueScope Steel Limited
Non-controlling interests
NS BlueScope (Steel)
Thailand Ltd
Steelscape LLC
30 June
2016
$M
30 June
2015
$M
30 June
2016
$M
30 June
2015
$M
172.9
179.4
352.3
-
81.8
3.5
85.3
267.0
106.9
160.1
201.6
173.7
375.3
-
106.0
3.4
109.4
265.9
106.4
159.5
212.0
134.3
346.3
-
37.3
16.8
54.1
292.2
146.1
146.1
228.8
136.9
365.7
-
83.4
15.7
99.1
266.6
133.3
133.3
-43-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
21 Subsidiaries and non-controlling interests (continued)
Summarised statement of comprehensive income
Revenue
Expenses
Profit before tax
Income tax (expense)
< blank header row >
Profit after tax
Attributable to non-controlling interests
Dividends paid to NCI
s
Summarised statement of cash flows
Cash inflow from operating activities
Cash (outflow) inflow from investing activities
Cash (outflow) from financing activities
Net increases (decrease) in cash and cash equivalents
22 Investment in associates
Investment in associates
Name of company
Saudi Building Systems Manufacturing Company Ltd
Saudi Building Systems Ltd
NS BlueScope Lysaght (Sarawak) Sdn Bhd
SteelServ Limited
McDonald's Lime Ltd (a) (i)
(a) Movements in carrying amounts
Carrying amount at the beginning of year
Share of profits after income tax
Dividends received/receivable
Reclass to held for sale asset (i)
Currency fluctuation
Reserve movements
Carrying amount at the end of the year
-44-
NS BlueScope (Steel)
Thailand Ltd
Steelscape LLC
30 June
2016
$M
30 June
2015
$M
30 June
2016
$M
30 June
2015
$M
410.0
(364.9)
45.1
425.3
(382.0)
43.3
560.5
(535.3)
25.2
552.1
(549.9)
2.2
(5.8)
(3.7)
39.3
23.6
21.5
39.6
23.8
22.9
-
25.2
12.6
3.4
-
2.2
1.1
8.9
NS BlueScope (Steel)
Thailand Ltd
Steelscape LLC
30 June
2016
$M
30 June
2015
$M
30 June
2016
$M
30 June
2015
$M
52.3
(23.6)
(36.8)
(8.1)
38.2
(21.4)
(52.9)
(36.1)
23.2
(8.1)
2.4
17.5
26.6
(9.9)
(23.2)
(6.5)
Principal Place
of Business
Saudi Arabia
Saudi Arabia
Malaysia
New Zealand
New Zealand
Consolidated
2016
$M
2015
$M
8.6
7.3
Ownership interest
2015
2016
%
%
30
30
25
50
-
Consolidated
2016
$M
2015
$M
7.3
3.9
(3.3)
-
0.7
-
8.6
30
30
25
50
28
12.0
5.4
(4.6)
(5.3)
-
(0.2)
7.3
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
22 Investment in associates (continued)
(i) On 1 July 2015, New Zealand Steel sold its 28% equity accounted investment in McDonald’s Lime for $38.1M resulting in a $32.9M
pre-tax profit.
(b) Contingent assets and liabilities relating to associates
There were no contingent assets and liabilities relating to investments in associates.
(c) Recognition and measurement
Associates are all entities over which the Group has significant influence but not control or joint control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial
statements using the equity method of accounting, after initially being recognised at cost.
The Group's share of its associates' post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition
movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted
against the carrying amount of the investment. Dividends receivable from associates in the consolidated financial statements reduce
the carrying amount of the investment.
When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured
long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of
the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the
associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
23 Investment in joint ventures
Interest in joint venture partnerships
Consolidated
2016
$M
2015
$M
30.7
137.3
The Group also has a 50% interest in Tata BlueScope Steel Ltd, an Indian resident, the principal activity of which is to manufacture
metallic coated and painted steel products and engineered building solutions.
(a) Movements in carrying amounts
Carrying amount at beginning of year
Share of profit (loss) after income tax
Dividends received/receivable
Disposal of equity investment (i)
Reserve movements
Exchange fluctuations
Carrying amount at the end of the year
North Star BlueScope
Steel LLC
2016
$M
2015
$M
Tata BlueScope Steel
2016
$M
2015
$M
112.8
28.7
(24.2)
(124.5)
-
7.2
-
103.3
112.5
(127.3)
-
-
24.3
112.8
24.5
7.3
-
-
(0.3)
(0.8)
30.7
23.4
(2.2)
-
-
-
3.3
24.5
(i) On 30 October 2015, BlueScope acquired the remaining 50% share of North Star BlueScope Steel LLC, resulting in the disposal of
the existing 50% equity accounted investment and recognising 100% share at fair value as a controlled entity.
-45-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
23 Investment in joint ventures (continued)
(b) Summarised financial information
Summarised statement of financial
position
Current assets
Cash and cash equivalents
Receivables
Inventories
Prepayment and other assets
Non-current assets
Property plant and equipment
Other
Total assets
Current liabilities
Payables
Provisions
Deferred income
Non-current liabilities
Payables
Borrowings
Provisions
Total liabilities
Net assets
Proportion of the Group's ownership (%)
Carrying amount of the investment
Summarised statement of
comprehensive income:
Revenues
Expenses
Depreciation and amortisation expense
Finance costs
Profit (loss) before income tax
Income tax (expense) benefit
x
Group's share of profit (loss) for the
year
Capital commitments
Group's share of capital commitments
North Star BlueScope
Steel LLC
2016
$M
2015
$M
Tata BlueScope Steel
Consolidated
2016
$M
2015
$M
2016
$M
2015
$M
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12.1
107.4
86.9
1.3
177.6
0.3
385.6
68.7
25.6
-
0.6
65.2
-
160.1
225.5
50.0
112.8
41.9
21.1
43.6
13.4
185.9
2.5
308.4
41.5
1.4
11.4
1.7
187.6
3.3
246.9
61.5
50.0
30.7
22.6
24.3
46.9
17.5
204.5
0.1
315.9
92.6
0.8
8.5
7.8
153.9
3.2
266.8
49.1
50.0
24.5
41.9
21.1
43.6
13.4
185.9
2.5
308.4
41.5
1.4
11.4
1.7
187.6
3.3
246.9
61.5
50.0
30.7
34.7
131.7
133.8
18.8
382.1
0.4
701.5
161.3
26.4
8.5
8.4
219.1
3.2
426.9
274.6
50.0
137.3
North Star BlueScope
Steel LLC(i)
2016
$M
2015
$M
Tata BlueScope Steel
Consolidated
2016
$M
2015
$M
2016
$M
2015
$M
470.1
(405.6)
(6.8)
(0.3)
57.4
1,525.3
(1,282.5)
(16.9)
(0.9)
225.0
-
-
28.7
112.5
-
-
-
-
340.0
(287.9)
(14.8)
(22.5)
14.8
-
7.4
-
-
297.8
(264.2)
(13.8)
(24.2)
(4.4)
810.1
(693.5)
(21.6)
(22.8)
72.2
1,823.1
(1,546.7)
(30.7)
(25.1)
220.6
-
-
-
(2.2)
1.0
0.5
36.1
110.3
-
-
1.0
0.5
(i) For the year ended 30 June 2016, North Star BlueScope Steel LLC's results represents four months of Group's equity accounted
share of profit.
-46-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
23 Investment in joint ventures (continued)
(c) Contingent liabilities relating to joint ventures
Export Promotion Capital Goods Scheme (EPCG)
TBSL has imported goods under the Government of India's EPCG scheme at the concessional rates of duty with an obligation to fulfill
the specified exports. Failure to meet this export obligation within the stipulated time would result in payment of the aggregate
differential duty saved along with interest. TBSL is confident of meeting the obligation. BlueScope’s 50% share of this contingent
liability is $5.1M (2015: $5.2M).
Disputed rent
The Jharkhand Government has been in a land rental dispute with Tata Steel for several years and this matter impacts the rental
costs of Tata BlueScope Steel Limited (TBSL) as a sub-tenant of Tata Steel. BlueScope's 50% share of this contingent liability is
$4.5M.
Taxation
TBSL has direct and indirect tax computations which have been submitted but not agreed by the relevant authorities. TBSL has
provided for the amount of tax it expects to pay taking into account professional advice it has received. The matters currently in
dispute could result in amendments to the original computations. BlueScope’s 50% share of the potential amendments is $3.7M.
(d) Secured liabilities and assets pledged as security
The Tata BlueScope Steel borrowings are secured against property, plant and equipment.
(e)
Impairment losses
Impairment losses of $2.3M (2015: $2.5M) were recognised in relation to the Group's 47.5% investment in Castrip LLC.
(f) Recognition and measurement
Joint arrangements are classified as joint operations or joint ventures based on the rights and obligations of the parties to the joint
arrangements. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement
("joint operators") have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint
arrangement whereby the parties that have joint control of the arrangement ("joint venturers") have rights to the net assets of the
arrangement.
The interests in joint ventures are accounted for in the financial statements using the equity method. Under the equity method, the
share of the profits or losses of the partnerships are recognised in profit or loss, and the share of post-acquisition movements in
reserves is recognised in other comprehensive income.
Profits or losses on transactions establishing a joint venture and transactions with a joint venture are eliminated to the extent of the
Group's ownership interest until such time as they are realised by the joint venture partnership on consumption or sale. However, a
loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current
assets, or an impairment loss.
-47-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
24 Discontinued operations
(a) Description
Building Solutions Australia
The Group discontinued its Building Solutions Australia business, including the sale of its industrial water tank operations on 19 June
2015 for $7.2M (net of selling expenses).
(b) Financial performance of discontinued operations
2016
2015
Consolidated
Building
Solutions
Australia
$M
Other
$M
Total
$M
-
-
-
-
-
-
-
-
-
-
-
-
(0.7)
(0.7)
0.1
(0.6)
-
-
-
-
(0.7)
(0.7)
0.1
(0.6)
Building
Solutions
Australia
$M
31.6
5.4
(2.9)
(0.3)
(31.7)
2.1
0.6
2.7
Other
$M
Total
$M
-
-
-
-
(0.5)
(0.5)
-
(0.5)
31.6
5.4
(2.9)
(0.3)
(32.2)
1.6
0.6
2.2
Revenue
Other income
Restructuring costs
Finance costs
Other expenses
Profit (loss) before income tax
Income tax benefit
Profit (loss) after income tax from
discontinued operations
The results from discontinued operations are required to be presented on a consolidated basis. Therefore, the impact of intercompany
sales, profit in stock eliminations, intercompany interest income and expense and intercompany funding have been excluded. The
profit attributable to the discontinued segment is not affected by these adjustments. As a result of these adjustments the discontinued
operations result do not represent the operations as stand-alone entities.
Unrecognised Items
This section of the notes provides information about items that are not recognised in the financial statements as they do not yet satisfy
the recognition criteria but could potentially have an impact on the Group's financial position and performance.
25 Contingencies
(a) Contingent liabilities
The Group had contingent liabilities at 30 June 2016 in respect of:
(i) Outstanding legal matters
BlueScope has initiated legal proceeding against South32 alleging certain coal supply contract non-compliances estimated at
approximately $78 million. South32 subsequently initiated legal proceedings against BlueScope alleging certain other coal supply
contract non-compliances with a similar value.
In addition, there were a range of immaterial outstanding legal matters that were contingent on court decisions, arbitration rulings and
private negotiations to determine amounts required for settlement. The contingent liability for minor legal matters is estimated to be
$3.8M (2015: $3.5M).
(ii) Guarantees
In Australia, BlueScope Steel Limited has provided $87.6M (2015: $88.7M) in guarantees to various state workers compensation
authorities as a prerequisite for self-insurance. An amount, net of recoveries, of $55.6M (2015: $59.0M) has been recognised as
recommended by independent actuarial advice.
Bank guarantees have been provided to customers and suppliers in respect of the performance of goods and services provided and
purchases of goods and services which are immediately callable by default. Bank guarantees outstanding at 30 June 2016 totalled
$88.4M (2015: $81.8M).
-48-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
25 Contingencies (continued)
(iii) Taxation
The Group operates in many countries across the world, each with separate taxation authorities, which results in significant
complexity. At any point in time there are tax computations which have been submitted but not agreed by those tax authorities and
matters which are under discussion between Group companies and the tax authorities. The Group provides for the amount of tax it
expects to pay taking into account those discussions and professional advice it has received. While conclusion of such matters may
result in amendments to the original computations, the Group does not believe that such adjustments will have a material adverse
effect on its financial position, although such adjustments may be significant to any individual year's income statement.
(b) Contingent assets
There are no material contingent assets required for disclosure as at 30 June 2016.
26 Commitments
(a) Capital commitments
Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Property, plant and equipment
Payable:
Within one year
Later than one year but not later than five years
(b) Lease commitments: Group as lessee
Consolidated
2016
$M
2015
$M
37.5
0.4
37.9
75.7
3.5
79.2
(i) Non-cancellable operating leases
The Group leases various property, plant and equipment under non-cancellable operating leases. The rental expense relating to
operating leases for 30 June 2016 was $101.8M (2015: $102.7M). The leases have varying terms, escalation clauses and renewal
rights. On renewal, the terms of the leases are renegotiated. There are no restrictions placed upon the lessee by entering into these
leases.
Commitments for minimum lease payments in relation to non-cancellable operating leases are
payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Total operating lease commitments
Consolidated
2016
$M
2015
$M
116.4
272.8
259.3
648.5
117.1
294.6
304.2
715.9
(ii) Finance leases
The Group leases various property, plant and equipment with a carrying amount of $88.8M (2015: $157.0M).
The terms and conditions of other leases include varying terms, purchase options and escalation clauses. On renewal, the terms of
these are renegotiated.
There are no restrictions of use placed upon the lessee by entering into any of these leases.
-49-
26 Commitments (continued)
Commitments in relation to finance leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Minimum lease payments
Future finance charges
Recognised as a liability
Representing lease liabilities:
Current
Non-current
Total finance lease liabilities
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Notes
Consolidated
2016
$M
2015
$M
31.9
132.6
210.8
375.3
(151.6)
223.7
13.1
210.6
223.7
26.2
112.1
184.4
322.7
(138.6)
184.1
9.6
174.5
184.1
16
16
(c) Recognition and measurement - Lease liabilities
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date,
whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to
control the use of the asset, even if that right is not explicitly specified in an arrangement.
Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower,
the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other
short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the
liability for each period.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss
on a straight-line basis over the period of the lease.
27 Events occurring after balance date
On 8 July 2016, the Group sold its 47.5% interest in Castrip for US$20M. The investment in Castrip is held at $Nil value.
-50-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Other Information
This section of the notes includes information on items which require disclosure to comply with Australian Accounting Standards and
other regulatory pronouncements but are not considered critical in understanding the financial performance or position of the Group.
28 Share-based payments
(a) Share award schemes
(i) STI share awards - Key Management Personnel
The Board approved the annual STI plans for FY16 and FY17 for the CEO and Key Management Personnel, being a two year equity
STI program. No amount will be paid in cash. Performance will be assessed at the end of FY17 against a range of financial and other
measures aligned with the returns delivered to shareholders from the implementation of initiatives under the Group's strategic plan.
(ii) The Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) is a program determined annually by the Board, which awards share rights to eligible senior
management of BlueScope Steel Limited. LTIPs are designed to reward senior management for long-term value creation, and are part
of the Group's overall recognition and retention strategy. The share rights give the right to receive an ordinary share at a later date
subject to the satisfaction of certain performance criteria and continued employment with the Group.
The share rights available for exercise are contingent on the Group's Total Shareholder Return (TSR) percentile ranking relative to the
TSR of companies in the S&P/ASX 100 index at the reward grant date or a compound annual growth rate of Earnings per Share
(EPS) condition. Share rights that fail to meet performance vesting conditions will lapse upon the LTIP's expiry date, or sooner upon
employee resignation or termination. Plans have been granted to senior management, all at $Nil exercise price.
(iii) Retention share awards
The Board has awarded retention shares to limited Key Management Personnel and senior management throughout the Group,
where their retention is particularly critical to the successful delivery of business strategy. Retention rights have a retention hurdle of
three years from the time of award. These will lapse in circumstances of resignation or termination for cause. The Board retains
discretion in other circumstances.
(iv) Deferred Equity Award
The Board awarded deferred equity awards to senior management throughout the Group, with no performance hurdles required to be
met. The equity award gives the right to receive an ordinary share at a later date subject to continued employment with the Group.
(b) Fair value of share rights granted
The fair value of the share rights granted during the year ended 30 June 2016 are as follows:
Fair Value inputs
x
Grant date
Latest expiry date
Share rights granted
Fair value estimate
at grant date ($)
Cash rights (i)
Valuation date share
price ($)
Expected dividend
yield (%)
Expected risk-free
interest rate (%)
Expected share price
volatility (%)
CEO and KMP
FY16 and FY17
STI awards
FY16 CEO and
KMP LTIP
(TSR)
FY17 CEO and
KMP LTIP
(TSR)
FY16 CEO and
KMP LTIP
(EPS)
FY17 CEO and
KMP LTIP
(EPS)
FY16 LTIP
(Senior
management)
(TSR)
FY16 Deferred
Equity Awards
(Senior
management)
1 July 2015
30 Jun 2017
3,344,700
1 Sept 2015
31 Aug 2019
1,061,275
1 Sept 2015
31 Aug 2020
1,061,275
1 Sept 2015
31 Aug 2018
1,061,275
1 Sept 2015
31 Aug 2019
1,061,275
1 Sept 2015
31 Aug 2019
2,041,420
1 Sept 2015
31 Aug 2018
1,775,130
3.79
-
3.95
2.50
2.08
2.48
-
3.95
2.50
2.21
2.47
-
3.95
2.50
2.21
3.69
-
3.95
2.50
2.14
3.60
-
3.95
2.50
2.21
2.48
53,550
3.69
79,950
3.95
2.50
2.21
3.95
2.50
2.14
40.00
40.00
40.00
40.00
40.00
40.00
40.00
(i) The cash rights have been issued to eligible employees in Asia who are entitled to receive cash bonuses three years from grant
date, in place of shares. The fair value of the cash rights is calculated as the sum of the market value of shares and dividends that
would have otherwise been received.
-51-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
28 Share-based payments (continued)
(c) Cash and equity settled awards outstanding
x
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
STI share awards
(CEO & KMP)(i)
LTIP (CEO, KMP &
Senior management)
Retention share
awards (KMP &
Senior
management)
Deferred Equity
(Senior
management)
290,473
3,532,763
(290,473)
-
3,532,763
-
6,997,826
6,340,070
(1,440,928)
(1,365,150)
10,531,818
-
6,312,502
-
(4,355,268)
(128,880)
1,828,354
-
932,150
1,855,080
-
(58,520)
2,728,710
-
(i) The STI share awards for CEO and KMP granted during the year includes FY15 STI shares of 188,063 of which 129,621 shares
were issued on the 10 August 2016, with the remaining to be purchased on market.
The average share price for the year ended 30 June 2016 was $4.79 (2015: $4.87).
The weighted average remaining contractual life of share rights outstanding at the end of the period was 1.6 years (2015:1.4 years).
(d) Expense arising from share-based payment transactions
Employee share rights expense
Employee share awards expense (write-back)
Total net expense arising from share-based payments
Consolidated
2016
$M
2015
$M
23.2
2.6
25.8
12.4
(0.3)
12.1
The carrying amount of the liability relating to share-based payment plans at 30 June 2016 is $2.7M (30 June 2015: $2.9M). This
liability represents the deferred cash amounts payable under LTIPs and Retention schemes.
(e) Recognition and measurement
Equity settled transactions
The fair value of equity settled awards are recognised as an employee benefit expense with a corresponding increase to the share
based payments reserve within equity. The amount to be expensed is determined by reference to the fair value of the share awards or
share rights granted, which includes any market performance conditions but excludes the impact of non-market performance vesting
conditions.
The fair value of equity settled awards at grant date is independently determined by an external valuer using Black-Scholes option
pricing model that includes a Monte Carlo simulation analysis, which takes into account the exercise price, the term of the share right,
the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield
and the risk-free interest rate for the term of the share right.
Non-market vesting conditions are included in assumptions about the number of share awards or share rights that are expected to
vest. The expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are
expected to be satisfied. At the end of each period, the entity revises its estimates of the number of share awards and share rights that
are expected to vest based on non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in
profit or loss, with a corresponding adjustment to equity.
-52-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
28 Share-based payments (continued)
The cumulative expense recognised for equity settled transactions at each reporting date until vesting date reflects the extent to which
the expected vesting period has expired and the number of rights that are expected to ultimately vest. This number is based on the
best available information at the reporting date. No expense is recognised for awards that do not ultimately vest due to a performance
condition not being met, except for share rights where vesting is only conditional upon a market condition. No adjustment is made for
the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair
value at grant date.
Upon the exercise of equity settled share awards, the balance of the share-based payments reserve relating to those rights and
awards is transferred to share capital. The dilutive effect, if any, of outstanding rights is reflected as additional share dilution in the
computation of diluted earnings per share.
Cash settled transactions
The ultimate expense recognised in relation to cash-settled transactions will be equal to the actual cash paid to the employees, which
will be the fair value at settlement date. The expected cash payment is estimated at each reporting date and a liability is recognised to
the extent that the vesting period has expired and in proportion to the amount of the awards that are expected to ultimately vest.
29 Related party transactions
(a) Parent entities
The ultimate parent entity within the Group is BlueScope Steel Limited, which is incorporated in Australia.
(b) Key Management Personnel compensation
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Consolidated
2016
$'000
2015
$'000
8,147.4
101.3
159.8
11,528.1
19,936.6
11,719.2
400.1
223.5
4,449.2
16,792.0
A review of all existing KMP roles was conducted which concluded that the Chief Legal Officer and Company Secretary and Executive
General Manager of People & Performance no longer met the criteria for consideration as KMP.
(c) Transactions with other related parties
The following transactions occurred with related parties other than Key Management Personnel or entities related to them:
Consolidated
2016
$M
2015
$M
2.3
-
0.1
5.9
0.1
0.2
107.2
132.2
Sales of goods and services
Sales of goods to associates
Sales of goods to joint venture partnerships
Interest revenue
Associates
Superannuation contributions
Contribution to superannuation funds on behalf of employees
-53-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
29 Related party transactions (continued)
(d) Outstanding balances
The following balances are outstanding at the reporting date in relation to transactions with related parties other than key management
personnel:
Current receivables (sales of goods and services)
Associates
Current receivables (loans)
Associates
Current payable (purchase of goods and services)
Associates
(e) Terms and conditions
Note
6
Consolidated
2016
$M
2015
$M
0.2
1.3
2.9
0.4
3.7
3.3
Sales of finished goods and purchases of raw materials from related parties are made in arm's length transactions both at normal
market prices and on normal commercial terms. There are no fixed terms for the repayment of loans between the parties.
The terms and conditions of the tax funding agreement are set out in note 30(d)(ii).
Outstanding balances are unsecured and are repayable in cash.
Other director transactions with Group entities
Transactions with related parties of directors of wholly owned subsidiaries within the BlueScope Steel Group total $1.3M
(2015: $1.1M). These transactions have been made on commercial arm's length terms and conditions.
-54-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
30 Parent entity financial information
(a) Summary financial information
Summarised Statement of comprehensive income
Revenue
Other Income
Net impairment (expense) of non-current assets
Finance cost
Other expenses
Profit (loss) before income tax
Income tax expense (benefit)
Net profit (loss) for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss) for the year
Summary of movements in retained losses
Retained losses at the beginning of the year
Net profit (loss) for the year
Actuarial gains (losses) on defined benefit plans recognised directly in retained profits
Dividends paid to BSL shareholders
Transfer to profits reserve
Retained losses at the end of the year
x
Summarised Statement of financial position
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Share-based payments reserve
Profits reserve
Retained losses
Total equity
2016
$M
2015
$M
2,668.0
3,244.9
0.7
2.2
(724.9)
(111.8)
(2,368.8)
(536.8)
(0.6)
(537.4)
1.4
(536.0)
(986.0)
(537.4)
-
-
-
(1,523.4)
(34.0)
(124.9)
(2,275.1)
813.1
(20.3)
792.8
(8.5)
784.3
(975.6)
792.8
(10.4)
(17.0)
(775.8)
(986.0)
2016
$M
2015
$M
4,496.3
1,526.8
6,023.1
1,989.0
68.3
2,057.3
3,965.8
4,688.1
59.5
741.6
(1,523.4)
3,965.8
4,491.5
2,278.7
6,770.2
2,183.1
75.4
2,258.5
4,511.7
4,673.8
48.1
775.8
(986.0)
4,511.7
Profits reserve
Profits reserve represents profits available for distribution to BlueScope Steel Limited shareholders as dividends.
-55-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
30 Parent entity financial information (continued)
(b) Guarantees entered into by the parent entity
In Australia, the parent entity has given $87.6M (2015: $88.7M) in guarantees to various state workers compensation authorities as a
prerequisite for self-insurance and has entered into a deed of cross-guarantee with certain Australian wholly-owned subsidiaries (note
31). Additionally, the parent entity has provided financial guarantees in respect to subsidiaries amounting to:
Bank overdrafts and loans of subsidiaries
Other loans (unsecured)
Trade finance facilities
(c) Capital commitments
Parent entity
2016
$M
2015
$M
917.0
816.8
200.9
1,934.7
565.2
391.0
195.5
1,151.7
As at 30 June 2016, the parent entity had capital commitments of $5.2M (June 2015: $4.6M). These commitments are not recognised
as liabilities as the relevant assets have not yet been received.
(d) Recognition and measurement
The financial information for the parent entity BlueScope Steel Limited has been prepared on the same basis as the consolidated
financial statements, except as set out below.
(i)
Investment in subsidiaries
Investments in subsidiaries are accounted for at cost less accumulated impairment losses in the financial statements of BlueScope
Steel Limited.
(ii) Tax consolidation legislation
BlueScope Steel Limited and its wholly-owned Australian controlled entities have entered into a tax sharing and funding agreement in
relation to their participation in the tax consolidation regime. Under the terms of this agreement, the wholly-owned entities reimburse
BlueScope Steel Limited for any current tax payable assumed and are compensated by BlueScope Steel Limited for any current tax
receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to BlueScope Steel Limited
under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the
wholly-owned entities' financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from BlueScope Steel
Limited, which is issued as soon as practicable after the end of each financial year. BlueScope Steel Limited may require payment of
interim funding amounts to assist with its obligations to pay tax instalments.
The tax sharing agreement limits the joint and several liability of the wholly-owned entities in the case of a default by BlueScope Steel
Limited. At balance date, the possibility of default is considered remote.
The tax consolidated group has applied the group allocation approach in determining the appropriate amount of current taxes to
allocate to members of the tax consolidated group. Intercompany receivables of $90.2M (2015: $79.0M) and intercompany payables
of $86.9M (2015: $100.4M) of BlueScope Steel Limited have been recognised as a tax consolidated adjustment.
-56-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
31 Deed of cross - guarantee
BlueScope Steel Limited and certain Australian wholly owned subsidiaries are parties to a deed of cross-guarantee under which each
company guarantees the debts of the others. The companies in the deed are as follows:
Amari Wolff Steel Pty Ltd
BlueScope Building and Construction Ltd
BlueScope Construction Ltd
BlueScope Distribution Pty Ltd
BlueScope Pacific Steel (Fiji) Pty Limited
BlueScope Steel Limited
BlueScope Solutions Holdings Pty Ltd
BlueScope Water Australia
Fielders Manufacturing Pty Ltd
Glenbrook Holdings Pty Ltd
Lysaght Building Solutions Pty Ltd
Laser Dynamics Australia Pty Ltd
Metalcorp Steel Pty Ltd
New Zealand Steel (Aust) Pty Ltd
Orrcon Distribution Pty Ltd
Permalite Aluminium Building Solutions Pty Ltd
The Roofing Centre (Tasmania) Pty Ltd
By entering into the deed, with the exception of Glenbrook Holdings Pty Ltd, the wholly owned subsidiaries have been relieved from
the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian
Securities and Investments Commission. Glenbrook Holdings Pty Ltd continues to form part of the deed of cross-guarantee and
closed group, however is denied Class Order 98/1418 relief due to direct ownership being held from outside of the closed group.
(a) Consolidated income statement and a summary of movements in consolidated retained losses
The above companies represent a 'closed group' for the purposes of the Class Order, and as there are no other parties to the deed of
cross-guarantee that are controlled by BlueScope Steel Limited, they also represent the 'extended closed group'.
Statement of comprehensive income
Revenue
Other income
Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Employee benefits expense
Depreciation and amortisation expense
Impairment of non-current assets
Freight on external despatches
External services
Finance costs
Other expenses from ordinary activities
Profit (loss) before income tax
Income tax (expense) benefit
Net profit (loss) for the year
Items that may be reclassified to profit or loss
Actuarial gain (loss) on defined benefit superannuation plans
Total comprehensive income (loss) for the year
-57-
2016
$M
2015
$M
3,519.4
4,597.8
88.8
7.8
(73.0)
(2,004.2)
(524.9)
(61.5)
(720.8)
(203.1)
(298.5)
(116.5)
(95.5)
(489.8)
19.8
(470.0)
(32.1)
(2,307.3)
(578.1)
(66.4)
-
(208.6)
(298.9)
(133.2)
(55.5)
925.5
(1.3)
924.2
-
(470.0)
(10.3)
913.9
31 Deed of cross - guarantee (continued)
Summary of movements in consolidated retained losses
Retained losses at the beginning of the year
Net profit (loss) for the year
Actuarial gains (losses) on defined benefit plans recognised directly in retained profits
Dividends paid to Company shareholders
Transfer to profits reserve
Retained losses at the end of the year
(b) Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Deferred charges and prepayments
Total current assets
Non-current assets
Receivables - external
Inventories
Other financial assets
Property, plant and equipment
Deferred tax assets
Intangible assets
Prepayment
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Provisions
Deferred income
Total current liabilities
Non-current liabilities
Payables
Borrowings
Provisions
Deferred income
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Share-based payments reserve
Hedge reserve
Profits reserve
Retained losses
Total equity
-58-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
2016
$M
2015
$M
(838.3)
(470.0)
-
-
-
(1,308.3)
(959.4)
924.2
(10.3)
(17.0)
(775.8)
(838.3)
2016
$M
2015
$M
69.0
4,352.5
426.8
16.0
4,864.3
8.4
15.6
993.5
572.0
84.6
40.1
-
1,714.2
6,578.5
686.9
1,459.1
152.5
6.2
2,304.7
0.9
19.7
69.7
2.9
93.2
2,397.9
4,180.6
4,688.1
59.5
(0.3)
741.6
(1,308.3)
4,180.6
31.8
4,418.6
500.7
11.6
4,962.7
8.4
16.5
1,673.6
597.9
84.6
78.8
5.0
2,464.8
7,427.5
686.9
1,795.9
173.9
6.6
2,663.3
1.1
20.1
80.4
3.2
104.8
2,768.1
4,659.4
4,673.8
48.1
-
775.8
(838.3)
4,659.4
32 Financial instruments and risk
(a) Financial assets and liabilities
30 June 2016
Financial assets
Receivables
Derivative financial instruments
Financial liabilities
Payables
Borrowings
Derivative financial instruments
30 June 2015
Financial assets
Receivables
Derivative financial instruments
Financial liabilities
Payables
Borrowings
Derivative financial instruments
Notes
6
32(d)
9
16
32(d)
Notes
6
32(d)
9
16
32(d)
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Loans and
receivables
$M
Derivative
instruments
$M
Financial
liabilities at
amortised cost
$M
Total carrying
amount
$M
1,194.2
-
1,194.2
-
-
-
1,194.2
-
5.1
5.1
-
-
(2.2)
2.9
-
-
-
(1,513.5)
(1,327.8)
-
(2,841.3)
1,194.2
5.1
1,199.3
(1,513.5)
(1,327.8)
(2.2)
(1,644.2)
Loans and
receivables
$M
Derivative
instruments
$M
Financial
liabilities at
amortised cost
$M
Total carrying
amount
$M
1,123.6
-
1,123.6
-
-
-
1,123.6
-
1.4
1.4
-
-
(10.6)
(9.2)
-
-
-
(1,317.6)
(793.7)
-
(2,111.3)
1,123.6
1.4
1,125.0
(1,317.6)
(793.7)
(10.6)
(996.9)
-59-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
32 Financial instruments and risk (continued)
(b) Risk management
The Board of Directors has overall responsibility for overseeing the management of financial risks, and approves policies for financial
risk management with the objective of supporting the delivery of financial targets while protecting future financial security.
The Group's Audit & Risk Committee regularly reviews the financial risk management framework to ensure it is appropriate when
considering any changes in market conditions. It reviews financial risk management controls and procedures and oversees how
management monitors compliance with these, and monitors the levels of exposure to fluctuations in commodity prices, interest rates,
and foreign exchange rates.
Exposure arising from
Measurement
Management
Sensitivity
analysis and cash
flow forecasting
Hedged with forward foreign exchange contracts
or internal (net investment) of foreign operations
as disclosed in note (c).
Given the level of exposure, any impact from
reasonably possible movements in interest rates
(+/- 50 basis points) will be immaterial.
Forward commodity contracts as disclosed in note
(c). Any impact from reasonably possible
movements based on an historical basis and
market expectations (+/- 20%) in electricity will be
immaterial.
The Group's net exposure to liquidity risk is not
significant based on available funding facilities
and cash flow forecasts. Refer to note 16(b) for a
summary of the Group's material financing
facilities. When undertaking financing facilities, the
Group takes into account a liquidity buffer which is
reviewed at least annually.
-Establish credit approvals and limits, including
the assessment of counterparty creditworthiness.
-Undertake monitoring procedures such as
periodic assessments of the financial viability of its
counterparties and reviewing terms of trade.
-Obtain letters of credit from financial institutions
to guarantee the underlying payment from trade
customers.
-Undertake debtor insurance to cover selective
receivables for both commercial and sovereign
risks.
Risk
x
Foreign
exchange risk
x
Interest rate
risk
x
Commodity
price risk
x
Liquidity risk
x
Credit risk
(Counterparties/
Geographical)
Foreign currency payables and
receivables (primarily USD) and
net investments in foreign
currency.
Floating interest rate bearing
liabilities (2016: $305.2M, 2015:
$226.5M) and investments in
cash and cash equivalents (2016:
$549.8M, 2015: $518.5M).
International steel prices
(primarily hot rolled coil and slab),
and commodity prices including
iron ore, coal, scrap, zinc,
aluminium and electricity.
Sensitivity
analysis
Sensitivity
analysis
Difficulty in meeting obligations
associated with financial
liabilities.
Rolling cash flow
forecasts
Ageing analysis
and fair value
exposure
management
-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,
South-East Asia and New
Zealand.
-Significant transactions with
major customers, being Arrium
Limited and Fletcher Building's
Group within the Australian
operations.
-60-
32 Financial instruments and risk (continued)
(c) Foreign currency risk exposure and sensitivity analysis (AUD/USD)
Cash and cash equivalents
Trade and other receivables
Forward foreign exchange contracts
Forward commodity contracts
Financial assets
Trade and other payables
Borrowings
Forward foreign exchange contracts
Forward commodity contracts
Financial liabilities
Net exposure
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Consolidated
2016
$M
2015
$M
23.4
44.6
4.0
0.1
72.1
167.7
77.7
0.9
-
246.3
102.2
63.7
1.4
-
167.3
153.0
87.6
3.2
6.7
250.5
(174.2)
(83.2)
This exposure for the Group does not reflect the natural hedge of USD assets against USD borrowings of AUD 70.2M (2015: AUD
13.5M).
Judgement of reasonably possible movements:
AUD/USD + 10% (2015: +10%)
AUD/USD - 10% (2015: -10%)
Post-tax profit
higher (lower)
Equity
higher (lower)
2016
$M
12.5
(15.3)
2015
$M
5.9
(7.2)
2016
$M
12.5
(15.3)
2015
$M
5.9
(7.2)
(d) Commodity price and foreign exchange risk management
The Group uses derivative instruments to manage commodity price risk and foreign exchange risk by entering into forward contracts.
Derivatives are used only for the purposes of managing these risks and not for speculative purposes.
Forward foreign exchange contracts - cash flow hedges (i)
Forward foreign exchange contracts - fair value hedges (i)
Forward commodity contracts - cash flow hedges (ii)
Financial assets
Forward foreign exchange contracts - cash flow hedges (i)
Forward foreign exchange contracts - fair value hedges (i)
Forward commodity contracts - cash flow hedges (ii)
Financial liabilities
Net exposure
Consolidated
2016
$M
2015
$M
3.6
1.4
0.1
5.1
2.0
0.2
-
2.2
2.9
1.2
0.2
-
1.4
3.1
0.1
7.4
10.6
(9.2)
(i) Forward foreign exchange contract
The Group has entered into forward foreign exchange contracts designated as cash flow hedges and fair value hedges relating to
foreign currency sales and purchases and hedging of net working capital exposures. For the cash flow hedges, the effective portion of
gains and losses are recognised directly in equity. The fair value hedges are being marked to market through the profit and loss in line
with the Group's risk management strategy.
-61-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
32 Financial instruments and risk (continued)
(ii) Forward commodity contracts
The Group has entered into forward contracts for the purchase of electricity, iron ore and bunker fuel for its New Zealand Steel
business and iron ore purchases at Port Kembla as a means of hedging its exposure to electricity, bunker fuel and iron ore price
fluctuations. Both of these forward contracts have been designated as cash flow hedges with the effective portion of gains and losses
recognised directly in equity.
(e) Fair values
The carrying amounts and estimated fair values of the Group’s financial instruments recognised in the financial statements are
materially the same, with the exception of the following:
Non-traded financial liabilities
Other loans
Net assets (liabilities)
2016
2015
Carrying
amount
$M
Fair value
$M
Carrying
amount
$M
Fair value
$M
816.8
(816.8)
897.5
(897.5)
391.0
(391.0)
463.1
(463.1)
The above financial liability is not readily traded on organised markets in standardised form. The fair value of interest bearing financial
liabilities where no market exists is based upon discounting the expected future cash flows by the current market interest rates on
liabilities with similar risk profiles that are available to the Group.
Valuation of financial instruments
(i)
(ii)
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (i.e. derived from prices); and
(iii) Level 3 - inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
Derivatives valued using valuation techniques with market observable inputs are primarily foreign exchange forward contracts and
commodity forward contracts. These valuations reference forward pricing using present value calculations. The forward price
incorporates various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, and forward rate
curves of the underlying commodity. The fair value of forward commodity exchange contracts ($0.1M) and forward foreign exchange
contracts ($2.8M) are considered level 2 valuations.
(f) Recognition and measurement of derivatives
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to
their fair value at the end of each reporting period.
The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if
so, the nature of the item being hedged.
The Group designates certain derivatives as either:
•
•
•
Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges);
Hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast
transactions (cash flow hedges); or
Hedges of a net investment in a foreign operation (net investment hedges).
The relationship between hedging instruments and hedged items, the risk management objective and the strategy for undertaking
hedge transactions, are documented at the inception of the hedge transaction. The effectiveness of the derivatives in offsetting
changes in fair values or cash flows of hedged items is assessed and documented on an ongoing basis.
(i) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
-62-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
32 Financial instruments and risk (continued)
(ii) Cash flow hedges
Changes in the fair value of derivatives that are designated as cash flow hedges are recognised in other comprehensive income and
accumulated in the hedging reserve in equity. The gain or loss relating to the effective portion is recognised in other comprehensive
income and accumulated in the hedging reserve, whilst ineffective portions are recognised immediately in profit or loss within other
income or other expenses.
Amounts accumulated in the hedging reserve are reclassified to profit or loss in the periods when the hedged item affects profit or
loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory
or fixed assets) the gains and losses previously deferred in the hedging reserve are reclassified from equity and included in the initial
measurement of the cost of the asset. The deferred amounts are ultimately recognised in profit or loss as cost of goods sold in the
case of inventory, or as depreciation in the case of fixed assets.
(iii) Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in other comprehensive income and accumulated in the foreign
currency translation reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss
within other income or other expenses. Gains and losses accumulated in the foreign currency translation reserve are reclassified to
profit or loss when the foreign operation is partially disposed of or sold.
(iv) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not
qualify for hedge accounting are recognised immediately in profit or loss and are included in other income or other expenses.
(v) Discontinuation of hedge accounting
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in the hedging reserve at that time remains in equity and is recognised when the forecast transaction
is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that
was reported in the hedging reserve is immediately reclassified to profit or loss.
33 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Group, and its related practices:
(a) Audit services
Audit and review of financial statements and other audit work under
the Corporations Act 2001:
Ernst & Young (including overseas Ernst & Young firms)
Consolidated
2016
$
2015
$
4,096,000
4,575,000
-63-
33 Remuneration of auditors (continued)
(b) Other services
Other non-audit services
Ernst & Young Australian firm
Tax compliance services
Advisory services
Assurance related
Related practices of Ernst & Young Australian firm
(including overseas Ernst & Young firms)
Tax compliance services
Advisory services
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
Consolidated
2016
$
2015
$
357,000
46,000
726,000
44,000
-
1,173,000
48,810
490,000
7,000
56,095
7,000
608,905
34 Other accounting policies
(a) New and amended Standards and Interpretations adopted by the Group
(i) AASB 2015-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 101
(effective 1 July 2016)
The standard makes amendments to AASB 101 Presentation of Financial Statements arising from the IASB's Disclosure Initiative
project. The amendments are designed to further encourage companies to apply professional judgement in determining what
information to disclose in the financial statements.
The Group has early adopted this standard and streamlined the financial report as per the recommendations of the IASB's Disclosure
Initiative project.
(b) New Accounting Standards and Interpretations not yet adopted by the Group
Certain new Accounting Standards and interpretations have been published that are not mandatory for the 30 June 2016 reporting
period. The Group's assessment of the impact of these new standards and interpretations is set out below.
(i) AASB 9 Financial Instruments (effective from 1 July 2018)
This standard addresses the classification, measurement and derecognition of financial assets in addition to new hedge accounting
requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and
disclosures.
An assessment of the impact of the amendments to the standard have been carried out and it is not expected to result in a material
change to the financial statements and disclosures of the Group.
(ii) AASB 15 Revenue from Contracts with Customers (effective 1 July 2018)
AASB 15 replaces AASB 118 Revenue which covers contracts for goods and services, and AASB 111 Construction Contracts, which
covers construction contracts. The new standard is based on the principle that revenue is recognised when control of good or service
transfers to a customer, so the notion of control replaces the existing notion of risk and rewards. This standard will change the timing
and in some cases the quantum of revenue recognised.
Management has carried out a preliminary assessment of the impact of the new standard and expects that it will not have a material
impact on the Group's recognition and measurement of revenue. Further assessment will be carried out to confirm this outcome.
-64-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
34 Other accounting policies (continued)
(iii) AASB 16 Leases (effective 1 July 2019)
IFRS16, the new lease accounting standard was released in January 2016. The standard eliminates the classification of leases as
either operating leases or finance leases as required by the current lease accounting standard and, instead, introduces a single lessee
accounting model. A lessee is required to recognise assets and liabilities for all leases with a term of more than 12 months, unless the
underlying asset is of low value, and depreciate lease assets separately from interest on lease liabilities in the income statement.
Management has carried out a preliminary assessment of the impact of the new standard and expects that it will have a material
impact on the Group's financial statements and disclosures. This will involve an increase in assets and liabilities, change in the timing
in which lease expenses are recognised, a switch in earnings categories from operating expense to depreciation and interest expense
and an increase in gearing levels. Further assessment of the impact will be carried as part of the adoption of the new standard.
(iv) AASB 2016-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 107
(effective 1 July 2017)
This standard amends AASB 107 Statement of Cash Flows to require entities preparing financial statements in accordance with Tier 1
reporting requirements to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes.
The Group will apply this amendment from 1 July 2017.
(v)
IFRS 2 Classification and measurement of share based payment transactions (effective 1 July 2018)
This standard makes amendments to IFRS 2 Share based Payments, clarifying how to account for certain types of share-based payment
transactions.
An assessment of the amendments to the standard has been carried out and it is not expected to result in any change to the financial
statements and disclosures of the Group.
(c) Foreign currency translation
(i) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except
when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the
net investment in a foreign operation.
(ii) Foreign operations
The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
•
•
•
Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that
statement of financial position;
Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and
other currency instruments designated as hedges of such investments, are recognised in other comprehensive income. When a
foreign operation is sold, a proportionate share of such exchange differences is reclassified to profit or loss as part of the gain or loss
on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of the foreign
entities and translated at the closing rate.
-65-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2016
34 Other accounting policies (continued)
(d) Other taxes
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable
from the taxation authority. In this case, it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from,
or payable to, the taxation authority is included with other receivables or payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing and financing activities which is
recoverable from, or payable to, the taxation authority are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
-66-
Directors' Declaration
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2016
In the Directors' opinion:
(a)
(b)
(c)
(d)
the financial statements and notes set out on pages 1 to 66 are in accordance with the Corporations Act 2001, including:
(i)
complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements, and
giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for
the year ended on that date, and
(ii)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable, and
at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group
identified in note 31 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the
deed of cross-guarantee described in note 31.
the financial statements and notes comply with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of
the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
J Bevan
Chairman
P F O'Malley
Managing Director & CEO
Melbourne
22 August 2016
-67-
EXTENDED
FINANCIAL
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U
SHAREHOLDER
INFORMATION
AND CORPORATE
DIRECTORY
SHAREHOLDER INFORMATION
As at 22 August 2016
Distribution Schedule
Range
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and Over
Total
No of Holders
68,661
14,248
1,502
817
67
85,295
Securities
20,592,851
29,491,614
10,599,612
18,960,170
491,831,674
571,475,921
Based on a closing share price of $8.72 on 22 August 2016, the number of shareholders holding less than a
marketable parcel of 58 shares is 11,356 and they hold 323,425 shares.
Twenty Largest Registered Shareholders
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CS FOURTH NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
AMP LIFE LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BOND STREET CUSTODIANS LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
Securities
137,423,395
92,517,757
82,595,690
76,983,360
26,651,941
16,365,339
12,000,557
4,267,351
4,181,568
3,671,904
3,431,698
3,209,232
3,135,000
2,473,788
1,870,271
1,694,219
1,593,940
1,575,310
1,210,496
1,153,053
%
3.60
5.16
1.85
3.33
86.06
100.00
%IC
24.05%
16.19%
14.45%
13.47%
4.66%
2.86%
2.10%
0.75%
0.73%
0.64%
0.60%
0.56%
0.55%
0.43%
0.33%
0.30%
0.28%
0.28%
0.21%
0.20%
TOTAL
Balance of Register
Grand TOTAL
478,005,869
93,470,052
571,475,921
83.64%
16.36%
100.00%
Substantial Shareholders
As at 22 August 2016, BlueScope has been notified of the following substantial shareholdings:
Name
Number of securities held
Dimensional Entities
Ausbil Investment Management Limited
Voting Rights for Ordinary Shares
The Constitution provides for votes to be cast:
(a) on a show of hands, one vote for each shareholder; and
(b) on a poll, one vote for each fully paid share.
28,290,408
41,566,202
CORPORATE DIRECTORY
Directors
J A Bevan
Chairman
Secretary
Executive Leadership Team
P F O’Malley
Managing Director and Chief Executive Officer
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch AM
L H Jones
R P Dee-Bradbury
M G Barron
P F O’Malley
Managing Director and Chief Executive Officer
T J Archibald
Chief Financial Officer, BlueScope Australia and New Zealand and BlueScope Coated
Products
M G Barron
Chief Legal Officer and Company Secretary
S Dayal
Chief Executive, NS BlueScope
S R Elias
Chief Financial Officer
P Finan
Chief Executive, BlueScope Buildings
A Highnam
Executive General Manager, People and Performance
M R Vassella
Chief Executive, BlueScope Australia and New Zealand
Notice of Annual General Meeting
Corporate Governance Statement
Registered Office
Share Registrar
Auditor
Securities Exchange
The Annual General Meeting of BlueScope Steel Limited will be held at the
Melbourne Convention and Exhibition Centre, 2 Clarendon Street, Southbank, Victoria at
2.00pm on Thursday, 10 November 2016
An overview of BlueScope Steel’s corporate governance structures is presented in the 2016
Corporate Governance Statement which is available online at:
http://www.bluescope.com/about-us/governance
Level 11, 120 Collins Street, Melbourne, Victoria 3000
Telephone: +61 3 9666 4000
Fax: +61 3 9666 4111
Email: bluescopesteel@linkmarketservices.com.au
Postal Address: PO Box 18207, Collins Street East, Melbourne, Victoria 8003
Link Market Services Limited
Level 12, 680 George Street, Sydney, NSW 2000
Postal address: Locked Bag A14, Sydney South, NSW 1235
Telephone (within Australia): 1300 855 998
Telephone (outside Australia): +61 1300 855 998
Fax: +61 2 9287 0303
Email: bluescopesteel@linkmarketservices.com.au
Ernst & Young
8 Exhibition Street, Melbourne, Victoria 3000
BlueScope Steel Limited shares are quoted on the Australian Securities Exchange
(ASX code: BSL)
Website Address
www.bluescope.com
BLUESCOPE STEEL LIMITED
LEVEL 11, 120 COLLINS STREET
MELBOURNE, VICTORIA 3000 AUSTRALIA
ABN 16 000 011 058
WWW.BLUESCOPE.COM