ANNUAL
REPORT
2016/2017
CHAIRMAN’S
MESSAGE
Dear Shareholder
BlueScope’s FY2017 annual results are the most important in
a decade.
Your Company announced a return to a $1billion Earnings Before
Interest & Tax (EBIT) result, and after ten years at the helm,
Managing Director & CEO Paul O’Malley announced his retirement.
Treated separately, either the EBIT performance result or the
CEO announcement would be very significant news for you, our
shareholders. Combined, they send a clear signal that BlueScope
has completed a very difficult journey of transformation since the
global financial crisis hit nine years ago and, crucially, is now
ready for another exciting period of growth and development.
This revival has been led by outgoing Paul O’Malley who has been
an outstanding leader for more than ten years. The Company owes
him a great debt of gratitude for his strength of vision and purpose
as leader. His focus on safety, and on the essential turnaround and
transformation of the Company in the decade after the global
financial crisis showed leadership of the highest order.
If you look closely at BlueScope today, you can see a vastly different
company from that of 10 years ago when Paul assumed the job.
Ten years ago the world could not supply enough steel to meet the
growth in China. As undersupply changed to significant oversupply
over that time, BlueScope had to change also. Today the Company
has a much lower dependency on export driven commodity sales.
Today BlueScope has refocused the Company to serve the changing
needs of its domestic customers in Australia, New Zealand and
the United States, where it has primary steel making facilities.
Service and cost competitiveness are key.
Secondly, its geographic diversity provides growth opportunities
coupled with a spread of earnings that stabilises the overall business.
Thirdly, and very importantly, a large proportion of today’s
business is providing value added, differentiated painted and
coated products into Australia, New Zealand, the USA and
importantly, growth markets of Asia. The buildings businesses
in the USA and China also provide for a differentiated offer.
And lastly, BlueScope enjoys a very strong balance sheet. It gives
us the resilience to counter the economic cycles and also to take
advantage of opportunities like the one with North Star some two
years ago.
All of this enables the Company to have a more predictable
cash flow while having good exposure to growth markets.
This will all be part of Paul’s legacy. However the real legacy Paul
leaves behind is his strong personal values that have set the tone
from the top, and are reflected in everything the business does.
He retires as Managing Director & Chief Executive Officer in
December with the warmest thanks and best wishes of the Board
and all BlueScope employees.
Shareholders will have the opportunity to join me in personally
thanking Paul at our Annual General Meeting in October.
From 1 January, 2018, Mr Mark Vassella will take over as
Managing Director and CEO.
Mr Vassella joined BlueScope in 2007, and is currently Chief
Executive BlueScope Australia and New Zealand. He started in
the steel industry as a cadet at BHP Newcastle in NSW, in the early
80s, and has worked through the ranks, in a range of general
management and leadership roles in Australia, the UK and the US.
BlueScope is noted for the strength of its management team and
after a rigorous international and domestic selection process, the
Board was very pleased to be able to select Mark from a very
strong internal pool.
BlueScope is delivering well on its strategy, with strong momentum
throughout the Company. Mark will lead from the front, and his
priority now is to keep delivering on the strategy, and follow-up
our recent performance and successes. Continuity is key.
Mark has been a key part of the development of our strategy, and
in Australia and New Zealand has led our 8,000 strong workforce
in manufacturing and distribution through a major restructure
of the business. He has overseen the return of the Australian
business to profitability, and was instrumental in the 2015
decision to continue operations at Port Kembla in Australia,
and at Glenbrook in New Zealand.
He has run all BlueScope’s buildings businesses in North America,
leading the integration of our acquisitions and sat on the Board
of North Star (the leading mini-mill in North America). He has
delivered outstanding performance and will make a significant
contribution as global leader of this great Company.
Financial performance
The FY2017 results show continued growth and strong financial
performance.
The improvement in underlying return on invested capital (ROIC) to
18.5 per cent from 9.6 per cent in FY2016 further confirms that
strategic initiatives across the Company are working well.
Since we acquired full ownership of North Star BlueScope Steel in
FY2016 this business has seen sustained improvement in margins.
The outlook for the US steel industry strengthened and the business
is extremely well placed to benefit from a domestic US uptick in
demand and improved prices.
The Australian and New Zealand businesses produced strong
results, not least because of a razor-sharp focus on cost
competitiveness. However, there is a need for an ongoing focus
on costs in these businesses due to energy price increases.
Our joint venture with Nippon Steel Sumitomo Metals Corporation
continues to bring many benefits. We have diversified our customer
base in Asia, adding retail and small business sales to our
established position in commercial markets. We are continuing to
grow and invest in the region, with the development of the third
metal coating line with in-line painting in Thailand underway.
The restructure of the BlueScope Buildings business has led to
a significant profitability boost in North America, and improved
performance in China.
Across our global footprint, these combined improvements have
repositioned BlueScope, ready for the journey ahead.
FY2017 fi nancial highlights and outlook
BlueScope delivered a $715.9 million reported net profit after tax
(NPAT) for FY2017 – a 102 per cent increase on FY2016. Underlying
NPAT of $650.8 million was 112 per cent higher than FY2016.
The Company lifted underlying earnings before interest and tax
(EBIT) by 89 per cent to $1,105 million.
A big achievement is that net debt at 30 June 2017 was
$232.2 million, a reduction of 70 per cent from 30 June
2016 through strong operating cash flow.
Our successful transformation has rebased earnings to a
higher level, lowered volatility, improved our earnings mix and
positioned the Company well to fund growth, reduce debt, and
for capital management.
In the immediate half year there are a number of macro factors
impacting the outlook:
■ U.S. steel margins are lower due to scrap prices increasing
ahead of steel prices;
■ As trade restrictions take hold in global markets, import product
offerings are taking advantage of gaps in the Australian anti-
dumping regime, which together with volatility in FX, is leading
to lower domestic steel margins; and
■ Productivity improvements at Australian Steel Products are
not yet fully offsetting the scale of energy cost escalation
in FY2018.
The Company currently expects 1H FY2018 underlying EBIT around
80 per cent of 2H FY2017 underlying EBIT (which was $527.3 million).
Expectations are subject to spread, FX and market conditions.
Capital management
The Board approved payment of a fully franked full year dividend
of 5.0 cents per share, and will undertake a further on–market
share buy-back of up to $150 million during 1H FY2018.
In February, your Board announced a $150 million on-market
share buy-back. This was completed in June, with 12.78 million
shares bought at an average of $11.74 per share.
The Board’s intention is to pay consistent dividends in conjunction
with ongoing on-market share buy-backs. Directors believe this
achieves the appropriate balance between retaining strong credit
metrics, continuing to fund our growth opportunities and
returning cash to shareholders.
Strategic context
The hard work done to steer BlueScope through the cycles of
the last 10 years now means BlueScope is in a better position to
consistently deliver sustainable profits. The foundations are secure,
based on a balanced portfolio of businesses in great regions with
significant opportunities for growth. The focus will be on the
delivery of improved ROIC, consistently and through the cycle.
We will continue our capital management program, further
boosting the strength of the Company’s balance sheet.
I hasten to add that we are not complacent, and our focus as we
start to stretch further into the future will be to embed sustainable
profits and growth. We do not underestimate the challenges of a
cyclical business, and recognise that at times we will again be
exposed, but we have confidence in our focused leadership and the
work that has been done to develop a sound platform and strategy.
The FY2017 performance demonstrates one aspect of how we are
protecting the business against movements in industry cycles.
There has been a distinct change in our sales mix, with increased
contribution from value-added products to give a better earnings
mix and lower exposure to fluctuations in spread. Similarly the
geographic diversity of earnings is much broader than ten years
ago when 70 per cent of earnings were derived in Australia.
Today, Australian operations account for 41 per cent of FY2017
earnings, and North America is responsible for 38 per cent.
The steel industry is a capital intensive sector, with investments
running over decades. A company must make capital work hard to
drive returns, and ROIC is the right measure for this, through the
cycle. Our philosophy is to invest capital wisely and then make it
work hard.
In this context, and to support our strategy for the future, challenging
ROIC targets will be the key driver of remuneration rewards for
all employees. This new approach and a new remuneration
framework will bring more value to shareholders with less cost.
It will support a long-term focus on delivering value, coupled with
more equity opportunity for executives. It will dictate a continued
focus on annual targets aligned to the overall Company strategy,
and thus increased executive and shareholder alignment.
Safety
Safety remains the number one priority at BlueScope. In FY2017,
the Company’s safety performance deteriorated, as measured by
the Lost Time Injury Frequency Rate of 0.8, and the Medically
Treated Injury Frequency Rate of 5.6.
This was most disappointing. At a time of great change people
can become distracted and the risk of injury rises. However, while
that is somewhat understandable, is not acceptable.
Across the business, managers are working with their teams to
identify the causes of this increase in injuries, design solutions
and ensure the Company gets back on track to pursue its Zero
Harm goal.
Sustainability
All BlueScope people strive to live by the values reflected by
Our Bond, which defines our relationships with our customers,
employees, shareholders and communities, and the Company
has strategies in place to protect our business for the future
wellbeing of all stakeholder groups.
The FY2016 BlueScope Sustainability Report outlines the Company’s
performance in meeting its responsibilities towards each of these
groups, and as overseen by governance policies. I hope you have
had a chance to read this report on the Company’s website.
In working towards more fulsome sustainability reporting in
FY2017 and beyond, management has identified five principal
areas of initial focus:
■ Employee and contractor safety – relentless pursuit of Zero
Harm and further improvement in performance against lost
time and medically treated injury measures.
■ Climate change and energy response – constantly strive to reduce
energy emissions, and protect the business against changes
and risks from the effects of climate change. BlueScope
broadly supports the Australian Government Finkel review’s
recommendations to improve the reliability and security of the
National Energy Market, and we believe a well-designed Clean
Energy Target could provide the right signals for investment
so as to encourage a diverse energy mix that delivers more
affordable and reliable electricity, while also reducing emissions.
We also welcome the Government’s efforts to ensure adequate
supplies of gas are available for domestic industry and electricity
generation, through the introduction of the Australian Domestic
Gas Security Mechanism (ADGSM), as well as the measures
announced to inquire into the competitiveness of the domestic
gas and electricity markets, and the steps the Government is
taking to secure baseload electricity generation capacity.
■ Diversity and equal opportunity – increase the diversity of our
workforce to refl ect our communities. In FY2017 the percentage
of women recruited to permanent roles was almost double
at close to 40 per cent. For operator and trade roles, women
comprised 29 per cent of all new recruits, up from seven
per cent. Women now comprise 17.4 per cent of BlueScope’s
almost 15,000 global workforce.
■ Governance and business conduct – the Board, management,
employees, contractors and agents are all expected to
behave in accordance with Our Bond and BlueScope policies
and standards. Rigorous systems are in place to report and
investigate any cases of misconduct. Across our 15,000
employees in 17 countries, the Company’s independently-run
24/7 Whistleblower Hotline received 19 calls with allegations
during the year. This led to 24 investigations and a total of nine
people exited the business. Our HR policy is not to comment
on individual cases – but we would if they pertained to
members of the leadership team. In line with our commitment
to sustainability reporting and transparency, we disclosed
that the ACCC has been investigating potential cartel conduct
by BlueScope, relating to the supply of steel products in the
Australian market, and that it involved a small number of
BlueScope employees from late 2013 to mid-2014. That ACCC
investigation continues and we are cooperating fully.
During the year a number of cases were investigated, and a
small number found to be proven with appropriate disciplinary
action taken. We recognise we need to continue to educate all
BlueScope people of the importance of behaving in line with
Our Bond and all Company policies, and ongoing reinforcement
through new training initiatives to be introduced will assist this.
■ Supply chain sustainability – ensure ethical and human
business practices at BlueScope and with all third parties
with whom we engage along the supply chain, in line with
best practice global supply chain principles.
Turning to other significant matters of governance, BlueScope
recently announced the appointment of a new director to the
Board, Ms Jennifer Lambert. Jennifer has extensive business
and leadership experience at the senior executive and board level.
She was Group Chief Financial Officer of 151 Property (previously
known as Valad Property Group) from 2003 to 2016, where her
responsibilities included operational and strategic finance, tax,
treasury, legal and compliance. Prior to that she was a Director
at PricewaterhouseCoopers specialising in capital raisings, and
structuring/due diligence for acquisitions and disposals, across
various industries.
Ms Lambert currently serves as non-executive director on the
board of Investa Office Management, where she is a member of
the Investa Group Audit, Risk and Compliance Committee, Place
Management NSW (part of Property NSW), and Mission Australia,
where she is Chair of the Board Audit and Risk Committee.
The Directors are very pleased to welcome Jennifer onto the
Board. She has a wealth of financial experience and expertise
from her time as a CFO in the property sector. Jennifer will bring
an incisive perspective to BlueScope’s business and help the
Board guide the Company’s growth and sustainability.
Conclusion
BlueScope management and employees have continued to
work tirelessly to see your Company succeed and prosper, and
I sincerely thank them for this.
If it has felt like a long journey to this point – and it has been a
tough ride – well welcome to the next phase of a long journey!
However, I am confident this one will be much more positive and
rewarding, based on the astounding efforts of all BlueScope
people and the leadership of Paul O’Malley and his executive
team to guide us to where we are today.
I thank my fellow Directors for their collegiality and support.
I look forward to working with our newly shaped Board and with
incoming CEO Mark Vassella and his team, as we embark on the
journey ahead.
I join with all shareholders in looking forward to BlueScope’s
continued success in the next financial year and beyond.
continued success in the next financial year and beyond.
John Bevan
John Bevan
Chairman
DIRECTORS’
REPORT
DELIVERY ON OUR STRATEGY: SIGNIFICANT IMPROVEMENTS TO BLUESCOPE’S PORTFOLIO
32% pa compound growth in ASEAN, North America & India EBIT in last five years – particularly strong in North America.
Increased customer diversity in ASEAN – adding retail and SME sales to our established position in commercial markets.
Sales of home appliance steels (SuperDyma®) growing in Thailand, and construction of MCL3 on track.
Coated & Painted Products:
Growth in Australian domestic coated product sales; pursuing inter-material growth opportunities.
Reviewing expansion opportunities in India, including further painting and metal coating capacity.
Restructured BlueScope Buildings:
North Star:
Moved to full ownership in October 2015, adding more than $200M EBIT in FY2017 (compared to 50% ownership).
Australia & New Zealand steelmaking:
Significant profitability boost in North America; $30M productivity savings on track for FY2018 (over FY2016)
China Buildings restructure delivering results, being breakeven in 4Q FY2017.
Delivering incremental volume growth: production increased 71kt this year.
Reducing conversion costs – delivered cost savings of over $10M pa in recent years.
Businesses streamlined – $375M improvement in cost competitiveness (relative to FY2015 cost base) and primary focus now on
domestic markets.
Exited Taharoa export iron sands business, a non-core business which has delivered volatile earnings in recent years.
Balance sheet:
Net debt reduced to $232.2M. Leverage reduced to 0.16x (net debt over underlying EBITDA).
Clear capital management framework incorporating ongoing buy-backs.
RESULTANT ENHANCEMENT TO BLUESCOPE’S POSITION
The pursuit of our strategy, including the improvements made in recent years, has delivered:
a pivot in our sales mix – with 75% of our volume sold as value added or highly cost competitive products
better business segment earnings mix across the portfolio
broader geographic diversity – 59% of underlying EBITDA (excluding corporate costs) derived outside of Australia in FY2017
strong overall improvement in cash flow, facilitating commencement of on-market buy-backs during 2H FY2017.
Improved geographic diversity
FY2017 underlying EBITDA
Total: $1,485.4M
(including $87M of
corporate costs
not shown in
chart)
NZ;
$103M;
6%
Asia;
$191M;
12%
Australia;
$638M;
41%
Nth
America;
$641M;
41%
SUSTAINABILITY
Improvement in free cash flow (op. cash flow less capex)
$749M
$638M
$101M
$154M
FY2013
FY2014
FY2015
FY2016
FY2017
($142M)
At BlueScope our health, safety, environment and community responsibilities are integral to the way we do business, being core elements of
strategy and risk management. We made some key achievements in FY2017, and continue to look for ways to improve:
In safety, while our goal remains zero harm, we achieved our thirteenth successive year with an industry-leading LTIFR rate below 1.0 per
million man-hours worked.
On our goal of increasing workforce diversity to reflect our communities, in FY2017 29% of new hires into operator and trade roles were
female, being nearly five times the current 6% representation of females across all of our operator and trade roles.
We have reduced Australian CO2 emissions by an estimated 43% since FY2011 – down to 7.4Mt from 12.9Mt in FY2011.
We remain vigilant on governance and business conduct with an actively-promoted whistle-blower line.
We recently released our FY2016 Sustainability Report, being our first integrated report on environment, social and governance matters. We
intend to release a further enhanced Sustainability Report for FY2017, in early 2018. Using a market-recognised approach, this report will bring
added focus on the most material sustainability topics for BlueScope. As part of this we intend to provide more detailed disclosure on climate-
related governance, strategy, risk management and metrics. It is intended that this will be followed by more detailed disclosure in the FY2018
Sustainability Report, including information on the organisation’s resilience under different climate-related scenarios.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 3
GROUP FINANCIAL REVIEW
HIGHLIGHTS
Sales from continuing operations
$10,626.7M
2H result $5,522.2M, up $835.5M
17% on FY2016
Underlying EBIT
$1,105.0M
2H result $527.3M1, up $187.9M
89% on FY2016
$1,131.2M on a ‘guidance’ basis (including Taharoa)1
Reported net profit after tax
$715.9M
2H result $356.7M, up $203.1M
102% on FY2016
Underlying return on invested capital
18.5%
from 9.6%
Capital management
5.0cps final dividend (4.0cps interim)
$150M buy-back completed in 2H FY2017
$150M buy-back announced for 1H FY2018
Net debt
$232.2M
$545.8M on Jun 2016
FINANCIAL SUMMARY
Table 1: Financial summary
$M unless marked
Sales revenue from continuing operations
EBITDA – underlying 2
EBIT – reported
EBIT – underlying 2
Return (underlying EBIT) on invested capital (%)
NPAT – reported
NPAT – underlying 2
Final ordinary dividend (cents)
Reported earnings per share (cents)
Underlying earnings per share (cents)
Net debt
Gearing (%)
Leverage (ND / proforma underlying EBITDA)
FY2017
10,626.7
1,485.4
1,044.5
1,105.0
18.5%
715.9
650.8
5.0 cps
125.3 cps
113.9 cps
232.2
4.0%
0.16x
FY2016
9,067.8
966.0
621.6
583.8
9.6%
353.8
306.6
3.0 cps
62.1 cps
53.8 cps
778.0
13.5%
0.80x
Variance %
17%
54%
68%
89%
+8.9%
102%
112%
67%
102%
112%
(70%)
-9.5%
-0.64x
1 Arising from its divestment in May 2017, the Taharoa export iron sands business has been reclassified into Discontinued Operations. Earnings have been restated to exclude the
Taharoa export iron sands business from the NZPac segment (amounting to $25.9M and $0.3M of underlying earnings in 1H FY2017 and 2H FY2017 respectively). Table 13
provides further detail.
2 Underlying results in this report are categorised as non-IFRS financial information provided to assist readers to better understand the financial performance of the underlying
operating business. Underlying adjustments included discontinued operations, acquisitions and disposals of businesses, asset impairments/write-backs and restructuring costs.
Tables 10, 11 and 12 explain why the Company has disclosed underlying results and provide reconciliations of underlying earnings to reported earnings
BlueScope Steel Limited – FY2017 Directors’ Report
Page 4
REVENUE
The 17% increase in total revenue was principally due to:
the move to full ownership of North Star in October 2015
higher steel prices in all regions
increased sales volumes in the Australian Steel Products,
Building Products and BlueScope Buildings segments
unfavourable translation impacts from a stronger Australian
dollar exchange rate (AUD:USD)
planned lower export volumes at New Zealand and Pacific Steel
as part of the Pacific Steel investment.
EARNINGS BEFORE INTEREST AND TAX
The 89% increase in underlying EBIT reflects:
$260.1M increase in North Star contribution due to favourable
impact of full ownership after 30 October 2015, stronger steel
spreads and lower conversion costs
$139.2M spread increase, primarily comprised of:
increase in domestic and export prices due to higher global
steel prices, partly offset by the unfavourable influence of a
weaker AUD:USD ($525.6M)
higher raw material costs – higher coal and iron ore
purchase prices at ASP; higher steel feed costs at BP and
BB ($386.4M)
$78.1 favourable movement in costs, primarily driven by:
$203.1M cost improvement initiatives mainly in ASP,
BlueScope Buildings North America and NZPac
$149.5M unfavourable impact of cost escalation from
utilities, employment, consumables and other costs,
including the re-introduction of an employee bonus scheme
in Australia and New Zealand, which is profit-share based
$24.4M net decrease in other costs.
$26.9M benefit from volume and mix due to: higher despatch
volumes in the Building Products and BlueScope Buildings
segments in most countries in which we operate combined with
a planned reduction in export steel despatches at NZPac
$8.8M increase in Tata BlueScope Steel performance due to
volume growth and better margins
$8.1M favourable movement in other items, including foreign
exchange translation: $9.1M unfavourable movement.
The $422.9M (68%) increase in reported EBIT reflects the movement
in underlying EBIT discussed above and $98.3M unfavourable
movement in underlying adjustments explained in Tables 11 and 12,
with the major adjustments being for the discontinued Taharoa export
iron sands operations, impact of acquiring 50% of North Star in
FY2016, lower asset impairments, lower restructuring costs and
utilisation of previously impaired deferred tax assets. Noting the
current period included asset impairments in BP Indonesia ($50.3M)
and Buildings China ($43.9M).
FINANCE COSTS AND FUNDING
The $14.1M decrease in finance costs compared to FY2016 was
largely due to:
a decrease in average gross borrowings (FY2017 $1,144M;
FY2016 $1,462.3M)
the cost of early redemption of the US$110M 144a Unsecured
Notes in FY2016
partly offset by a higher average cost of debt (FY2017 6.3%;
FY2016 5.0%) due to a change in the mix of drawn debt.
Financial liquidity was $1,932.4M at 30 June 2017 ($1,801.4M at 31
December 2016 and $1,813.1M at 30 June 2016), comprised of
committed available undrawn capacity under bank debt facilities of
$1,179.4M, plus cash $753.0M. Liquidity in the NS BlueScope
Coated Products JV was $397.1M which is included in the group
liquidity measure.
The improved cash flow position enabled BlueScope to repay the
remaining US$110M senior unsecured notes in November 2016,
which were due to mature May 2018.
BlueScope has in place off balance sheet receivables securitisation
programs which were increased by $210.0M during FY2017 to a total
limit of $460M. These facilities were drawn to $377.4M at 30 June
2017 ($198.5M at 30 June 2016).
TAX
Net tax expense of $181.8M (FY2016 $101.4M) primarily relates to
income generated in businesses outside of Australia and New
Zealand.
In Australia the Company has utilised previously unrecognised tax
losses to offset taxable income generated during the period. The
Company has deferred the recognition of any further tax losses in
Australia and New Zealand until a history of taxable profits has been
demonstrated. Australian and New Zealand tax losses are able to be
carried forward indefinitely.
FY2017
(FY2016 $42.3M)
results
financial
utilisation of previously impaired deferred tax assets in Australia and
New Zealand, $11.3M of tax assets impaired in China, $101.2M of
non-tax effected asset impairments in China, New Zealand and
Indonesia and non-taxable gains of $26.7M from the sale of Taharoa.
include $128.4M
DIVIDEND & CAPITAL MANAGEMENT
The Board of Directors has approved payment of a final dividend of
5.0 cents per share and a $150M on-market buy-back for 1H
FY2018. During 2H FY2017, the Company paid an interim dividend
of 4.0 cents per share and bought shares to the value of $150M
through an on-market buy-back.
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:
The Board’s present intention is to pay consistent dividends, given
limited franking availability, in conjunction with ongoing on-market
buy-backs3, funded on the following basis:
Ex-dividend share trading commences: 8 September 2017.
Record date for dividend: 11 September 2017.
Payment of dividend: 16 October 2017.
to retain strong credit metrics
ensuring a balance between returning capital to shareholders
and maintaining flexibility to pursue growth; and
to be 30% to 50% of free cash flow.
FINANCIAL POSITION
Net assets increased $553.4M to $5,538.8M at 30 June 2017 from
$4,985.3M at 30 June 2016. Significant movements were:
$545.8M decrease in net debt through strong cash flow
$120.7M increase in net working capital, particularly driven by a
$270.5M increase in inventory (mainly due to unit cost and net
volume increases), a $169.8M increase in receivables and a
$334.3M increase in payables
$109.8M decrease in retirement benefit liabilities from improved
asset returns and higher discount rates
$112.4M decrease in property, plant and equipment
$80.9M decrease in intangible assets mainly due to amortisation
charges and foreign exchange fluctuations.
3 On-market buy-backs are seen as the most effective method of returning capital to
shareholders after considering various alternatives and given the Company’s limited
franking capacity (capacity to frank 5.9cps of dividends, prior to payment of the final
dividend). The Board reserves the right to suspend or terminate buy-back at any time.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 5
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
include
markets, with some volume exported. Key brands
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, transport, agriculture and mining industries.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 2: Segment financial performance
$M
FY2017
FY2016
Var %
2H
FY2017
Sales revenue
4,918.7
4,437.4
11%
2,553.7
Reported EBIT
459.5
77.7
491%
217.4
Underlying EBIT
459.4
361.4
NOA (pre-tax)
2,140.6
2,088.7
27%
2%
216.9
2,140.6
Underlying ROIC
20.5%
15.3%
+5.2%
18.8%
Table 3: Steel sales volume
000 tonnes
FY2017
FY2016
Var %
2H
FY2017
Domestic
- ex-mill
2,109.6
2,008.5
5%
1,076.0
- ext sourced
143.9
182.7
(21%)
70.2
Export
Total
837.2
695.5
3,090.7
2,886.7
20%
7%
478.1
1,624.3
Chart 1: ASP domestic steel sales volume mix FY2017
Total: 2,253.5Kt
HRC
Plate
CRC
Metal coated
Painted
Ext sourced
Other
FINANCIAL PERFORMANCE – FY2017 VS. FY2016
Sales revenue
The increase in sales revenue was primarily due to:
higher domestic and export prices driven by higher global steel
prices, partly offset by a stronger AUD:USD exchange rate
higher domestic volumes, particularly galvanised and plate sales
into the distribution and manufacturing sectors.
EBIT performance
The increase in underlying EBIT was largely due to:
higher spread with the impact of higher global steel prices on
revenue offsetting coal and iron ore purchase price increases
higher domestic volumes, particularly in galvanised and plate
sales into the distribution and manufacturing sectors
higher export volumes on strong production delivering positive
variable margin
lower costs driven by the planned cost reduction program and
lower unit costs with higher production volumes offset by the re-
introduction of an employee bonus scheme (profit-share based
scheme) and cost escalation.
Underlying adjustments in reported EBIT are set out in tables 11 and 12.
Return on invested capital
Underlying ROIC increased to 20.5% driven by stronger EBIT
offsetting higher net operating assets. NOA were $51.9M higher than
at 30 June 2016 primarily due to:
higher inventories driven by higher raw material input prices and
activity levels
higher receivables with higher pricing and activity
offsetting benefits of
program
offset by higher creditors on higher prices.
levels
the off balance sheet securitisation
MARKETS AND OPERATIONS
Sales direct to Australian building sector
Domestic building sector direct sales volumes strengthened in
FY2017 compared to FY2016.
Activity within residential construction stabilised in FY2017 after
a long period of sustained growth.
New residential development activity continued to make a
positive contribution to growth, supported by low interest
rates, strong investor demand and robust population
growth.
Strong
investment within VIC, QLD, NSW, and SA
delivered positive sales growth, particularly in metropolitan
markets. WA softened during the period influenced by the
decline in mining investment however there are indications
that conditions are now improving.
Alterations and additions activity has grown, supported by
record house price growth and low interest rates.
Sales volumes of COLORBOND® steel in FY2017 were
similar to FY2016 with the broader growth in activity across
the eastern seaboard offset by the significant wet weather
in that region and a decline in activity within WA, which now
appears to be improving.
A COLORBOND® steel price rise was implemented during
1H FY2017.
flat
Non-residential construction activity held relatively
in
FY2017, however positive signs of a rebound are emerging
through the approvals data, especially in the commercial and
industrial segments.
Investment activity continued to be impacted by persistent
low levels of confidence within the private sector.
Activity remained muted across most segments under
commercial and industrial construction, led by retail and
and warehouse
accommodation
offices,
investment demonstrated growth.
Social and institutional construction activity grew modestly
with improved investment in education and aged care,
offset by a decline in health related projects.
however
BlueScope Steel Limited – FY2017 Directors’ Report
Page 6
Sales direct to domestic non-building sector customers
Sales volumes to distributors were strong in FY2017, whilst
other non-building sector customers were relatively stable or
marginally lower.
Increased infrastructure spending, particularly from government-
backed projects has improved market conditions during FY2017.
Stability in the Australian dollar has also increased market
certainty, which has benefitted local manufacturing and general
business confidence.
Sales to distributors strengthened through:
increased demand for steel plate from project activity in
roads, bridges, and wind towers
other growth initiatives focused on increasing the flexibility
of our service offerings as well as improving our price
competitiveness.
Sales to pipe and tube makers declined in FY2017 due to:
reductions in stock holding levels by two key customers
increased competition from imported finished goods.
Sales to the automotive industry were lower due to Ford’s
closure in October 2016.
Sales to manufacturers improved marginally during 1H FY2017
supported by initiatives targeting the substitution of imported
finished goods with
locally manufactured steel. Business
conditions in general have improved within manufacturing with
the Ai Group Performance of Manufacturing Index (sentiment)
remaining in a net expansionary indicator for most of FY2017.
Mill sales to export markets
Despatches to export market customers in FY2017 were
837.2kt, 20% higher than FY2017 due to increased production
efficiency at Port Kembla.
Prices in export markets were significantly higher in FY2017
than FY2016 supported by higher global steel prices.
NORTH STAR BLUESCOPE STEEL
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.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 4: Segment performance
$M unless
marked
FY2017
FY2016
Var %
Sales revenue 1
1,700.9
Reported EBIT 2
Underlying EBIT 2
NOA (pre-tax)
Underlying ROIC
847.3
847.3
146.5
433.3
406.6
1,735.6
22.4%
1,862.3
n/a
101%
(49%)
178%
(7%)
-
2H
FY2017
906.9
195.4
195.4
1,735.6
21.7%
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. FY2016 reported EBIT includes the de-recognition
and fair value gain on BSL’s existing 50% equity investment in North Star
($706.6M pre-tax).
FINANCIAL PERFORMANCE – FY2017 VS. FY2016
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 $260.1M increase in underlying EBIT was largely due to:
full ownership of North Star after 30 October 2015
higher steel spread, due mainly to rises in Midwest U.S. steel
prices in excess of raw material cost increases
lower conversion costs
higher production and despatch volumes.
Underlying adjustments in reported EBIT are set out in tables 11 and 12.
Table 5: North Star BlueScope Steel – pro-forma performance
(100% basis) in US$M
US$M unless
marked
Sales revenue
FY2017
FY2016
Var %
1,282.5
959.6
34%
Underlying EBITDA
348.3
163.4
113%
Production (kt)
2,141.3
2,069.9
Despatches (kt)
2,093.0
2,021.6
3%
4%
2H
FY2017
683.8
168.1
1,079.6
1,076.5
Return on invested capital
Underlying ROIC was 22.4% driven by strong EBIT contribution
combined with lower net operating assets. Net operating assets at 30
June 2017 were $126.7M lower than at 30 June 2016 primarily due to
the foreign exchange translation impact of a stronger AUD:USD.
MARKETS AND OPERATIONS
North Star sells approximately 90% of its production in the
Midwest U.S., with its end customer segment mix being broadly
50% automotive, 35% construction, 5% agricultural and 10%
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.
Good progress continues to be made in reducing costs.
Continuous improvement program has delivered over $10M pa
in margin improvement over the last several years.
Work continues on incremental expansion projects to increase
hot strip mill and caster capacity. A new hot strip mill edger was
installed and commissioned in February 2017, and caster speed
increases have been delivered.
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
include pre-painted
COLORBOND® steel, zinc/aluminium alloy-coated ZINCALUME®
steel and the LYSAGHT® range of building products.
that
The Company has an extensive footprint of metallic coating, painting
and steel building product operations
Indonesia,
Vietnam, Malaysia, India and North America, primarily servicing the
residential and non-residential building and construction industries
in Thailand,
BlueScope Steel Limited – FY2017 Directors’ Report
Page 7
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 6: Segment performance
$M unless
marked
FY2017
FY2016
Var %
Sales revenue
1,970.5
1,766.8
Reported EBIT
Underlying EBIT
140.8
201.7
149.3
149.3
NOA (pre-tax)
1,032.8
1,009.7
12%
(6%)
35%
2%
2H
FY2017
1,019.5
36.8
90.4
1032.8
Underlying ROIC
18.9%
13.6%
+5.3%
16.6%
Despatches (kt)
1,435.9kt
1,369.5kt
5%
724.2kt
Chart 2: Segment geographic sales revenue FY2017, $M 1
Total: $2,013.5M
761.4
463.4
326.3
Thailand
Indonesia
Malaysia
Vietnam
210.0
252.4
North America
1) Chart does not include $43.0M of eliminations (which balances back to total
segment revenue of $1,970.5M). Chart also does not include India, which is equity
accounted.
FINANCIAL PERFORMANCE – FY2017 VS. FY2016
Sales revenue
The $203.7M increase in sales revenue was mainly driven by higher
volumes across all countries in Asia combined with higher regional
steel prices favourably impacting the North America business. These
were partly offset by unfavourable foreign exchange translation rate
impacts (against the AUD) in all countries.
EBIT performance
The $52.4M increase in underlying EBIT was particularly driven by
higher margins and volumes in our North America, Vietnam and India
businesses. North America saw a particularly strong improvement of
$49.0M with strong domestic demand, improved product margins and
one-off favourable inventory pricing effect arising from the timing of
raw material purchases.
Earnings in Thailand softened with a slowdown in the industrial and
commercial segment, in which the business sells its premium
products.
The stronger AUD:USD exchange rate led to an unfavourable
movement in translation of earnings.
MARKETS AND OPERATIONS
Thailand
FY2017 volume was 4% higher than FY2016. A slowdown in the
Industrial and Commercial segment, in which the business sells
its premium products, was offset by increased despatches in the
Retail and Home Appliance segments.
Further expansion of the Retail segment channel with an
increase in the number of BlueScope Authorised Dealer
partners from 30 in FY2016 to 40 in FY2017.
Customer uptake and growth in ViewKote® and SuperDyma®
sales (home appliance) increasing, but at a slower rate than
expected. Growing demand for SuperDyma® products into
building and construction applications as a substitute for
galvanized structural product.
Business continues to increase intra-regional paint feed and
finished good sourcing volumes ahead of MCL3 commissioning
in 1H FY2019.
Lysaght roll-forming facility in Myanmar is expected to be
operational in 1H FY2018.
Indonesia
FY2017 volume was 9% higher than FY2016 due to growth in
the Retail segment. However, the business experienced margin
compression across all products from increased raw material
costs.
Strategic initiatives are being executed to accelerate Retail
market development, broaden the customer base and improve
raw material supply costs.
Changes to local steel regulations, including import quotas,
have tightened supply. The sustainability of these regulations
and impact on the domestic market remain uncertain.
The business faces structural challenges in sourcing steel due
to the Indonesian regulatory environment, which is impacting
earnings by around $20M per annum.
In view of the uncertain regulatory environment and ongoing
margin compression, a $50.3M pre-tax non-current asset
impairment was recognised in 2H FY2017.
Vietnam
A record result, with solid growth in FY2017 driven by stronger
volumes (largely in exports) and higher premium product mix.
Economic and market conditions remain positive.
Market competition remains strong. The business continues to
focus on strengthening the Retail channel model to enhance
brand value and build customer loyalty.
Malaysia
FY2017 volume was 11% higher than FY2016, driven by
stronger export volumes and intra-region finished goods supply
to Thailand ahead of MCL3 commissioning in 1H FY2019.
Product margins were lower due to compression from higher
raw material costs vs FY2016, further exacerbated by ~10%
MYR depreciation.
Domestic and core export markets are generally stable,
however, political uncertainty remains a concern with an
impending general election.
Utilisation of in-line painting (ILP) capability continues to
increase, enabling the business to grow volumes in the Retail
segment.
North America (Steelscape & ASC Profiles)
The business delivered record earnings growth driven by strong
domestic demand, improved product margins and one-off
favourable inventory pricing effect arising from the timing of raw
material purchases.
A strategic review of the ASC Profiles business completed and
restructuring plan in execution with the goal of further enhancing
performance.
Underlying adjustments in reported EBIT are set out in Tables 11 and 12.
Return on invested capital
Underlying ROIC increased to 18.9% driven by improved EBIT and a
slight increase of NOA, mainly reflecting higher receivables and
inventory part offset by higher creditors and lower net fixed assets.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 8
Department of Commerce Section 232 review relating to the
business’ imported raw material supply is in progress and a
comprehensive sourcing strategy has been developed
to
mitigate any potential impact on the business.
Chart 3: Segment geographic sales revenue FY2017, $M 1
Total: $1,809.6M
India (in joint venture with Tata Steel (50/50) for all operations)
The joint venture delivered a record underlying EBIT of $50.9M
(100% basis) driven by improved gross margins through higher
volumes, pricing discipline, productivity and better product mix.
Revenue grew by 5% in FY2017. Domestic prime coated steel
sales volume grew by 8% compared to FY2016 with 19% growth
in bare products and 4% growth in painted products.
Market demographics are suited for continued growth in the
coated and pre-painted steel markets. Continued growth in key
market segments with despatches in Projects and Retail
growing by 14% and 4% respectively. Ongoing success in the
Retail segment due to strength of the DURASHINE® brand and
market channels including the Tata Shaktee dealer network.
The paint line continues to operate at full capacity, with the
feasibility study on additional paint line capacity continuing.
Restructuring of the underperforming Engineered Buildings
business is progressing, including manufacturing reconfiguration
and exit of unprofitable product lines and customer accounts.
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 currently expanding its engineering and sales
capability through the roll out of a updated engineering software
system across North America.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 7: Segment performance
$M unless
marked
FY2017
FY2016
Var %
Sales revenue
1,756.8
1,705.9
3%
Reported EBIT
Underlying EBIT
(3.0)
64.0
39.0
49.2
NOA (pre-tax)
531.54
603.3
(108%)
30%
(12)
Underlying ROIC
10.5%
6.6%
+3.9%
Despatches (kt)
626.6
601.9
4%
2H
FY2017
860.7
10.4
14.6
531.5
4.9%
294.5
282.8
370.8
Engineered Buildings
North America
Engineered Buildings
Asia
Building Products
China (coated steel)
1,156.0
1) Chart does not include $52.8M of eliminations (which balances back to total
segment revenue of $1,756.8M).
FINANCIAL PERFORMANCE – FY2017 VS. FY2016
Sales revenue
The $50.9M increase is sales revenue was mainly due to higher
despatch volumes in North America and China. This was partly offset
by lower selling prices in China and Asia and unfavourable foreign
exchange translation rate impacts (against the AUD) in all regions.
EBIT performance
The $14.8M increase in underlying EBIT was largely due to:
lower costs in North America driven by favourable impact of
productivity and cost saving initiatives
higher despatch volumes in North America and China.
This was partly offset by lower net margins in North America and
Building Products China due to increases in steel feed costs being
greater than selling price increases.
Underlying adjustments in reported EBIT are set out in tables 11 and 12.
Return on invested capital
Underlying ROIC increased to 10.5% driven by improved EBIT and a
$131.8M decrease in NOA, mainly reflecting reduced working capital
(lower receivables and in inventories combined with higher creditors
and provisions) and lower net fixed assets.
MARKETS AND OPERATIONS
Engineered Buildings North America
Productivity improvements and cost savings delivered 51%
underlying EBIT growth in FY2017 over FY2016. The majority of
the $30M FY2018 initiatives target was achieved in FY2017.
Varco Pruden sales performed well, however premium Butler
volumes came under pressure during the period leading to
overall margin deterioration.
Engineered Buildings Asia (China & ASEAN)
Weak building and construction activity in the premium market
segment across private and government participants continue to
constrain margins.
Manufacturing sites are being reconfigured or closed to further
lower the cost base. The restructuring work is delivering benefits
with the China business underlying EBIT breakeven in 4Q
FY2017.
In a market seeing strong price competition, Buildings ASEAN is
seeking to improve its cost base and optimise in-house
production.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 9
Building Products China (coating, painting and rollforming)
Despatch volumes increased 15% relative to FY2016, driven
particularly by distributor and engineered building solution
customer demand.
Sales and marketing initiatives continue to expand the scope of
sales into the distribution and pre-engineering buildings channel
to drive further volume growth.
NEW ZEALAND AND PACIFIC STEEL
New Zealand and Pacific Steel consists of three business areas: New
Zealand Steel; Pacific Steel; 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.
The Taharoa export iron sands business was divested in May 2017,
and its earnings contribution moved from underlying earnings to
discontinued businesses.
KEY FINANCIAL & OPERATIONAL MEASURES
Table 8: Segment financial performance4
$M
FY2017
FY2016
Var %
2H
FY2017
Sales revenue
747.5
772.4
(3%)
402.7
Reported EBIT
87.2
(201.6)
Underlying EBIT
61.1
(40.3)
143%
252%
73.6
47.5
NOA (pre-tax)
336.4
199.5
69%
336.4
Underlying ROIC
26.7%
(9.2%)
+35.9%
38.1%
Table 9: Steel sales volume
000 tonnes
FY2017
FY2016
Var %
Domestic flats
Domestic longs
Domestic (steel)
Export flat
Export longs
Export (steel)
270.7
183.1
453.8
129.0
22.1
151.1
258.0
169.2
427.2
205.6
64.3
269.9
5%
8%
6%
(37%)
(66%)
(44%)
2H
FY2017
135.4
96.3
231.7
80.9
15.9
96.8
4 Arising from its divestment in May 2017, the Taharoa export iron sands
business has been reclassified into Discontinued Operations. Earnings have
been restated to exclude the Taharoa export iron sands business from the
NZPac segment (amounting to $25.9M and $0.3M of underlying earnings in
1H FY2017 and 2H FY2017 respectively). Table 13 provides further detail.
FINANCIAL PERFORMANCE – FY2017 VS. FY2016
Sales revenue
The decrease in sales revenue was primarily due to planned lower
export steel volumes, offset by favourable destination mix, with the
full production rate of the Pacific Steel investment; offset by higher
steel prices in line with global price rises.
EBIT performance
The $101.4M increase in underlying EBIT was primarily due to
productivity and cost
including higher
despatch volumes and improved mix, and higher realised steel prices
driven by higher global steel prices.
improvement
initiatives,
Underlying adjustments in reported EBIT are set out in Tables 11 and 12.
Return on invested capital
Underlying ROIC increased to 26.7% driven by improved EBIT partly
offset by a $136.8M increase in NOA, primarily due to a decrease in
provisions and increases in receivables and inventory.
MARKETS & OPERATIONS
Steel
Domestic market
FY2017 flat product sales volume increased over FY2016
due to strong building and construction activity and strong
sales into the general engineering and manufacturing
sectors.
Domestic residential building consents for the year ended
June 2017 were up 4.7% in number and 9.3% in value over
the same period in 2016.
Domestic non-residential building activity maintained
positive momentum, albeit at a slower pace, with the value
of consents up 1.6% in the 12 months to June 2017
compared to the previous 12-month period.
Domestic demand for long products is strong on the back
of continued growth in the infrastructure sector.
Export market
Prices
in export markets were stronger
compared to FY2016 due to higher global steel prices.
in FY2017
Productivity and cost reduction initiatives
that would significantly
As with the Australian steelmaking operation, the New Zealand
steelmaking operations were set the challenge of delivering a
improve
game-changing approach
productivity and reduce costs to ensure they are internationally
competitive and support reinvestment.
Productivity and cost reduction initiatives of NZ$80M were
delivered in FY2017, compared to the FY2015 base.
We are targeting incremental improvements in FY2018.
Iron sands
BlueScope divested the Taharoa export iron sands operations
on 1 May 2017. The business was bought by Taharoa Mining
Investments Limited (TMIL), a majority owned subsidiary of
Taharoa C Block Incorporation (Taharoa C). Taharoa C is a
Maori Incorporation with a wide shareholder base that owns the
land at Taharoa.
Now classified in Discontinued Businesses, and no longer in the
NZPac segment, Taharoa contributed underlying EBIT of
$26.2M in FY2017 ($13.3M loss in FY2016). 2H FY2017
underlying EBIT was $0.3M, impacted by the buoy outage
during the months of January to March 2017, and ownership for
four months of the period.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 10
OUTLOOK, FUTURE PROSPECTS AND RISKS
1H FY2018 OUTLOOK
Expectations for the performance of our businesses in 1H FY2018
are as follows:
ASP:
Expect a lower result in 1H FY2018.
As trade restrictions take hold in global markets, import
product offerings are taking advantage of gaps in the
Australian anti-dumping regime, which together with FX
volatility, is leading to lower domestic steel margins.
Q1 impacted by lagged impact of higher raw material costs
(especially coal) and the roll-off of buying and mix benefits
realised in 2H FY2017.
Continued strength
in core
construction and manufacturing segments – but volume
impact from cessation of auto-makers.
Productivity
improvements and cost savings are not
expected to fully offset escalation due to energy cost
increases.
in despatch volumes
North Star:
Expect average spread through 1H FY2018 to be US$30/t
lower than realised 2H FY2017 spreads.
Spread expectations do not include any potential s232
impact.
Incremental production volume, but some seasonality
expected to lead to slightly lower despatches.
Expecting flat result compared to 1H FY2017 (after
adjusting for ~$20M inventory benefit in North America in
1H FY2017).
Expecting continued volume growth with continued
investment in developing residential / SME markets and
channels.
North America: softness in premium manufacturing &
industrial segments leading to lower margins; expect a
result in 1H FY2018 between that of 1H FY2017 and 2H
FY2017. Pursuing initiatives to improve performance.
Coated China: expect continued strong performance.
China Buildings: seasonally stronger half; expect result
better than breakeven.
BP:
BB:
NZPac:
Benefit of further productivity and cost initiatives.
Currency and assumed steel prices likely to lead to a
slightly softer half than 2H FY2017.
BlueScope’s successful transformation has rebased earnings to
a higher level, lowered volatility, improved earnings mix and
positioned the company well to fund growth, reduce debt and for
capital management.
In the immediate half year there are a number of macro factors
impacting the outlook:
U.S. steel margins are lower due to scrap prices increasing
ahead of steel prices,
as trade restrictions take hold in global markets, import
product offerings are taking advantage of gaps in the
Australian anti-dumping regime, which together with FX
volatility, is leading to lower domestic steel margins,
productivity improvements at ASP not yet fully offsetting the
scale of energy cost escalation in FY2018.
The Company expects 1H FY2018 underlying EBIT around 80%
of 2H FY2017 underlying EBIT (which was $527.3M). This is
based on assumption of average (all prices on a metric tonne
basis):
East Asian HRC price of ~US$500/t
62% Fe iron ore price of ~US$65/t CFR China
Group outlook:
Hard coking coal price of ~US$160/t FOB Australia
U.S. mini-mill spreads to be US$30/t lower than realised 2H
FY2017 spreads
AUD:USD at US$0.77
Underlying net finance costs in 1H FY2018 are expected to be
lower than 2H FY2017 due to lower average net debt; a similar
underlying tax rate and profit attributable to non-controlling
interests to 2H FY2017 are expected in 1H FY2018.
Expectations are subject to spread, FX and market conditions.
MATTERS SUBSEQUENT TO YEAR END
BlueScope announced on 21 August 2017 Mr Mark Vassella as its
new Managing Director & CEO from 1 January 2018, after Mr Paul
O’Malley announced his retirement effective 31 December 2017 as
Managing Director & CEO. The remuneration arrangements for Mr
Vassella and the retirement conditions for Mr O’Malley are outlined in
the Remuneration Report.
BlueScope announced on 21 August 2017 the appointment of
Jennifer Lambert as a non-executive director effective 1 September
2017. Ms Lambert will nominate for election at the Annual General
Meeting on 11 October 2017.
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 improvement in some external macroeconomic
factors, there continues to be significant short-term fluctuation.
The Company has undertaken over the past five years, and
continues to undertake, significant restructuring and other initiatives
across all its operating segments to offset these macroeconomic
market factors, with the key improvements outlined in the strategy
section of this report. This has resulted in BlueScope returning an
underlying NPAT in FY2013, which has continued to improve through
to FY2017.
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.
forecasters expect a
continued improvement in non-residential building and construction
activity in North America but not at the pace experienced in recent
years.
In addition, recognised external
to a
is also exposed
BlueScope
range of market, social,
environmental, compliance, conduct, operational and financial risks
common to a multinational company. The Company has risk
management and internal control systems to quantify its risk appetite,
identify material business and emerging risks and where possible
take mitigating actions.
The nature and potential impact of risks changes over time. There
are various risks
the
Company’s strategies and financial prospects. These include, but are
not limited to:
the achievement of
that could
impact
BlueScope Steel Limited – FY2017 Directors’ Report
Page 11
(a) (Market) Weaker economic conditions or another economic
downturn.
The global financial crisis in FY2009 caused a reduction in
worldwide demand for steel with a continuing production capacity
oversupply, and the subsequent recovery has been slow and
uncertain. Although the global economy has improved 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) (Market) 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.
(c) (Market) 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 global financial crisis 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) (Market) 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.
BlueScope Steel Limited – FY2017 Directors’ Report
(e) (Market) 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.
Other risks that could affect BlueScope include:
Market (macro/microeconomics, competition, brands, product quality,
customer experience):
political, social and economic policies and uncertainties in the
countries in which we operate
potential product warranty claims
Social (people, culture and communities):
loss of key Board, management or operational personnel
industrial disputes with unions that disrupt operations
failure to maintain occupational health and safety systems
Environmental (carbon emissions, climate change, pollution):
not adapting and appropriately responding to climate change
Compliance and Conduct (regulation and ethical standards):
including
greenhouse
environmental,
a rise in trade protectionism such as tariffs or unique local
standards that disadvantage our business model
the Company is subject to extensive government laws and
gas
regulation,
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
the conduct of our employees and other participants in the
supply chain
disruptive behaviours by external parties, including cyber-
attack and special interest groups, impacting our business or
supply chain
potential legal claims
the
last
financial year,
Over
the Australian Competition and
Consumer Commission (ACCC) has been investigating potential
cartel conduct by BlueScope relating to the supply of steel products
in Australia, that involved a small number of BlueScope employees in
the period from late 2013 to mid-2014. BlueScope has co-operated,
and continues to co-operate, with the ACCC’s investigation.
Operational (production, costs, systems and security)
an inability to maintain a competitive cost base, particularly at
Port Kembla and Glenbrook, including maintaining, extending
or renewing key raw materials, wages, operational supplies,
services and funding on acceptable terms
energy pricing and security of supply
a major operational failure or disruption to our manufacturing
facilities or supply chain
Financial (performance, investment, funding and shareholder returns)
not being able to realise or sustain expected benefits of
internal restructuring, project developments, joint ventures or
future acquisitions
significant asset impairment, particularly if market conditions
deteriorate
Page 12
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.
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,
in
BlueScope’s operations in future financial years has not been
included.
information about other
likely developments
BlueScope Steel Limited – FY2017 Directors’ Report
Page 13
DETAILED EXPLANATORY TABLES
A. DETAILED INCOME STATEMENT
The BlueScope Steel Group comprises five reportable operating segments: Australian Steel Products (ASP); North Star BlueScope Steel;
BlueScope Buildings (BB); Building Products ASEAN, North America and India (BP); and New Zealand & Pacific Steel (NZPac).
Table 10: Detailed income statement
Revenue
Reported Result 1
Underlying Result 2
$M
FY2017
FY20163
FY2017
FY2016
FY2017
FY2016
Sales revenue/EBIT3
Australian Steel Products
North Star BlueScope Steel
Building Products ASEAN, Nth Am & India
BlueScope Buildings
New Zealand & Pacific Steel
Discontinued operations
Segment revenue/EBIT
Inter-segment eliminations
4,918.7
1,700.9
1,970.5
1,756.8
747.5
108.6
4,437.4
847.3
1,766.8
1,705.9
772.4
114.9
459.5
433.3
140.8
(3.0)
87.2
18.9
11,203.0
9,644.7
1,136.7
77.7
847.3
149.3
39.0
(201.6)
(196.4)
715.3
(467.7)
(462.0)
1.1
(1.4)
Segment external revenue/EBIT
10,735.3
9,182.7
1,137.8
Other revenue/(net unallocated expenses)
22.3
20.0
(93.3)
10,757.6
9,202.7
1,044.5
Total revenue/EBIT
Finance costs
Interest revenue
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)
713.9
(92.3)
621.6
(109.1)
5.2
517.7
(101.4)
416.3
(62.5)
353.8
62.1
(95.0)
6.2
955.7
(181.8)
773.9
(58.0)
715.9
125.3
459.4
406.6
201.7
64.0
61.1
0.0
1,192.8
1.2
1,194.0
(89.0)
1,105.0
(86.9)
6.2
1,024.3
(290.2)
734.1
(83.2)
650.8
113.9
361.4
146.5
149.3
49.2
(40.3)
0.0
666.1
(1.3)
664.8
(81.0)
583.8
(89.7)
5.2
499.3
(130.1)
369.2
(62.6)
306.6
53.8
1) The financial report has been prepared in accordance with the Australian Accounting Standards issued by the Australian Accounting Standards Board. 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. Arising from its divestment in May 2017, the Taharoa export iron sands business has been reclassified into Discontinued Operations. Earnings have been restated to
exclude the Taharoa export iron sands business from the NZPac segment (amounting to $25.9M and $0.3M of underlying EBIT in 1H FY2017 and 2H FY2017 respectively).
Table 13 provides further detail.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 14
B. RECONCILIATION OF UNDERLYING EARNINGS TO REPORTED EARNINGS
Table 11: 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.
EBITDA $M
EBIT $M
NPAT $M
EPS $ 10
FY2017
FY2016
FY2017
FY2016
FY2017
FY2016 3
FY2017
FY2016 3
1,425.0
1,009.8
1,044.5
621.6
715.9
353.8
1.25
0.62
(19.0)
193.7
(18.9)
196.4
(14.9)
201.7
(0.03)
0.35
Reported earnings
Underlying adjustments:
Net (gains)/losses from businesses
discontinued 1
Impact of acquiring a controlling interest in
North Star 2
0.0
(704.0)
0.0
(700.8)
0.0
(702.9)
Asset impairments 3
98.9
371.2
98.9
371.2
73.7
371.2
Business development, transaction and pre-
operating costs 4
Production disruptions 5
Restructure and redundancy costs 6
Asset sales 7
Debt restructuring costs 8
Tax asset impairment / (write-back) 9
4.3
18.2
4.3
18.2
3.0
12.8
0.0
33.1
(57.0)
0.0
0.0
1.6
109.8
(34.3)
0.0
0.0
0.0
33.1
(56.9)
0.0
0.0
1.6
109.8
(34.3)
0.0
0.0
0.0
28.8
1.2
76.8
(47.7)
(33.9)
2.2
(110.2)
6.2
19.6
Underlying earnings
1,485.4
966.0
1,105.0
583.8
650.8
306.6
0.00
0.13
0.01
0.00
0.05
(0.08)
0.00
(0.19)
1.14
(1.23)
0.65
0.02
0.00
0.13
(0.06)
0.01
0.03
0.54
1)
2)
3)
4)
5)
6)
7)
8)
9)
FY2017 reflects profits from the disposed Taharoa iron sands operations ($19.2M pre-tax – this is net of the fixed asset write off of $7.0M recognised in December 2016) and
foreign exchange translation gains within the closed Lysaght Taiwan business ($0.5M pre-tax), partly offset by additional legal costs in the closed Australian Buildings business
($0.8M pre-tax). FY2016 reflects losses within the disposed Taharoa iron sands operations ($193.7M pre-tax – this includes fixed assets write-off of $182.4M, of which $162.7M
was recognised in December 2015 and the remainder in June 2016) and foreign exchange translation losses within the closed Lysaght Taiwan business ($0.7M pre-tax).
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.
FY2017 includes the following asset impairments:
Building Products: fixed assets write off at PT NS BlueScope Indonesia ($50.3M pre-tax) recognised in June 2017 due to the uncertain regulatory environment and ongoing
margin compression.
BlueScope Buildings: write off at Engineered Buildings China ($43.9M pre-tax) in relation to assets that will no longer be required, goodwill and other intangibles.
Building Products: fixed asset write off at the India joint venture ($4.7M pre-tax) in relation to engineered building solutions business assets that will no longer be required.
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.
FY2017 reflects corporate transaction costs ($4.3 pre-tax). 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).
FY2016 reflects the impact of the Tianjin port explosion on the Engineered Buildings China site (net of insurance recoveries).
FY2017 reflects staff redundancy and restructuring costs at BlueScope Buildings ($23.1M pre-tax) relating to the cost reduction program, Building Products ($5.8M pre-tax) and
ASP ($4.2M pre-tax). 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).
FY2017 reflects the profit on the sale of BSL’s 47.5% interest in Castrip in North America ($26.6M pre-tax), profit on sale of the Taharoa iron sands business ($26.1M pre-tax)
and the reversal of a provision relating to the sale of an intangible asset in ASP in FY2013 ($3.4M pre-tax) and property, plant and equipment ($0.8M pre-tax) in ASP. 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).
FY2017 reflects the early redemption premium on the US$110M 144A senior unsecured notes due in May 2018 and the write-off of unamortised borrowing costs. 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.
FY2017 reflects utilisation of previously impaired deferred tax assets in Australia ($124.2M) and New Zealand ($4.2M) partly offset by the impairment of carried forward tax
losses in China ($11.3M). 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).
10) Earnings per share are based on the average number of shares on issue during the respective reporting periods (571.1m in FY2017 vs. 570.1M in FY2016).
BlueScope Steel Limited – FY2017 Directors’ Report
Page 15
Table 12: Segmental underlying EBITDA and underlying EBIT
FY2017 underlying EBIT
adjustments $M
Net (gains)/losses from
businesses discontinued
Asset impairment
Business development,
transaction and pre-operating
costs
Production disruptions
Restructure and redundancy
costs
Asset sales
Underlying adjustments
ASP
North
Star
BB
BP
NZPac
Corp
Discon
Ops
(18.9)
55.1
43.9
4.3
4.2
(4.2)
(0.1)
(26.6)
(26.6)
5.8
23.1
60.9
67.0
(26.1)
(26.1)
4.3
(18.9)
Elims
Total
(18.9)
98.9
4.3
0.0
33.1
(56.9)
60.5
C. RESTATEMENT OF PRIOR PERIOD EARNINGS FOR RECLASSIFICATION OF TAHAROA
EXPORT IRON SANDS BUSINESS INTO DISCONTINUED OPERATIONS
Table 13: Restatement of Prior Period Earnings to Reflect Change operations sold or closed
Consistent with BlueScope accounting policy and Australian Accounting Standards, operations that are either sold or closed are to be defined as
Discontinued Operations and the revenues and expenses of these operations are retrospectively excluded from the earnings of Continuing
Operations. As such prior period earnings have been restated to exclude the Taharoa export iron sands business from the NZPac segment to
ensure comparisons can be made on a like-for-like basis.
$M
NZ Pac segment:
Underlying EBITDA
Underlying EBIT
BlueScope Group:
Underlying EBITDA
Underlying EBIT
Underlying NPAT
$M
NZ Pac segment:
Underlying EBITDA
Underlying EBIT
BlueScope Group:
Underlying EBITDA
Underlying EBIT
Underlying NPAT
1H FY2017
2H FY2017
FY2017
Taharoa
included
Change
Restated
Taharoa
included
Change
Restated
Taharoa
included
Change
Restated
59.4
39.5
(25.9)
(25.9)1
33.5
13.6
793.0
603.6
360.0
(25.9)
(25.9)
(16.5)
767.1
577.7
343.5
70.1
47.8
718.7
527.6
306.3
(0.4)
(0.3)
(0.4)
(0.3)
1.0
69.8
47.5
718.3
527.4
307.3
129.5
87.3
(26.3)
(26.2)
103.2
61.1
1,511.7
1,131.2
666.3
(26.3)
(26.2)
(15.5)
1,485.4
1,105.0
650.8
1H FY2016
2H FY2016
FY2016
Taharoa
included
Change
Restated
Taharoa
included
Change
Restated
Taharoa
included
Change
Restated
(15.5)
(47.1)
417.8
230.1
119.0
11.6
14.2
11.6
14.2
10.2
(3.9)
(32.9)
429.4
244.3
129.2
15.5
(6.3)
537.6
340.4
174.1
(1.0)
(1.0)
(1.0)
(1.0)
3.2
14.5
(7.3)
536.6
339.4
177.3
0.0
(53.5)
955.4
570.5
293.1
10.6
13.2
10.6
13.3
13.5
10.6
(40.3)
966.0
583.8
306.6
1) Taharoa underlying EBIT was disclosed in the 1H FY2017 results presentation as $25.4M. As part of the sale process, adjustments were made to cost allocations resulting in
revised Taharoa 1H FY2017 underlying EBIT of $25.9M.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 16
D. CASH FLOW STATEMENT
Table 14: Consolidated cash flow statement
$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 / (buy-backs)
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
FY2017
1,425.0
FY2016
1,009.8
Variance %
41%
(4.8)
101.2
(51.0)
24.0
1,494.4
(119.0)
1,375.4
(90.8)
6.1
(158.3)
1,132.4
(383.0)
(25.3)
724.1
(150.4)
(63.4)
(40.2)
-
(254.7)
215.4
(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
60%
(82%)
93%
3%
78%
(145%)
24%
18%
(6%)
(217%)
19%
(22%)
97%
315%
-
(63%)
(18%)
-
(158%)
609%
1)
2)
The BlueScope Steel Australian tax consolidated group is estimated to have carry forward tax losses, as at 30 June 2017, of approximately $2.3Bn. There will be no Australian
income tax payments until these are recovered.
These dividend payments primarily relate to dividend payments to Nippon Steel & Sumitomo Metal Corporation (NSSMC) in respect of NS BlueScope Coated Products joint
venture.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 17
ABBREVIATIONS
1H
1H FY2016
1H FY2017
2H
2H FY2015
2H FY2016
2H FY2017
ADC
ASEAN
ASP
AUD, A$, $
BANZ
BB
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
IFRS
Leverage, or leverage ratio
Net debt, or ND
n/m
NOA
North Star
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 in the relevant financial year
Six months ended 30 June 2015
Six months ending 30 June 2016
Six months ending 30 June 2017
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
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
International Financial Reporting Standards
Net debt over underlying EBITDA
Gross debt less cash
Not meaningful
Net operating assets pre-tax
North Star BlueScope Steel
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 – FY2017 Directors’ Report
Page 18
BOARD COMPOSITION
The following were Directors for the full year ended 30 June 2017: 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.
Particulars of the skills, experience, expertise and special responsibilities of the Directors are set out below.
DIRECTORS’ BIOGRAPHIES
John Bevan, Chairman (Independent)
Age 60, 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 September 2016) 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 the Deputy Chairman of Ansell Limited. In July 2017, Mr Bevan was appointed to the Board of the Humpty
Dumpty Foundation.
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 47
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.
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 53, 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 64, 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) and Virgin Australia Holdings
Limited (December 2016 to date)
Mr Dean is Chairman of Mission Australia, a Director of Energy Australia Holdings Ltd, Virgin Australia Holdings Ltd 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 – FY2017 Directors’ Report
Page 19
Penny Bingham-Hall, Non-Executive Director (Independent)
Age 57, 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), Fortescue Metals Group Ltd (November 2016 to date)
Ms Bingham-Hall is a director of DEXUS Property Group, Fortescue Metals Group Ltd, 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 is a
member of Chief Executive Women and of the WomenCorporateDirectors Foundation.
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 61, 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, a Fellow of the
Australian Institute of Company Directors and a member of its Law Committee. Mr Crouch is also 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 and is a past director and Chairman of Mission Australia (between July 1995 and
November 2016).
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 64, BEng, MBA, GAICD
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 RCR Tomlinson Ltd. He is also a member of the Advisory Council to the Dean of Engineering & Mathematical Sciences
at the University of Western Australia. Mr Jones was a director of Myer Family Investments Pty Ltd from November 2010 to October 2016 and
was an advisory director to a division of Deutsche Bank in Australia between 2012 and 2017.
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 49, BBus (Mkt), GAICD
Director since: April 2014
Directorships of other Australian listed entities in the past three years: TOWER Limited (15 August 2014 to September 2016), 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 director of GrainCorp Limited, Energy Australia Holdings Ltd and former director of TOWER Limited. She is also an
inaugural Member of the Business Advisory Board for the Monash Business School, a member of Chief Executive Women and of the
WomenCorporateDirectors Foundation, 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 – FY2017 Directors’ Report
Page 20
COMPANY SECRETARIES
The following were Company Secretaries of BlueScope Steel Ltd for the full year ended 30 June 2017:
Michael Barron, 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. Mr Barron retired as Chief Legal
Officer on 31 December 2016 and as Company Secretary on 30 June 2017.
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
52,746
683,172
38,447
40,488
57,834
32,500
42,000
27,300
Share rights
-
3,737,664
-
-
-
-
-
-
BlueScope Steel Limited – FY2017 Directors’ Report
Page 21
MEETINGS OF DIRECTORS
Attendance of the current Directors at Board and Board Committee meetings from 1 July 2016 to 30 June 2017 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
11
11
11
11
11
11
11
11
B
11
11
11
11
11
11
11
11
A
4
-
-
4
-
4
4
4
B
4
41
-
4
-
4
4
4
A
6
-
6
-
6
-
-
6
B
6
61
6
-
6
22
22
6
A
4
4
4
4
4
4
4
4
B
4
4
4
4
4
4
4
4
A
8
-
8
8
8
8
8
8
B
8
51
8
8
8
8
8
8
A
4
-
-
-
4
-
-
B
4
41
12
4
12
4
12
12
A
1
1
1
1
1
1
1
1
B
1
1
03
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 2017.
A = number of meetings held in the period 1 July 2016 to 30 June 2017 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 2016 to 30 June 2017.
1 The Managing Director and Chief Executive Officer is not a Committee member and attends by invitation as required.
2 The Director is not a Committee member and attends by invitation as required.
3 Mr Grollo missed the Annual General Meeting through unavailability due to personal reasons.
Directors meet regularly in the absence of management.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 22
REMUNERATION REPORT (AUDITED)
REMUNERATION REPORT (AUDITED)
Letter from the Chair of the Remuneration and Organisation Committee
Letter from the Chair of the Remuneration and Organisation Committee
REMUNERATION REPORT (AUDITED)
Letter from the Chair of the Remuneration and Organisation Committee
Dear fellow Shareholder,
Dear fellow Shareholder,
Dear fellow Shareholder,
On behalf of the Directors of BlueScope, I am pleased to present our Remuneration Report for FY2017.
On behalf of the Directors of BlueScope, I am pleased to present our Remuneration Report for FY2017.
On behalf of the Directors of BlueScope, I am pleased to present our Remuneration Report for FY2017.
BlueScope is a global company, operating in 17 countries around the world, with a large and successful presence throughout Asia and the United
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. Today, we are a truly global company with 60% of BlueScope’s business
States, in addition to its operations in Australia and New Zealand. Today, we are a truly global company with 60% of BlueScope’s business
located outside Australia. BlueScope is one of the few steel companies in the world that is not only profitable but has improved its profitability
located outside Australia. BlueScope is one of the few steel companies in the world that is not only profitable but has improved its profitability
over the past few years, both through successful implementation of our strategy and targeted business unit turnarounds. During FY2017, the
over the past few years, both through successful implementation of our strategy and targeted business unit turnarounds. During FY2017, the
Company continued to grow despite ongoing oversupply in the steel industry, delivering a $650.8M underlying net profit after tax, a $344.2M
Company continued to grow despite ongoing oversupply in the steel industry, delivering a $650.8M underlying net profit after tax, a $344.2M
increase from FY2016 including growing underlying EBIT by 89% to $1,105.0M.
increase from FY2016 including growing underlying EBIT by 89% to $1,105.0M.
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. Today, we are a truly global company with 60% of BlueScope’s business
located outside Australia. BlueScope is one of the few steel companies in the world that is not only profitable but has improved its profitability
over the past few years, both through successful implementation of our strategy and targeted business unit turnarounds. During FY2017, the
Company continued to grow despite ongoing oversupply in the steel industry, delivering a $650.8M underlying net profit after tax, a $344.2M
increase from FY2016 including growing underlying EBIT by 89% to $1,105.0M.
As noted throughout this report, shareholders have benefited from exceptional Company performance over the past two years,
As noted throughout this report, shareholders have benefited from exceptional Company performance over the past two years,
resulting in strong Short Term Incentive (STI) outcomes well above target. When coupled with expected strong vesting of Long Term
resulting in strong Short Term Incentive (STI) outcomes well above target. When coupled with expected strong vesting of Long Term
Incentive (LTI), and the significant increase in our share price (approximately 300% since FY2015), the value of executive
Incentive (LTI), and the significant increase in our share price (approximately 300% since FY2015), the value of executive
shareholdings has increased substantially, aligned to the significant increase in shareholder value that has been created.
shareholdings has increased substantially, aligned to the significant increase in shareholder value that has been created.
As noted throughout this report, shareholders have benefited from exceptional Company performance over the past two years,
resulting in strong Short Term Incentive (STI) outcomes well above target. When coupled with expected strong vesting of Long Term
Incentive (LTI), and the significant increase in our share price (approximately 300% since FY2015), the value of executive
shareholdings has increased substantially, aligned to the significant increase in shareholder value that has been created.
BlueScope instituted a number of changes to its remuneration framework in FY2016 and FY2017 in order to focus executives on implementing
BlueScope instituted a number of changes to its remuneration framework in FY2016 and FY2017 in order to focus executives on implementing
the Company’s strategic objectives and delivering turnarounds in underperforming businesses. These included:
the Company’s strategic objectives and delivering turnarounds in underperforming businesses. These included:
BlueScope instituted a number of changes to its remuneration framework in FY2016 and FY2017 in order to focus executives on implementing
the Company’s strategic objectives and delivering turnarounds in underperforming businesses. These included:
A fixed pay freeze for FY2016 and FY2017 for the MD & CEO and KMP Executives.
A fixed pay freeze for FY2016 and FY2017 for the MD & CEO and KMP Executives.
A fixed pay freeze for FY2016 and FY2017 for the MD & CEO and KMP Executives.
The Short Term Incentive (STI) was awarded entirely in equity (no cash payments) with performance to be measured over the two year
The Short Term Incentive (STI) was awarded entirely in equity (no cash payments) with performance to be measured over the two year
period to the end of FY2017.
period to the end of FY2017.
The Short Term Incentive (STI) was awarded entirely in equity (no cash payments) with performance to be measured over the two year
period to the end of FY2017.
The Long Term Incentive Plan (LTI) was amended to introduce a second performance hurdle, compound annual growth rate of Earnings per
The Long Term Incentive Plan (LTI) was amended to introduce a second performance hurdle, compound annual growth rate of Earnings per
Share (EPS), alongside the existing Relative Total Shareholder Return (TSR) condition, split evenly. In addition, the FY2017 LTI Plan award
Share (EPS), alongside the existing Relative Total Shareholder Return (TSR) condition, split evenly. In addition, the FY2017 LTI Plan award
was brought forward to coincide with the FY2016 award.
was brought forward to coincide with the FY2016 award.
The Long Term Incentive Plan (LTI) was amended to introduce a second performance hurdle, compound annual growth rate of Earnings per
Share (EPS), alongside the existing Relative Total Shareholder Return (TSR) condition, split evenly. In addition, the FY2017 LTI Plan award
was brought forward to coincide with the FY2016 award.
The Board believes these arrangements maximised the alignment of remuneration for executives with the interests of shareholders during the
The Board believes these arrangements maximised the alignment of remuneration for executives with the interests of shareholders during the
turnaround period, and they were approved by shareholders for the MD & CEO at the AGM in November 2015.
turnaround period, and they were approved by shareholders for the MD & CEO at the AGM in November 2015.
The Board believes these arrangements maximised the alignment of remuneration for executives with the interests of shareholders during the
turnaround period, and they were approved by shareholders for the MD & CEO at the AGM in November 2015.
As the successful two-year incentive programme came to its conclusion, the Board undertook a review of the remuneration framework
As the successful two-year incentive programme came to its conclusion, the Board undertook a review of the remuneration framework
to be adopted for FY2018 and beyond. After extensive internal and external consultation, the Board determined that an incentive plan
to be adopted for FY2018 and beyond. After extensive internal and external consultation, the Board determined that an incentive plan
which created a greater level of share ownership would better align executive and shareholder interests.
which created a greater level of share ownership would better align executive and shareholder interests.
As the successful two-year incentive programme came to its conclusion, the Board undertook a review of the remuneration framework
to be adopted for FY2018 and beyond. After extensive internal and external consultation, the Board determined that an incentive plan
which created a greater level of share ownership would better align executive and shareholder interests.
Performance measures for this incentive plan focus on sustainable long term earnings, reduced volatility in business performance, and continued
Performance measures for this incentive plan focus on sustainable long term earnings, reduced volatility in business performance, and continued
cost control and debt management.
cost control and debt management.
Performance measures for this incentive plan focus on sustainable long term earnings, reduced volatility in business performance, and continued
cost control and debt management.
The FY2018 remuneration framework has been developed with the following key changes:
The FY2018 remuneration framework has been developed with the following key changes:
The FY2018 remuneration framework has been developed with the following key changes:
Reduction in the quantum of STI, with the reduced amount being directed to longer-term equity in the form of Alignment Rights, to reinforce
Reduction in the quantum of STI, with the reduced amount being directed to longer-term equity in the form of Alignment Rights, to reinforce
Reduction in the quantum of STI, with the reduced amount being directed to longer-term equity in the form of Alignment Rights, to reinforce
executive focus on longer-term performance while retaining some STI to reward achievement of annual business plan targets and growth.
executive focus on longer-term performance while retaining some STI to reward achievement of annual business plan targets and growth.
executive focus on longer-term performance while retaining some STI to reward achievement of annual business plan targets and growth.
Accordingly, the amount previously deferred for one year will in future be deferred for three years.
Accordingly, the amount previously deferred for one year will in future be deferred for three years.
Accordingly, the amount previously deferred for one year will in future be deferred for three years.
Replacement of the prior LTI plan with Alignment Rights, which will vest subject to achievement of a threshold level of Return on Invested
Replacement of the prior LTI plan with Alignment Rights, which will vest subject to achievement of a threshold level of Return on Invested
Capital (ROIC) over the cycle and a maximum debt leverage hurdle, as well as adherence to the Company’s values. The quantum of LTI has
Capital (ROIC) over the cycle and a maximum debt leverage hurdle, as well as adherence to the Company’s values. The quantum of LTI has
also been reduced, reflecting the potential for greater certainty of payment compared to the prior LTI plan. It remains subject to performance
also been reduced, reflecting the potential for greater certainty of payment compared to the prior LTI plan. It remains subject to performance
hurdles that are higher than those consistently delivered by the Company over the past 10 years. There will be no retesting.
hurdles that are higher than those consistently delivered by the Company over the past 10 years. There will be no retesting.
Replacement of the prior LTI plan with Alignment Rights, which will vest subject to achievement of a threshold level of Return on Invested
Capital (ROIC) over the cycle and a maximum debt leverage hurdle, as well as adherence to the Company’s values. The quantum of LTI has
also been reduced, reflecting the potential for greater certainty of payment compared to the prior LTI plan. It remains subject to performance
hurdles that are higher than those consistently delivered by the Company over the past 10 years. There will be no retesting.
To further increase the alignment between shareholders and executives, the minimum shareholding requirements have been increased, with
To further increase the alignment between shareholders and executives, the minimum shareholding requirements have been increased, with
the MD & CEO now required to hold twice fixed pay in shares, while other KMP members are required to hold one times fixed pay.
the MD & CEO now required to hold twice fixed pay in shares, while other KMP members are required to hold one times fixed pay.
To further increase the alignment between shareholders and executives, the minimum shareholding requirements have been increased, with
the MD & CEO now required to hold twice fixed pay in shares, while other KMP members are required to hold one times fixed pay.
The Board is confident that the new remuneration framework will deliver greater value to shareholders at less cost, maintain a deliberate and
The Board is confident that the new remuneration framework will deliver greater value to shareholders at less cost, maintain a deliberate and
The Board is confident that the new remuneration framework will deliver greater value to shareholders at less cost, maintain a deliberate and
continued focus by executives on financial fundamentals, and provide the potential for more value to executives despite a significant reduction in
continued focus by executives on financial fundamentals, and provide the potential for more value to executives despite a significant reduction in
continued focus by executives on financial fundamentals, and provide the potential for more value to executives despite a significant reduction in
quantum of incentives to both the MD & CEO and KMP Executives.
quantum of incentives to both the MD & CEO and KMP Executives.
quantum of incentives to both the MD & CEO and KMP Executives.
I trust you, our shareholders, find the 2017 Remuneration Report provides clear and informative insights into our current executive remuneration
I trust you, our shareholders, find the 2017 Remuneration Report provides clear and informative insights into our current executive remuneration
policies, practices and outcomes. I also hope it clearly explains our new remuneration framework and ask for your support.
policies, practices and outcomes. I also hope it clearly explains our new remuneration framework and ask for your support.
I trust you, our shareholders, find the 2017 Remuneration Report provides clear and informative insights into our current executive remuneration
policies, practices and outcomes. I also hope it clearly explains our new remuneration framework and ask for your support.
Penny Bingham-Hall
Penny Bingham-Hall
Chair of the Remuneration & Organisation Committee
Chair of the Remuneration & Organisation Committee
Penny Bingham-Hall
Chair of the Remuneration & Organisation Committee
BlueScope Steel Limited – FY2017 Directors’ Report
BlueScope Steel Limited – FY2017 Directors’ Report
BlueScope Steel Limited – FY2017 Directors’ Report
Page 23
Page 23
Page 23
CONTENTS
Remuneration report (audited) ................................................................................................................................................................................. 23
Contents ............................................................................................................................................................................................................... 24
Introduction ................................................................................................................................................................................................ 24
1.
Remuneration framework and policy .......................................................................................................................................................... 25
2.
Reward outcomes - the link between remuneration and performance ....................................................................................................... 32
3.
Executive remuneration tables ................................................................................................................................................................... 37
4.
Non-executive directors’ remuneration ...................................................................................................................................................... 40
5.
Remuneration governance ......................................................................................................................................................................... 41
6.
Related party transactions ......................................................................................................................................................................... 43
7.
1.
INTRODUCTION
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 2017. 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 FY2017.
Name
Position
Senior Executives
Mr Paul O'Malley
Mr Sanjay Dayal
Mr Charlie Elias
Mr Pat Finan
Mr Mark Vassella
Non-executive Directors
Mr John Bevan
Ms Penny Bingham-Hall
Mr Ewen Crouch AM
Mr Ken Dean
Ms Rebecca Dee-Bradbury
Mr Daniel Grollo
Mr Lloyd Jones
Managing Director & CEO
Chief Executive, NS BlueScope
Chief Financial Officer
Chief Executive, BlueScope Buildings
Chief Executive, BlueScope Australia and New Zealand
Chairman of the Board
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
BlueScope Steel Limited – FY2017 Directors’ Report
Page 24
2. REMUNERATION FRAMEWORK AND POLICY IN FY2017
2.1 FRAMEWORK AND PURPOSE
At BlueScope, executive remuneration packages comprised three elements in FY2017 – 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;
• Incentivises executives to deliver strong financial
performance regardless of external market conditions;
• Provides incentive to grow the business while maintaining
balance sheet discipline; and
• Encourages the retention of highly capable leaders.
Changes to our remuneration framework have been made for the year ahead in FY2018, and these are discussed in Section 2.6.
The mix of remuneration elements differs depending on an executive’s level in the organisation with a relatively higher fixed pay component at
more junior levels. Overall the aim is to provide executives the opportunity to earn top quartile remuneration for stretch performance. For KMP the
usual mix of elements as a proportion of total remuneration at target in FY2017 is shown below:
MD & CEO
40%
30%
30%
KMP Executives
50%
30%
20%
Fixed Pay %
Target STI %
Target LTI* %
*
Target LTI value is 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 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 includes base pay and superannuation.
In FY2017, fixed pay continued to be frozen for the MD & CEO and other KMP Executives.
(STI)
2.3 SHORT TERM INCENTIVE (STI)
The following table summarises the STI plan that applied in FY2017.
Feature
Purpose
Eligibility
Value/opportunity
Description
To achieve BlueScope’s overall strategic objectives by motivating executives to deliver on annual 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:
120% of base pay for the MD & CEO
90% of base pay for the other KMP Executives
BlueScope Steel Limited – FY2017 Directors’ Report
Page 25
Feature
Description
Performance conditions
As previously noted, changes were made to the STI plan for FY2016 and FY2017. The key changes to the
performance conditions are as follows:
Financial and strategic STI objectives to be measured over two years to FY2017 for the MD &
CEO
To retain focus on annual financial performance, financial objectives to be measured over each of
FY2016 and FY2017 for other KMP Executives (except the 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 to 30 June 2017.
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%
Safety-related performance conditions in the STI plan
BlueScope has safety as its number one priority. 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.
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.
Performance targets for FY2016 and FY2017 were set to deliver implementation of the Company strategy
and to deliver turnarounds in underperforming businesses. Performance targets, including Threshold,
Target and Stretch hurdles, are set by the Board for all KMP Executives. If the Threshold level is not
reached, no payment is made in respect of that target.
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 FY2017, STI was equity only, with no cash component. Share rights were awarded at the start of
FY2016 for FY2016 and FY2017 performance and have vested to the extent that the performance
conditions were achieved.
Rights were awarded based on the face value of shares using the volume weighted average price over the
three months prior to 31 August 2015.
For each performance target, the number of share rights to vest were determined as follows:
Performance relative to target
% of share rights that vest
Below threshold
Threshold
Target
Maximum
0%
33%
67%
100%
Mechanics and target
setting
Payment/deferral
Clawback
The Board continues to have discretion to clawback STI equity awards in the event of serious misconduct by
The STI outcomes and % of share rights awarded that have vested are provided in section 3.2.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 26
Feature
Description
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.
2.4 LONG TERM INCENTIVE (LTI)
(LTI)
The following table summarises the LTI plan that applied in FY2017.
Feature
Purpose
Eligibility
Value/opportunity
Description
LTI provides incentives to executives to deliver sustained performance over time for the benefit 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. The actual allocation of share rights is based on face value.
Instrument
Share rights vest into fully paid ordinary BSL shares subject to time and performance conditions being met.
Performance conditions
As previously communicated, BlueScope introduced a second LTI performance hurdle, Earnings Per Share
(EPS) to complement relative Total Shareholder Return (TSR) in FY2016.
For the FY2017 LTI award:
50% is assessed against relative TSR compared to the ASX 100 over a four year period (see below),
plus a single retest which reflects the ongoing impact of earnings volatility on the retention and
incentive value of the LTI, and operates to extend the performance period from four years to five years.
The re-test requires significant further outperformance in the fifth 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 market capitalisation and source of capital.
50% is assessed against the compound annual growth rate (CAGR) in EPS over a four year period
(see below) and refers to underlying EPS. This measure does not include a re-test.
As previously approved by shareholders for the MD & CEO, to further enhance the alignment of long term
incentives with shareholder reward the FY2017 LTI award was 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 resulted in a grant of two LTIP tranches in FY2016,
doubling the number in this particular year as shown in table 4.2, with no further LTI grant made in FY2017.
Relative TSR vesting schedule:
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%
EPS vesting schedule:
Achievement
Below Threshold
Threshold
Vesting outcome (% of award that vests)
0%
40%
Between threshold and maximum
Straight line vesting
Maximum
100%
The Board established EPS CAGR targets and set the “threshold” and “maximum” at levels that would
require a significant uplift in the Company’s earnings and that also take account of the Company’s long-term
BlueScope Steel Limited – FY2017 Directors’ Report
Page 27
Feature
Description
Hedging
Governance
business plans and financial projections, market practice and consensus forecasts. 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.
Executives are not permitted to hedge (such as ‘cap and collar’ arrangements) LTI awards.
The Board retains the discretion to limit, defer or cancel any LTI awards in exceptional circumstances,
including determining that a reduced award or even no award is paid.
2.5 EXECUTIVE SHAREHOLDING GUIDELINES
The Board considers the requirement for executives to hold shares as the most effective means of aligning the interests of executives with those
of shareholders. To support this principle, an executive shareholding policy was in place during FY2017 which required the MD & CEO to hold a
minimum value of shares equivalent to 100% of base pay and for the KMP Executives to build a minimum of 50% of base pay.
Refer to section 2.6 below for details on increased executive shareholding guidelines to be introduced for FY2018.
2.6 CHANGES TO THE REMUNERATION FRAMEWORK FOR FY2018
Over the past decade, BlueScope has been a company in transformation. Where it was once a company whose core business was steelmaking
in Australia, today BlueScope is a truly global company, with 60% of its earnings derived from operations located outside Australia. BlueScope
operates in 17 countries including a large and successful presence throughout Asia and the United States, in addition to its operations in
Australia and New Zealand.
The chart below demonstrates the shift from a company mainly reliant on commodity steel production in Australia to a global company supplying
customers premium branded value-added products with a lower commodity exposure. This transformation is delivering much better earnings
performance with real benefits to shareholders.
BlueScope despatch volume mix
The Board believes that executive remuneration is a key driver to incentivise executives to develop the steps necessary to deliver the Company’s
strategic objectives.
BlueScope had in place an effective remuneration framework, well supported by shareholders, for FY2016 and FY2017. As the two-year
incentive programme came to its conclusion, noting its success in driving the Company’s recent achievements, the Board undertook a
comprehensive review of the remuneration framework to be adopted for FY2018 and beyond.
After extensive internal and external consultation, the Board determined that an incentive plan which created a greater level of share ownership
would better align executive and shareholder interests as the Company continued to implement its strategy. Performance measures for this
incentive plan focus on sustainable long term earnings, reduced volatility in business performance, and continued cost control and debt
management.
The Board believes this new executive incentive plan will continue to deliver positive outcomes for shareholders at less cost, whilst
providing more value for executives through increased share ownership.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 28
Details of the review are outlined below:
Purpose of the
review
The review was led by the Remuneration & Organisation Committee, and had a simple objective: to develop a
framework that pays fairly for delivering on our strategy, and that creates value over time in the eyes of
external and internal stakeholders.
What the review
found
The shortcomings in the traditional structures of remuneration are not suitable to support BlueScope’s future
aspirations:
They can deliver very volatile STI and LTI outcomes that are more influenced by external commodity or
uncontrollable factors than underlying business performance.
In many years, this had seen low to no levels of award that did not reflect the underlying performance of
the business or the shareholder experience.
As BlueScope moves to deliver consistently strong business performance over the cycle, less materially
influenced by external factors, the potential for volatility in incentive outcomes under current LTI
performance measures may not provide the best alignment between shareholders and executives.
The current LTI plan is costly to shareholders, requiring an expense to be recognised with at times no
value to executives.
Implication for
BlueScope’s
remuneration
structure
BlueScope’s remuneration structure should continue to enhance alignment of shareholder and executive interests
by rewarding management focus on:
Reducing the impact of cyclicality in business performance.
Maintaining cost control, debt management, and balance sheet integrity.
Growing the business and delivering ROIC and cash flow targets.
The review developed five key design principles that would assist with the new remuneration framework design:
FY2018 remuneration framework design principles
1. Keep the right people – The right people do not cite remuneration as the reason they join or leave BlueScope.
2.
Further encourage executives to behave like an owner – Employees and shareholders share the highs and lows of the
external environment. Consistent operations performance and cost control are always at the forefront of our thinking, as is
delivering target returns on invested capital.
Enable delivery of the strategy – Our employees can confidently make decisions that favour the achievement of BlueScope’s
long-term strategy.
Is fair over the cycle – Our shareholders approve the Remuneration Report, and our employees tell us the remuneration
outcomes are fair.
Easily explained – The remuneration framework can be easily explained to our shareholders, employees and other key
stakeholders.
3.
4.
5.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 29
Following the review, the FY2018 remuneration framework, outlined below, was designed to improve alignment with BlueScope’s future needs.
FY2018
framework
feature
Fixed pay
Description
What’s changed since FY2017?
Rationale for change
Annual base salary, superannuation,
and non-monetary benefits.
The new MD & CEO’s fixed pay is
15% lower than his predecessor.
No change for other KMP Executives.
STI
Annual cash payment subject to
achievement of annual business plan
targets of Group, business, safety and
individual performance levels.
The quantum has been reduced by at
least one third.
The lower fixed pay for the new MD &
CEO reflects market practice for the
appointment of new MD & CEO’s.
Fixed pay will continue to be
benchmarked in future against
BlueScope’s industry peer group.
Retaining an incentive component to
continue to deliver annual growth and
business performance targets with the
reduced amount of STI incentive being
moved to Alignment Rights and
effectively deferred for 3 years.
Senior executives can elect to receive
the award in equity.
STI performance continues to be
measured in the same way, but with
stretch Underlying ROIC now being a
key component of financial hurdles.
To support our strategy, Underlying
ROIC targets will be the key driver of
reward outcomes for all employees
with stretch annual targets for STI.
Alignment
Rights
Annual award of share rights subject
to achievement of strong underlying
financial performance over a three-
year period. The measures of success
are:
Minimum 10% rolling three-year
average Underlying Return on
Invested Capital (ROIC); and
Net Debt to EBITDA ratio of
<1.0x.
In addition, to be eligible for any
vesting, executives must continue to
conduct themselves in accordance
with ‘Our Bond’, with an individual
assessment to be made by the Board
each year.
Board discretion will also continue to
apply to protect against unintended
outcomes.
Executives can elect to be paid STI in
all cash, 50% cash: 50% equity, or all
in equity (with shares awarded based
on the face value using the volume
weighted average price over the three
months to 31st August each year).
Alignment Rights have replaced the
performance rights granted under the
prior LTI plan.
Underlying ROIC and the Net Debt to
Underlying EBITDA ratio have
replaced the relative TSR and EPS
CAGR measures under the prior LTI
plan.
The quantum of the Alignment Rights
has been reduced compared to the
prior LTI plan to reflect the greater
potential for payment (subject to
performance conditions being met).
Allows executives to choose whether
they want to be rewarded in cash
and/or equity.
Alignment Rights reward executives
for delivering consistent financial
returns through:
The threshold Underlying ROIC
hurdle achieves our weighted
average cost of capital (WACC),
top quartile performance
compared to major steel
companies, and median
performance compared to the
ASX100. Based on historical
performance, the hurdle would
have been met only twice since
the onset of the Global Financial
Crisis (FY2009 and FY2017 –
see chart below).
The re-test provisions in the prior LTI
plan have also been removed.
The Net Debt to Underlying
EBITDA ratio hurdle ensures
executives focus on sustainable
investment, and protection of the
Company’s balance sheet.
The focus on these two measures (as
well as adherence to ‘Our Bond’) will
ensure the Company is well placed to
weather downturns in the cycle, while
further incentivising executives to
behave as owners of the business
(including sharing in the profit).
BlueScope believes this will provide
the optimum form of shareholder
alignment.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 30
FY2018
framework
feature
Reduction in
performance pay
quantum
Description
What’s changed since FY2017?
Rationale for change
The new MD & CEO’s maximum
performance pay has reduced by 41%
when compared against the current
MD & CEO.
Other KMP members’ maximum
performance pay has reduced by
approximately 20%.
The Board believes it is appropriate to
reduce the overall quantum of pay for
the MD & CEO and other KMP
Executives, and also believes the
changes to compensation structure
provides real value opportunity for
executives.
Overall quantum of performance pay
has reduced for both the MD & CEO
and other KMP Executives due to:
STI quantum being reduced by
one-third, with the reduced
component converted into
Alignment Rights.
Less Alignment Rights being
awarded compared to
performance rights under the
prior LTI plan, reflecting the
greater potential for payout
(subject to performance
conditions being met that require
ROIC to be delivered at levels not
seen consistently over the past
decade).
Minimum
shareholding
requirement
Executives will be required to build a
holding of BlueScope shares until their
minimum shareholding requirement is
reached.
The minimum shareholding
requirements have been increased
compared to FY2017, and are now:
MD & CEO – 200% of fixed
pay
Other KMP Executives –
100% of fixed pay.
Furthers the alignment between
shareholders and executives, by
requiring executives to hold an
increased value of shares whilst
employed by the Company.
The following chart demonstrates the quantum reduction in the remuneration of the new MD & CEO, inclusive of lower fixed pay and
the reduction inherent in maximum performance pay in the new remuneration framework, compared to the current MD & CEO’s
remuneration under the previous framework.
1)
2)
3)
For the period from 1 July 2017 to 23 February 2018, the current MD & CEO will only receive fixed pay, and no further STI or LTI will be awarded for this period.
All values are represented as maximum STI and face value equity (LTI and Alignment Rights)
Prior to FY2016, the STI plan pay-out was split 67% cash and 33% deferred equity. In FY16 and FY17, all potential STI was awarded in deferred equity up-front, vesting
subject to the annual scorecard (no cash awarded).
BlueScope Steel Limited – FY2017 Directors’ Report
Page 31
The chart below shows BlueScope’s rolling three-year average Underlying ROIC for each of the last nine years (an 11 year performance
timeframe). It also highlights that the Alignment Rights target has been set at a level met only twice in the past nine years.
The Board believes that the FY2018 remuneration framework will deliver:
More value to shareholders through:
Improving alignment of shareholder and executive outcomes;
Less cost to shareholders due to an overall reduction in executive remuneration; and
A continued focus on improving Company performance, measured by 3-year average Underlying ROIC and balance sheet integrity.
Potential for more value to participants through:
Incentivising executives to implement the Company strategy to deliver target financial returns, achieving more consistent returns over
time compared to the past decade; and
An overall reduction in variable remuneration but potential for better reward to executives if consistent financial returns beyond the
Company’s cost of capital are delivered to shareholders.
The Board is confident these changes will enhance the alignment between shareholder and executives and will motivate executives to deliver the
Company’s strategy for the benefit of shareholders, customers, employees and our communities. Further detail on the new framework, including
grants made to members of KMP during FY2018, will be provided in the 2018 Annual Report.
3. REWARD OUTCOMES - THE LINK BETWEEN REMUNERATION AND PERFORMANCE
3.1 OVERVIEW OF BUSINESS PERFORMANCE
FY2017 was a year of significant achievement for BlueScope Steel, with strong financial performance across the company, and significant
improvements to the portfolio resulting from delivery of the corporate strategy. Achievements for the year are outlined below:
Group financial performance in FY2017
Underlying EBIT of $1,105.0m was 89% higher than FY2016. Underlying EBIT has grown at a compound annual rate of 71% since
FY2014.
ROIC improved to 18.5%, up from 9.6% in FY2016, with strong earnings growth. This has been achieved noting the growth in the asset
base from the move to full ownership of North Star.
Underlying NPAT of $650.8m was 112% or $344.2m higher than FY2016, and $490m higher than FY2015, on strong EBIT growth.
Reported NPAT rose 102%, from $353.8m to $715.9m.
Segment financial performance in FY2017
Australian Steel Products delivered underlying EBIT of $459.4m, a $98.0m increase on FY2016. Lower costs, particularly through
improved production rates, and higher sales volume (both domestic and export) contributed to the improvement. This was combined with
stronger steel spread due to higher global steel prices offsetting higher coal and iron ore purchase prices.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 32
North Star BlueScope Steel delivered underlying EBIT of $406.6m, a $260.1m increase on FY2016. 100% BlueScope ownership after 30
October 2015, higher spreads, and lower conversion costs contributed to this performance.
Building Products delivered underlying EBIT of $201.7m, a $52.4m increase on FY2016. Driven by higher margins and increased sales
volumes across most countries. BlueScope’s North America, Vietnam and India businesses were major contributors to this growth. Thailand,
Indonesia and Malaysia reported weaker results.
BlueScope Buildings delivered underlying EBIT of $64.0m, a $14.8m increase on FY2016. Driven by lower costs in North America through
cost reductions and higher sales volumes. This was partly offset by lower net margins in North America and Building Products China due to
increases in steel feed costs.
New Zealand and Pacific Steel delivered underlying EBIT of $61.1m, a $101.4m increase on FY2016, through higher steel prices, full run-
rate of the Pacific Steel acquisition, and delivery on cost reduction and productivity initiatives.
Safety Performance
The zero harm targets comprise two hurdles and a performance measure. Both hurdles were achieved in that there were no fatalities and our
LTIFR performance was less than 1. However, the MTIFR performance measure was below threshold of 5.18.
Ongoing delivery of strategy through FY2017
BlueScope’s strategy is to deliver top quartile shareholder returns with safe operations, through:
Growing premium branded steel businesses with strong channels to market;
Delivering competitive commodity steel supply in its local markets; and
The Company has made significant progress in delivering this strategy, with achievements outlined below:
Ensuring ongoing financial strength
Growth in Coated &
Painted Products
Restructured
BlueScope Buildings
Full benefits of North
Star ownership
Streamlined Australia
& New Zealand
steelmaking
Balance sheet
strength
32% pa compound growth in ASEAN, North America and India Underlying EBIT in last five years – particularly
strong in North America
Increased customer diversity in South East Asia – adding retail and SME sales to our established position in
commercial markets
Sales of home appliance steel (SuperDyma®) growing in Thailand, and construction of MCL3 on track
Reviewing expansion opportunities in India, including further painting and metal coating capacity
Growth in Australian domestic coated product sales; pursuing inter-material growth opportunities
Restructured, with significant profitability boost in North America; $30m productivity savings on-track for
FY2018 (over FY2016)
China Buildings restructure delivering results, being profitable in 4Q FY2017
Moved to full ownership in October 2015, adding more than $200m Underlying EBIT in FY2017 (over 50%
ownership)
Delivering incremental volume growth: despatches increased 65kt this year
Reducing conversion costs – delivered cost savings of over $10m pa in recent years
Businesses streamlined – primary focus is now on domestic markets; dramatic improvements in cost
competitiveness
Exited Taharoa export iron sands business, a non-core business which has delivered volatile earnings in
recent years
Net debt reduced to $232.2m. Leverage reduced to 0.16x (net debt over underlying EBITDA)
Clear capital management framework incorporating ongoing share buy-backs
Comparison of FY2017 with historical performance
The table and graph below summarises the Company’s performance for FY2017 and the previous four years.
Measure
30 June 2013 1
30 June 2014
30 June 2015
30 June 2016
30 June 2017
Share price ($) 2
Dividend per Ordinary Share (cents)
Buybacks ($)
Earnings per Share (cents)
4.67
0
-
-19.1
5.42
0
-
-14.8
3.00
6
-
24.3
6.37
6
-
62.1
13.21
9
150m
125.3
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.
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.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 33
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
(STI)
STI outcomes varied from FY2013 to FY2017, owing to the significant variation in financial performance driven substantially by challenges in the
steel industry. Specifically:
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 and China, and the lower than expected spreads in the
Australian business
As previously communicated and also noted in section 2.3, the annual STI plans for FY2016 and FY2017 were replaced by a two-year STI
programme which was awarded in equity only after being approved by shareholders at the 2015 AGM.
As a result, no STI cash was awarded in FY2016 or FY2017. In order to focus on delivering the objectives outlined in the business strategy
review, performance was to be assessed at the end of FY2017 against a range of mainly financial measures aimed at delivering improved returns
for shareholders.
The financial measures shown in the cart below were the basis for the assessment of the MD & CEOs STI performance over the two year period
FY2016 and FY2017. They demonstrate the successful delivery of the strategy adopted and clearly identify the returns to shareholders
delivered, while at the same time retaining balance sheet strength.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 34
Objective
Target
Weighting
Result
Achievement
MD & CEO STI Outcomes
Company Financials
Underlying NPAT (2/3)
Free Cash Flow (1/3)
50%
100%
The Company delivered an underlying NPAT for year ended 30 June 2017 of
$650.8m. This represented a 304% increase on FY2015 of $160.9m.
Exceeded stretch target.
Free cash flow performance (excluding BSL Dividends and share buy backs)
for FY17 was $749.4m a 387% improvement compared to FY2015 of
$153.8m. Exceeded stretch target.
Zero Harm
No fatality gateway
LTIFR <1
MTIFR < 5.18
Projects and New Initiatives
Implement corporate
strategy delivering
material value benefits
to BlueScope
5%
0%
No fatality, LTIFR below 1.0 however the MTIFR performance was 5.61
compared to a threshold of 5.18. Below threshold.
45%
75%
Continued roll-out of the corporate strategy, delivered a significant shift to
value-added products and geographic diversification, including growth in
Asia, with material value delivered to shareholders. The Company has been
transformed and now has strong platforms for future growth. Specific
deliverables were:
Expansion of coated and painted businesses with focus on retail
and appliance growth in ASEAN and India. Achieved target.
Integration of North Star acquisition delivering substantially above
business case earnings in year one. Exceeded stretch target
Productivity improvements in each geographic region (New
Zealand, Buildings North America, Buildings China, India and
Australia) to ensure each business unit can deliver annual ROIC
targets and sustain future investment. Over 4,500 jobs saved in
Australia. Achieved stretch target.
Workplace reform to foster further productivity improvements
through diversity and innovation. Achieved target.
Corporate deleveraging ratio (net-debt to underlying EBITDA)
target of less than 1.0 achieved within 18 months of North Star
acquisition. Actual leverage ratio at the end of FY2017 0.16 times
(Net debt of $232.2m and underlying EBITDA of $1,485.4m).
Exceeded stretch target.
Total awarded
100%
150%*
*The actual result was 175% of Target which has been capped according to Corporate Policy at the maximum STI outcome of 150% of Target.
Consistent with the STI objectives communicated last year, and the performance outcomes noted in the scorecard above, the Board has resolved
that the MD & CEO and KMP Executives achieved the outcomes for the two-year STI programme as shown in the table below. The combination
of Company and business financial measures exceeding target in most cases, and individual objectives being assessed up to 200% of target
(with an overall cap of 150% of target applied), has resulted in maximum STI being awarded to all KMP Executives (including the MD & CEO). As
such, all STI rights granted to KMP executives have vested. Consistent with the excellent results for shareholders, the strong vesting outcomes
and strong share price performance have also resulted in substantial actual value delivered to executives.
KMP
Paul O'Malley
Sanjay Dayal
Charlie Elias
Pat Finan
Mark Vassella 1
% of maximum FY16 STI
achieved
% of maximum FY17 STI
achieved
% of maximum 2 year
STI achieved
% of STI rights vested
N/A
100%
100%
100%
N/A
N/A
100%
100%
100%
100%
100%
100%
100%
100%
N/A
100%
100%
100%
100%
100%
1)
Consistent with the decision not to operate an STI plan in the Australia & New Zealand business in FY2016, Mr Vassella did not participate in the STI programme in
FY2016. Following the reintroduction of incentives to that business in FY2017, only FY2017 performance is shown.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 35
3.3 LONG TERM INCENTIVE (LTI) OUTCOMES
(LTI)
No LTI Awards vested between 2008 and 2014, given BlueScope performance against the relative TSR hurdle over those years. In FY2015,
awards made to members of KMP other than MD & CEO vested in full, while in FY2016, the MD & CEO’s LTI award vested for the first time in
seven years.
The table below shows the results of LTI awards made in prior years, and those that remain outstanding:
Made to
Grant date
Vesting period 2
Hurdle
Vesting status
Allocation
year 1
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
MD & CEO
and other KMP
MD & CEO
and other KMP
MD & CEO
and other KMP
MD & CEO
and other KMP
Other KMP
only
MD & CEO
(LTI)
Other KMP
(LTI)
Other KMP
(Retention
rights)
MD & CEO
and other KMP
MD & CEO
and other KMP
MD & CEO
and other KMP
1 Sep 2010 to 31 Oct
2012
100% relative TSR
versus ASX100
Lapsed in full
14 Nov 2007 (MD
& CEO) and 5
Nov 2007 (other
KMP)
28 Nov 2008
30 Nov 2009
30 Nov 2010
16 Apr 2012
1 Sep 2011 to 31 Oct
2013
100% relative TSR
versus ASX100
1 Sep 2012 to 31 Oct
2014
100% relative TSR
versus ASX100
1 Sep 2013 to 31 Oct
2015
100% relative TSR
versus ASX100
1 February 2015 to 31
January 2016
100% relative TSR
versus ASX100
1 Sep 2012
1 Sep 2015 to 31 Oct
2017
100% relative TSR
versus ASX100
1 Sep 2012
1 Sep 2015 to 31 Oct
2015
100% relative TSR
versus ASX100 with
absolute share price
threshold
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 award vested in FY2016, 94.44% vested on 1 Sep 2015
and the balance vested on retest on 1 Mar 2016. This was the
MD & CEO’s first LTI award to vest in seven years.
81.95% of the award vested in FY2016 with a 24 month holding
condition to be released in FY2018. 3
1 Sep 2012 and
20 Dec 2012
1 Sep 2015 to 31 Oct
2015
Absolute share price
threshold
100% of the award to the other KMP Executives vested on 1 Sep
2015
14 Nov 2013 (MD
& CEO) and 1
Sep 2013 (other
KMP)
1 Sep 2014
26 Nov 2015
1 Sep 2016 to 31 Oct
2017
100% relative TSR
versus ASX100
56.95% of the MD & CEO’s and KMP Executives FY2014 award
vested in FY2017 after the first performance test. The final
performance test will be in Aug 2017.
1 Sep 2017 to 31 Oct
2018
100% relative TSR
versus ASX100
To be tested during FY2018
31 Aug 2018 (through
to 31 Aug 2019 for
relative TSR hurdle)
50% relative TSR versus
ASX100
50% CAGR in EPS
31 Aug 2019 (through
to 31 Aug 2020 for
relative TSR hurdle)
50% relative TSR versus
ASX100
50% CAGR in EPS
To be tested during FY2019
To be tested during FY2020
FY2017 4
MD & CEO
and other KMP
26 Nov 2015
1)
2)
3)
4)
See applicable financial year Annual Report for further details on each LTI grant
Vesting period is inclusive of re-tests on relative TSR portion if applicable to a particular grant
The only exception was to permit the release of a portion of the shares to pay tax liabilities incurred on vesting.
FY2017 LTI grant was made at the same time as the FY2016 grant.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 36
4. EXECUTIVE REMUNERATION TABLES
4.1 KEY MANAGEMENT PERSONNEL – EXECUTIVES (INCLUDING MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER)
I
The information contained in the following tables represents the annual remuneration for the year ended 30 June 2017 KMP. There are a number of points to note in interpreting the information in the table:
Consistent with the previously communicated two-year STI programme being awarded entirely in equity, and the granting of FY2017 LTI in FY2016, the share-based payments expense for KMP increased in
.
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FY2016.
Name
Year
Executive Director
P F O'M alley
KMP Executives
M R Vassella
S R Elias
S Dayal 8
P J Finan
R J M oore 9
Total 2017
Total 2016
1)
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2017
2016
2017
2016
2017
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2017
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2016
1,856,575
1,856,575
1,060,900
1,060,900
825,185
825,185
951,720
951,720
769,129
796,594
-
331,025
5,463,509
5,821,999
9) R J Moore retired effective 30 November 2015.
6,943
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(44,771)
19,982
(12,607)
(10,982)
29,284
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t
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The % of remuneration that is performance related recognises LTI based on accounting values and not vested amounts actually received by executives.
There were no base pay increases during FY2017. Exchange rate differences affected overseas based KMPs.
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d
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4) Non-monetary includes executive health check and benefits provided under the Company's international assignment policy e.g. accommodation, tax equalisation, relocation benefits and medical coverage.
a
5) Due to changes in the superannuation legislation resulting in maximum contribution levels, members of the Defined Contribution Division can elect to receive a proportion of their superannuation as a cash allowance.
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8) S Dayal had previously been awarded only cash rights due to certain Singapore restrictions. Changes were introduced in FY2015 to enable equity rewards to be made.
2) Negative movement in annual and long service leave provisions indicates leave taken during the year exceeded leave accrued during the current year. This is to be read in conjunction with column one (Salary and Fees).
159,778
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BlueScope Steel Limited – FY2017 Directors’ Report
Page 37
4.2 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
KMP Executives, including their related parties, as well as the value of share rights granted and exercised, are set out in the tables below.
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 has been assessed at the end of FY2017 and 100% has vested in full as a result of performance against
objectives. No STI is payable in cash for either FY2016 or FY2017.
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 were granted during FY2017.
Share Rights holdings for FY2017
Balance at
30 June 2016
Granted in year
ended
30 June 2017 1
Vested and
exercised in
year ended
30 June 20172
Lapsed in year
ended 30 June
2017
Balance at
30 June 2017
Vested and
not yet
exercised in
year ended 30
June 2017
Total Share
Rights vested in
year ended 30
June 2017
Value of Share
Rights granted
during the year at
grant date 3
Value of Share
Rights exercised
during the year 4
Unvested at
30 June 2017
#
#
#
#
#
#
#
#
$
$
4,119,653
-
381,989
1,085,916
127,111
1,087,212
-
1,252,604
-
956,310
-
119,956
94,056
107,148
66,772
-
-
-
-
-
3,737,664
1,093,071
993,156
1,145,456
889,538
-
-
-
-
-
3,737,664
381,989
-
1,376,262
1,093,071
993,156
1,145,456
889,538
119,956
94,056
107,148
66,772
1,076,630
-
-
-
415,899
326,565
371,192
232,678
2017
Executive Director
P F O'Malley
KMP Executives
M R Vassella
S R Elias
S Dayal
P J Finan
1)
2)
3)
The number of share rights granted includes rights awarded under the FY2017 Short Term Incentive (STI) Award which are subject to Company performance hurdles.
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 2014 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 2017. The valuation has been made
using the Black-Scholes Options Pricing Model (BSM) that includes a Monte Carlo simulation analysis. The fair value per instrument of the Share Rights granted in the year
ended 30 June 2017 was: FY17 STI Award – 1 yr - $8.47
Share Rights vested during the year under the FY2015 STI Awards and FY2014 Long Term Incentive Plan.
4)
The table below sets out the details of each specific share right tranche and awards granted and vested during FY2017 for each KMP Executive.
Number of Share
Rights awarded
Date of grant
% vested in year
ended
30 June 2017
% forfeited in year
ended
30 June 2017
Share Rights yet
to vest
Financial year in
which awards may
vest
2017
Award Details
Executive Director
P F O'Malley
FY14 LTI Award (TSR) - 3 yr
FY15 LTI Award (TSR) - 3 yr
FY15 Deferred STI Rights - 1 yr
FY16 & FY17 STI Award - 2 yr 1
FY16 LTI Award (TSR) - 3 yr
FY16 LTI Award (EPS) - 3 yr
FY17 LTI Award (TSR) - 4 yr
FY17 LTI Award (EPS) - 4 yr
568,126
500,885
14-Nov-13
01-Sep-14
58,442
24-Aug-15
1,305,680
26-Nov-15
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
FY14 LTI Award (TSR) - 3 yr
167,560
01-Sep-13
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
FY17 STI Award - 1 yr
127,111
01-Sep-16
56.95
-
100
-
-
-
56.95
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
244,579
500,885
0
1,305,680
421,630
421,630
421,630
421,630
72,135
147,725
0
186,525
186,525
186,525
186,525
127,111
2017
2018
2017
2018
2019
2019
2020
2020
2017
2018
2017
2019
2019
2020
2020
2018
BlueScope Steel Limited – FY2017 Directors’ Report
Page 38
2017
Award Details
KMP Executives
Number of Share
Rights awarded
Date of grant
% vested in year
ended
30 June 2017
% forfeited in year
ended
30 June 2017
Share Rights yet
to vest
Financial year in
which awards may
vest
S R Elias
FY14 LTI Award (TSR) - 3 yr
130,385
01-Sep-13
FY15 LTI Award (TSR) - 3 yr
114,905
01-Sep-14
FY15 Deferred STI Rights - 1 yr
FY16 & FY17 STI Award - 2 yr 1
19,802
24-Aug-15
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
FY14 LTI Award (TSR) - 3 yr
150,315
01-Sep-13
FY15 LTI Award (TSR) - 3 yr
132,525
01-Sep-14
FY15 Deferred STI Rights - 1 yr
FY16 & FY17 STI Award - 2 yr 1
21,544
24-Aug-15
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
FY14 LTI Award (TSR) - 3 yr
90,750
01-Sep-13
FY15 LTI Award (TSR) - 3 yr
79,990
01-Sep-14
FY15 Deferred STI Rights - 1 yr
FY16 & FY17 STI Award - 2 yr 1
15,090
24-Aug-15
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
56.95
-
100
-
-
-
56.95
-
100
-
-
-
-
-
56.95
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
56,131
114,905
0
435,240
96,720
96,720
96,720
96,720
64,711
132,525
0
502,000
111,555
111,555
111,555
111,555
39,068
79,990
0
407,900
90,645
90,645
90,645
90,645
2017
2018
2017
2018
2019
2019
2020
2020
2017
2018
2017
2018
2019
2019
2020
2020
2017
2018
2017
2018
2019
2019
2020
2020
1) Following year end and based on performance against targets set at the start of the 2 year performance period, the Board approved vesting of share rights granted under the
FY2016 and FY2017 STI Award. Refer section 3.2 for further details.
2) Due to restrictions relating to awards of equity in Singapore, S Dayal was awarded Cash Rights in FY2014 which delivers a cash payment on vesting. As such, he holds 85,604
Cash Rights that were awarded under the LTIP FY2014.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 39
4.3 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
Executive Director
P F O'Malley
KMP Executives
M R Vassella
S R Elias
S Dayal
P J Finan
Ordinary shares held as at 30 June
2016
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 2017
46,126
38,447
40,488
57,834
32,500
42,000
27,300
871,183
319,837
385,401
105,632
189,927
-
-
-
-
-
-
-
381,989
119,956
94,056
21,544
66,772
-
-
-
-
-
-
-
-
-
-
-
-
6,620
-
-
-
-
-
-
(570,000)
(95,425)
(164,414)
(102,298)
(15,000)
52,746
38,447
40,488
57,834
32,500
42,000
27,300
683,172
344,368
315,043
24,878
241,699
Including related party interests.
1)
2) Exercise of share rights awarded under the FY2015 STI Plan and FY2014 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.
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 an increase in Chairman
fees and Committee fees to align with market movement, effective 1
January 2017. There was no increase in Directors’ base fees for 2017.
Non-executive Directors are expected to build a shareholding in the
Company equivalent to one year’s base fees.
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
2017 amounted to $1,841,879 (FY2016 $1,922,708).
Compulsory superannuation contributions per Director are paid on behalf
of each Director with no other retirement benefits provided.
The schedule of fees (exclusive of superannuation) effective 1 January
2017, and which currently applies, is shown in the table opposite.
Role
Chairman 1
Non-executive Director
Audit and Risk Committee
Remuneration and Organisation
Committee
Health, Safety and Environment
Committee
Fees effective
1 Jan 2017
$486,000
$157,500
$41,000
$21,000
$35,000
Chair
Member
Chair
Member
$19,000
Chair
$35,000
Member
$18,000
1) Additional fees are not payable to the Chairman for membership of Committees
BlueScope Steel Limited – FY2017 Directors’ Report
Page 40
5.2 DIRECTORS’ REMUNERATION TABLE
Details of the audited remuneration for FY2017 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
Total 2017
Total 2016
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Short-term benefits
Fees1
$
Non-monetary
Sub-total
$
$
Post-employment benefits 2
$
Total
$
479,224
364,176
206,481
201,500
213,990
211,500
207,990
205,500
193,990
191,500
193,990
191,500
211,485
194,676
-
196,574
1,707,150
1,756,926
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26,232
-
26,232
479,224
364,176
206,481
201,500
213,990
211,500
207,990
205,500
193,990
191,500
193,990
191,500
211,485
194,676
-
222,806
1,707,150
1,783,158
19,616
18,878
19,416
19,143
19,616
19,308
19,607
19,308
18,429
18,193
18,429
18,193
19,616
18,494
-
8,033
134,729
139,550
498,840
383,054
225,897
220,643
233,606
230,808
227,597
224,808
212,419
209,693
212,419
209,693
231,101
213,170
-
230,839
1,841,879
1,922,708
1) There was an increase in Chairman fees and Committee fees effective 1 January 2017.
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.
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.
During FY2017, 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 Executives. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were provided.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 41
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 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
AGL Energy Ltd
Amcor Ltd
Aurizon Holdings Ltd
Brambles Ltd
Boral Ltd
Caltex Australia Ltd
CIMIC Group Ltd
CSR Ltd
Downer EDI Ltd
Fletcher Building Ltd
Incitec Pivot Ltd
Lend Lease Corp Ltd
Orica Ltd
Origin Energy Ltd
Orora Ltd
Qantas Airways Ltd
South32 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 new MD & CEO, as well as the terms of employment for the current MD &
CEO:
Feature
MD & CEO Paul O’Malley
New MD & CEO Mark Vassella
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 announced his retirement on 21 August
2017. Mr O’Malley will cease to be MD & CEO on 31
December 2017. The contract was able to be terminated by
either party at any time on six months’ notice.
Remuneration Mr O’Malley was entitled to the following remuneration in
FY2017:
Fixed pay of $2,116,000 (inclusive of superannuation
at 14%)
Target STI opportunity of $1,486,000, and maximum
STI opportunity of $2,228,000
LTI opportunity (at face value) of $2,878,000
With effect from 1 July 2017 he has:
No STI entitlement
No further LTI grants
Termination of
employment
Illness or
disablement
Without cause: If BlueScope terminated Mr O’Malley’s
employment by notice, it was to provide payment in lieu of
notice and make an additional payment of 12 months’ annual
base pay.
With cause: Mr O’Malley would have been immediately
terminated by BlueScope if, among other things, he wilfully
breached his Service Contract, was convicted of various
offences for which he could have been imprisoned or was
disqualified from managing a corporation, or engaged in
conduct which is likely to adversely impact the reputation of
BlueScope. In this circumstance, Mr O’Malley was only
entitled to his annual base pay up to the date of termination.
BlueScope would have been able to terminate Mr O’Malley’s
employment if he became incapacitated by physical or
mental illness, accident or any other circumstances beyond
his control for an accumulated period of six months in any 12
Mark Vassella will be appointed to the position of Managing
Director and Chief Executive Officer effective from 1 January
2018 and the contract is ongoing with no fixed term. The
contract can be terminated by either party at any time on 12
months’ notice.
Mr Vassella will be entitled to the following remuneration in
his new role as Managing Director and Chief Executive
Officer from 1 January 2018:
Fixed pay of $1,800,000 (inclusive of superannuation)
Target STI opportunity of $800,000, and maximum STI
opportunity of $1,200,000
LTI in the form of Alignment Rights opportunity (at face
value) of $1,800,000
STI and LTI will be pro-rated for FY18 to reflect the period of
employment as MD & CEO.
Remuneration levels will continue to be reviewed annually by
the Board.
Without cause: If BlueScope terminates Mr Vassella
employment by notice, it may provide payment in lieu of
notice and must make an additional payment of 12 months’
fixed pay, provided that the total of any payments in lieu of
notice and the termination payment do not exceed 12 months
fixed pay.
With cause: Same terms as the current MD & CEO
Same as the current MD & CEO other than the notice period
is 12 months’ fixed pay.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 42
Feature
Fundamental
change of
employment
terms
Change of
control
Non-compete
restriction
MD & CEO Paul O’Malley
month period and, in this circumstance, would have made
payment of six months’ notice based on annual base pay.
Mr O’Malley was able to resign if a fundamental change in his
employment terms occurred and within three months of the
fundamental change Mr O’Malley gave notice to BlueScope.
In this event, the Company would have provided 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.
Mr O’Malley was entitled to early vesting, subject to satisfying
performance testing requirements of LTIP awards on a
change of control.
Mr O’Malley remains 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.
New MD & CEO Mark Vassella
Same terms as the current MD & CEO, noting that the
Company would have provided 12 months’ notice and the
total payment must not exceed 12 months’ fixed pay.
Same terms as the current MD & CEO
Same terms as the current MD & CEO
Remuneration arrangements for Mark Vassella
The remuneration arrangements described above will commence with effect from 1 January 2018 when Mr Vassella takes up the role of MD &
CEO. His current remuneration arrangements will continue to apply until 31 December 2017. Awards of STI and Alignment Rights will be made
on a proportionate basis reflecting his current salary for the period from 1 July 2017 to 31 December 2017 and from 1 January 2018 to 30 June
2018 based on the new remuneration arrangements for his time as MD & CEO.
Ongoing employment arrangements for Paul O’Malley
Following the ceasing of his role as Managing Director and Chief Executive Officer on 31 December 2017, Mr O’Malley will work out his notice
period on a full-time basis to 23 February 2018. During the transition, Mr O’Malley will continue to be paid his current fixed pay of $2,116,496,
and will receive no STI or LTI from 1 July 2017. No termination payments will be made.
From 24 February 2018, Mr O’Malley will enter into a part-time employment agreement (up to two days per month) with BlueScope to assist with
the transition to the new MD & CEO, and to provide specialist advice to the Company as required. Mr O’Malley will receive a fixed pay of $5,000
per month (inclusive of superannuation), and will not be entitled to any incentives. Unvested LTI share rights granted to Mr O’Malley in prior years
will remain on foot with vesting to occur at the originally intended dates, and subject to the original performance conditions. The part-time
employment will cease on 28 September 2019. Mr O’Malley will continue to be subject to a non-compete restraint for 12 months after ceasing
employment with BlueScope.
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 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
There were no related party transactions with directors and executives or their related entities during the year (2016 Nil). 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 – FY2017 Directors’ Report
Page 43
OTHER MATTERS
ENVIRONMENTAL REGULATION
BlueScope's Australian manufacturing operations are subject to significant environmental reporting. Throughout its Australian operations in the
12 months to 30 June 2017, the Company notified relevant authorities of 9 incidents resulting in non-compliances. One of those incidents,
involving the discharge of coke ovens gas condensate into an internal drain at the Port Kembla Steelworks, resulted in the issue of a $15,000
penalty infringement notice by the NSW EPA. The Company has committed to a pollution reduction program to reduce the likelihood of a similar
incident occurring in the future.
Boundary remediation has continued at the Company's former Stainless Steel manufacturing site at Port Kembla, which had been previously
notified to the NSW EPA and declared by it to be "significantly contaminated”. Assessment of additional remediation options for the site
continues pursuant to a Voluntary Management Proposal accepted by the EPA. Discussions with the EPA are continuing in relation to other sites
at Port Kembla which the Company has previously notified to the EPA as contaminated. Currently contamination at those sites is managed, to
the extent required, under the Company's Environment Protection Licence for the Port Kembla Steelworks. Asbestos contamination at the site
occupied by the Company in Sunshine, Victoria, has been remediated to the satisfaction of the EPA pursuant to a Clean-Up Notice issued on the
landlord by the EPA.
BlueScope submits annual reports under the National Greenhouse Gas and Energy Reporting Scheme (greenhouse gas emissions and energy
consumption 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 Sustainability 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 pages 19-20). 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 recently retired 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, the nearest dollar, in accordance with the Australian Securities and Investments Commission Corporations (Rounding in
Financial/Directors’ Reports) instrument 2016/91.
BlueScope Steel Limited – FY2017 Directors’ Report
Page 44
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 2017 has been received from Ernst & Young. This is set out at page 46 of
the Directors’ Report. Ernst & Young provided $873,000 of non-audit services during the year ended 30 June 2017, comprising:
Assurance Related Services
$35,000 for accounting standard change assurance services
$26,000 for environmental compliance services
Taxation Related Services
$118,000 for taxation compliance services
Advisory Services
$390,000 for market research advisory services
$220,000 for vendor due diligence advisory services
$84,000 for sustainability reporting 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
21 August 2017
BlueScope Steel Limited – FY2017 Directors’ Report
Page 45
FINANCIAL REPORT
2016/2017
BlueScope Steel Limited ABN 16 000 011 058
Annual Financial Report - 30 June 2017
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
1
2
3
4
5
6
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
68
69
Statement of Comprehensive Income
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2017
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 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) benefit
Net gain (loss) on net investments in foreign subsidiaries
Exchange fluctuations on translation of foreign operations attributable to
BlueScope Steel Limited
Exchange fluctuations transferred to profit on translation of foreign
operations disposed
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
Notes
2
3
12, 13
14(e), 23(e)
10(e)
16(f)
22(a), 23(a)
4(a)
24(b)
18(a)
18(a)
18(a)
3(a)(ii)
11(i)
21
21
Notes
5
5
5
5
Consolidated
2017
$M
*Restated
2016
$M
10,648.9
9,087.7
92.4
762.1
180.3
(6,151.1)
(1,648.4)
(380.4)
(94.2)
(477.1)
(897.8)
(15.2)
(90.2)
(235.5)
9.1
940.8
(181.8)
759.0
14.9
773.9
(4.2)
0.7
(15.8)
(48.3)
1.7
118.4
(36.2)
(13.0)
3.3
777.2
715.9
58.0
773.9
733.2
44.0
777.2
(186.9)
(4,806.8)
(1,667.0)
(385.4)
(372.4)
(462.8)
(878.6)
(55.4)
(103.6)
(251.3)
39.9
719.5
(101.5)
618.0
(201.7)
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
2017
Cents
*Restated
2016
Cents
122.7
119.1
125.3
121.6
97.4
94.4
62.1
60.1
*Certain amounts shown here have been restated to reflect retrospective changes made to discontinued operations (refer to note 24).
-1-
Statement of Financial Position
BLUESCOPE STEEL LIMITED
AS AT 30 JUNE 2017
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
x
Total current assets
Non-current assets
Trade and other receivables
Inventories
Operating intangible assets
Derivative financial instruments
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 profits (losses)
Parent entity interest
Non-controlling interests
Total equity
-2-
Notes
15
6
7
8
32(d)
12(a)
6
7
8
32(d)
22, 23
12
13
4(c)
9
16
10
32(d)
9
16
4(c)
10
11
17(a)
18
21
Consolidated
2017
$M
2016
$M
753.0
1,331.5
1,658.8
24.0
2.0
98.5
3,867.8
5.3
549.8
1,158.4
1,391.5
8.3
5.1
93.0
3,206.1
-
3,873.1
3,206.1
32.4
74.4
25.8
5.3
44.2
3,721.7
1,639.9
155.3
3.3
5,702.3
9,575.4
1,802.9
53.2
5.0
419.0
163.1
4.8
2,448.0
44.9
932.0
175.9
152.4
281.0
2.5
1,588.7
4,036.7
5,538.7
4,554.4
174.7
341.3
5,070.4
468.3
5,538.7
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
Statement of Changes to Equity
BLUESCOPE STEEL LIMITED
AS AT 30 JUNE 2017
Consolidated - 30 June 2017
Notes
x
Balance at 1 July 2016
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
Share buybacks
Dividends paid
Tax credit recognised directly in equity
Other
17(b), 18(a)
18(a)
17(c)
17(b)
Contributed
equity
$M
Reserves
$M
Retained
profits
$M
Non-
controlling
interests
$M
Total
$M
4,688.1
224.9
(415.8)
488.1
4,985.3
-
-
-
10.7
-
(150.4)
-
6.0
-
(133.7)
-
(65.0)
715.9
82.4
58.0
(14.1)
773.9
3.3
(65.0)
798.3
43.9
777.2
(10.2)
24.0
-
-
-
1.0
14.8
-
-
-
(40.2)
-
(1.0)
(41.2)
-
-
-
(63.4)
-
(0.3)
(63.7)
0.5
24.0
(150.4)
(103.6)
6.0
(0.3)
(223.8)
Balance at 30 June 2017
4,554.4
174.7
341.3
468.3
5,538.7
Consolidated - 30 June 2016
Notes
x
Balance at 1 July 2015
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
Other
17(b), 18(a)
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
-3-
Statement of Cash Flows
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2017
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 disposal of subsidiary
Payments for property, plant and equipment
Payments for intangibles
Proceeds from sale of property, plant and equipment
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
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
2017
$M
2016
$M
11,149.3
(9,813.0)
1,336.3
4.3
-
6.1
34.8
(90.8)
(158.3)
1,132.4
-
-
-
(55.1)
(368.7)
(14.3)
3.2
26.6
(408.3)
1,261.5
(1,516.2)
(40.2)
(63.4)
(150.4)
(508.7)
215.4
548.9
(12.4)
751.9
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
15(a)
20(a)(ii)
20(a)(i)
3(a)(ii)
3(a)(i)
19(a)
17(c)
15
16(b)
16(g)
-4-
BlueScope Steel Limited
30 June 2017
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 2017 was authorised for issue in accordance with a
resolution of the Directors on 21 August 2017.
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 2017 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 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 2016.
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(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-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Contents to the notes to the consolidated financial statements
Page
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
16
17
19
19
19
20
22
25
27
29
31
32
37
38
40
40
41
45
46
49
50
51
52
52
54
56
58
60
64
65
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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.
New Zealand Steel Mining Ltd has been included as part of discontinued operations following the sale of the business on 1 May
2017. Comparatives for June 2016 have been restated for this retrospective change.
Segment
x
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
New Zealand & Pacific Steel - Consists of three primary business areas: New Zealand Steel, Pacific Steel 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.
- 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. On 1 May 2017, BlueScope sold 100% of its share in New Zealand
Steel Mining, its export iron sands business, to Taharoa Mining Investments Limited.
x
X
x
BlueScope Buildings
- 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 North America, China, Thailand, Vietnam, 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.
North Star BlueScope Steel
(Previously named Hot Rolled
Products North America)
- North Star BlueScope Steel is a single site electric arc furnace producer of hot rolled coil in Ohio,in 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.
- On 8 July 2016, BlueScope Steel Limited sold its 47.5% interest in Castrip LLC (a thin strip casting
technology joint venture with Nucor and IHI Ltd) to Nucor.
- Prior to the North Star acquisition and Castrip sale, these businesses were jointly controlled and therefore
equity accounted in BlueScope's financial statements.
-7-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 2017 is as follows:
30 June 2017
Australian
Steel
Products
$M
North Star
BlueScope
Steel
$M
Building
Products
ASEAN,
North
America &
India
$M
New
Zealand &
Pacific
Steel
$M
BlueScope
Buildings
$M
Discontinued
Operations
$M
Total
$M
Total segment sales revenue
Intersegment revenue
Revenue from external customers
4,918.7
(271.7)
4,647.0
1,700.9
-
1,700.9
1,970.5
(136.2)
1,834.3
1,756.8
(0.3)
1,756.5
Segment EBIT
Depreciation and amortisation
Impairment expense (write-back) of non-current
assets
Share of profit (loss) from associates and joint
venture partnerships
459.5
178.2
-
-
433.3
140.8
(3.0)
55.0
-
-
62.3
55.0
5.6
42.3
43.9
1.1
747.5
(59.5)
688.0
87.2
42.1
-
2.4
Total segment assets
3,342.2
2,054.3
1,424.5
1,189.6
725.6
Total assets includes:
Investments in associates and joint venture
partnerships
Additions to non-current assets (other than
financial assets and deferred tax)
-
-
206.1
37.8
37.1
65.8
2.2
30.8
4.9
34.0
108.6
-
108.6
11,203.0
(467.7)
10,735.3
18.9
1,136.7
-
7.0
-
0.3
-
15.6
379.9
105.9
9.1
8,736.5
44.2
390.1
Total segment liabilities
1,201.7
318.7
391.7
658.1
389.2
3.9
2,963.3
(9,650.4)
(4,507.2)
(3,791.3)
(3,601.2)
(1,890.0)
(131.7)
(23,571.8)
Australian
Steel
Products
$M
North Star
BlueScope
Steel
$M
Building
Products
ASEAN,
North
America &
India
$M
New
Zealand &
Pacific
Steel
$M
(Restated)
Discontinued
Operations
$M
BlueScope
Buildings
$M
Total
$M
30 June 2016
Total segment sales revenue
Intersegment revenue
Revenue from external customers
4,437.4
(259.5)
4,177.9
847.3
-
847.3
1,766.8
(96.1)
1,670.7
1,705.9
(0.1)
1,705.8
772.4
(106.3)
666.1
114.9
-
114.9
9,644.7
(462.0)
9,182.7
Segment EBIT
77.7
847.3
149.3
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
-
40.8
2.3
28.7
61.6
-
7.5
39.0
44.4
(1.1)
1.2
(201.6)
(196.4)
50.9
182.2
2.5
2.7
182.4
-
715.3
387.7
554.8
39.9
Total segment assets
3,062.7
2,074.5
1,266.1
1,325.3
668.4
28.6
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)
-
-
164.4
1,029.4
32.0
48.3
2.5
27.4
4.8
45.3
Total segment liabilities
973.9
212.2
256.5
721.9
468.9
-
71.1
45.3
39.3
1,385.9
2,678.7
(8,292.2)
(3,981.3)
(3,342.6)
(3,792.0)
(1,601.8)
7.6
(21,002.3)
-8-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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.
Note
24(b)
Consolidated
2017
$M
11,203.0
(467.7)
(108.7)
22.3
10,648.9
Restated
2016
$M
9,644.7
(462.0)
(115.0)
20.0
9,087.7
Total segment revenue
Intersegment eliminations
Discontinued operations
Other revenue
Total revenue from continuing operations
-9-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
2017
$M
Restated
2016
$M
1,136.7
1.1
6.2
(90.2)
(18.9)
(94.1)
940.8
715.3
(1.5)
5.2
(103.6)
196.4
(92.3)
719.5
(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
2017
$M
2016
$M
8,736.5
(256.5)
155.3
753.0
187.1
9,575.4
8,425.6
(150.7)
196.7
549.8
127.2
9,148.6
Consolidated
2017
$M
2016
$M
2,963.3
(255.3)
985.2
5.0
175.9
7.0
155.6
4,036.7
2,678.7
(148.3)
1,327.8
11.6
162.4
9.8
121.3
4,163.3
Segment assets
Intersegment eliminations
Unallocated:
Deferred tax assets
Cash
Corporate operations
Total assets
Segment liabilities
Intersegment eliminations
Unallocated:
Borrowings
Current tax liabilities
Deferred tax liabilities
Accrued borrowing costs payable
Corporate operations
Total liabilities
-10-
2 Revenue
Sales revenue
Other revenue
Interest
Other
Total revenue from continuing operations
From discontinued operations
Sales revenue
Other revenue
Total revenue from discontinued operations
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
Note
2017
$M
*Restated
2016
$M
10,626.7
9,067.8
6.2
16.0
22.2
5.2
14.7
19.9
10,648.9
9,087.7
24(b)
108.6
0.1
108.7
114.9
0.1
115.0
*Certain amounts shown here have been restated to reflect retrospective changes made to discontinued operations (refer to note 24).
(a) Recognition and measurement
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
Carbon permit income
Government grant - other
Insurance recoveries
Foreign exchange gains (net)
Litigation settlement
Notes
20(a)(ii)
3(a)
Consolidated
2017
$M
2016
$M
-
53.3
18.0
0.6
3.6
3.0
13.9
92.4
706.6
32.9
8.5
2.1
5.7
6.3
-
762.1
-11-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
3 Other income (continued)
(a) Net gain on sale of investments
(i) Castrip
On 8 July 2016, the Group sold its 47.5% interest in Castrip for US$20M (A$26.6M). The investment in Castrip was held at $Nil value.
Prior period included a net gain of $32.9M (NZ$35.5M) in New Zealand Steel for sale of the 28% equity accounted investment in
McDonald’s Lime.
(ii) New Zealand Steel Mining
On 1 May 2017, BlueScope sold 100% of its share in New Zealand Steel Mining Limited, its Taharoa export iron sands businesses, to
Taharoa Mining Investments Limited (TMIL).
Details of the gain on sale are as follows:
x
Net external liabilities disposed*
Fair value of royalty (note 32(d))
Less:
BlueScope cash contribution
Transaction costs
Recycling of exchange translation reserve
Gain on sale
*This is an estimated provisional calculation and is subject to final completion with the buyer.
4 Income tax
(a)
Income tax expense
Current tax
Deferred tax
Adjustments for current tax of prior periods
Income tax expense is attributable to:
Profit from continuing operations
Profit (loss) from discontinued operations
Total income tax expense
NZ$
$M
83.5
5.6
89.1
49.4
9.4
N/a
58.8
30.3
A$
$M
78.2
5.3
83.5
46.1
9.0
1.7
56.8
26.7
Consolidated
2017
$M
2016
$M
154.0
24.9
2.9
181.8
181.8
-
181.8
49.1
45.7
6.6
101.4
101.5
(0.1)
101.4
-12-
4 Income tax (continued)
(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% (2016 - 30.0%)
Tax effect of amounts which are not deductible/(taxable):
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
Deferred tax restatement
Previously unrecognised tax losses now recouped
Deferred tax assets now derecognised
Income tax expense
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Note
24(b)
Consolidated
2017
$M
*Restated
2016
$M
940.8
14.9
955.7
286.7
(9.9)
(4.8)
4.6
(23.6)
(2.6)
6.5
256.9
18.4
2.9
28.9
(5.2)
(131.4)
11.3
181.8
719.5
(201.8)
517.7
155.3
(2.8)
(4.3)
4.1
(261.2)
(3.3)
5.6
(106.6)
49.0
6.6
180.7
-
(61.9)
33.6
101.4
(619.1)
*Certain amounts shown here have been restated to reflect retrospective changes made to discontinued operations (refer to note 24).
(1,137.5)
(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
Consolidated
DTA
2017
$M
2016
$M
DTL
2017
$M
2016
$M
137.8
32.4
(224.2)
(10.5)
(4.2)
(20.0)
236.4
7.6
155.3
215.6
49.7
(305.9)
(21.3)
(20.6)
(14.5)
285.9
7.8
196.7
(66.6)
(6.0)
98.1
0.1
167.4
(4.3)
(21.4)
8.6
175.9
(2.2)
(4.5)
16.5
-
155.6
(0.7)
(3.1)
0.8
162.4
-13-
4 Income tax (continued)
Movements:
Opening balance at 1 July
Charged/credited:
Charged (credited) to profit or loss
Charged (credited) to other comprehensive income
Acquisitions and disposals (note 20(a) (ii))
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 2017
Consolidated
DTA
2017
$M
2016
$M
DTL
2017
$M
2016
$M
196.7
(15.6)
(25.5)
-
(0.3)
155.3
196.0
(35.7)
33.0
-
3.4
196.7
162.4
9.3
10.1
-
(5.9)
175.9
24.2
10.0
(14.0)
146.5
(4.3)
162.4
Consolidated
2017
$M
2016
$M
1,764.2
522.2
2,161.3
638.4
As at 30 June 2017, $124.2M (2016: $42.2M) 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 $2.33 billion of carried forward tax losses of which
$1,584.7M 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 2017, $4.2M of New Zealand deferred tax assets have been utilised within tax expense. 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, A$116.9M (gross NZ$ 122.9M) are able to be carried forward indefinitely.
During FY17, Buildings China recognised a $11.3M (RMB 57.7M) impairment of carried forward tax losses due to uncertainty of
future earnings.
The Group also has unrecognised tax losses arising in China of $43.4M (2016: $31.3M) 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.
(e) Unrecognised temporary differences
Consolidated
2017
$M
2016
$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
131.3
18.7
143.9
20.0
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 $210.4M (2016: $241.8M) in respect of temporary differences have not been
recognised as they are not probable of realisation.
-14-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
4 Income tax (continued)
(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.
(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 $84.6M and NZ$ 50.4M deferred tax asset at 30
June 2017 respectively (2016: $84.6M, NZ$ 85.8M). 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.
-15-
5 Earnings (loss) per share
Continuing operations
Discontinued operations
Earnings per share
(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
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
Basic
Diluted
2017
Cents
Restated
2016
Cents
2017
Cents
Restated
2016
Cents
122.7
2.6
125.3
97.4
(35.3)
62.1
119.1
2.5
121.6
94.4
(34.3)
60.1
Consolidated
2017
$M
Restated
2016
$M
701.0
14.9
715.9
555.5
(201.7)
353.8
Consolidated
2017
Number
2016
Number
Weighted average number of ordinary shares (Basic)
Weighted average number of share rights
Weighted average number of ordinary and potential ordinary shares (Diluted)
571,146,269
17,457,466
588,603,735
570,111,745
18,199,977
588,311,722
(c) Earnings (loss) per share restated
In accordance with AASB 133 Earnings per Share, the comparative earnings (loss) per share calculations have been restated for the
retrospective adjustment made to discontinued operations (refer to note 24).
(d) 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.
-16-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
Sale of receivables
Other receivables
(a) Provision for impairment of receivables
At 1 July
Additional provision recognised
Amounts used during the period
Business acquisitions
Unutilised provision written back
Exchange fluctuations
Consolidated
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
1,190.4
(19.5)
1,170.9
1.3
-
81.5
77.8
160.6
1,331.5
Note
20
-
-
-
-
24.0
-
8.4
32.4
32.4
1,105.1
(18.0)
1,087.1
1.3
-
6.6
63.4
71.3
1,158.4
Consolidated
2017
$M
2016
$M
18.0
7.0
(4.4)
-
(0.6)
(0.5)
19.5
-
-
-
-
27.4
-
8.4
35.8
35.8
15.3
6.6
(4.7)
1.3
(0.4)
(0.1)
18.0
Notes
6(a)
29(d)
10(g)
6(c)
-17-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 that are derecognised
The Group has two receivables securitisation programs for $460M in total, maturing in September and December 2018. These
programs involve the sale of relevant trade receivables across its Australian businesses, New Zealand Steel and North Star
BlueScope Steel. The business acts as a servicer under the programs and continues to collect cash from its customers for which a
fee is received.
The receivables securitisation programs qualify for derecognition of trade receivables in their entirety. The Group has transferred the
significant risks and rewards of the trade receivables. The Group maintains a continuing involvement in the de-recognised financial
assets by virtue of reserving requirements under the programs. The maximum exposure to loss for the Group from its continuing
involvement is $81.5M which is determined by the amount of reserves funded by BlueScope, less customer collections during the
month. Interest income is earnt on this financial asset. Total net costs from selling the receivables and running the program were
$11.1M.
In the event bad or doubtful debts exceed a specified limit, the Group will have to recognise the trade receivables on the balance
sheet. Current experience and bad debt history is below this level. The carrying amount of the trade receivables de-recognised in
entirety as at 30 June 2017 is $377.4M which is reflected by a decrease in trade receivables of $148.9M, an increase in sundry
payables of $310.0M offset by a $81.5M increase in sundry receivables which approximates fair value.
(d) 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.
-18-
7 Inventories
At lower of cost and net realisable value:
Raw materials and stores
Work in progress
Finished goods
Spares and other
(a)
Inventory expense
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
409.6
585.3
569.0
94.9
1,658.8
-
-
-
74.4
74.4
329.7
466.2
487.8
107.8
1,391.5
-
-
-
71.1
71.1
During the year, $1.1M (2016: $14.5M write-back) was recognised as a write-back for inventories carried at net realisable value. The
write-back 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.
8 Operating intangible assets
Consolidated
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
Emission unit permits - not held for trading
24.0
25.8
8.3
25.9
(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.
9 Trade and other payables
Trade payables
Sale of receivables
Other payables
(a) Recognition and measurement
Note
6(c)
Consolidated
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
1,381.7
310.0
111.2
1,802.9
-
-
44.9
44.9
1,201.6
162.2
116.9
1,480.7
-
-
32.8
32.8
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.
-19-
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
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
71.2
120.7
4.6
145.1
15.5
21.5
11.3
8.8
7.0
13.3
419.0
-
16.7
-
11.2
16.3
12.0
71.6
23.5
-
1.1
152.4
75.1
122.2
13.3
74.1
21.9
31.2
13.6
7.7
3.6
16.4
379.1
-
19.4
-
11.0
26.5
17.2
77.2
37.8
-
2.1
191.2
Movement in significant provisions, other than employee benefits, are set out below.
Consolidated - 2017 ($M)
Current and non-current
Carrying amount at start of the year
Additional provisions recognised
Unutilised provisions written back
Amounts used during the period
Business Disposal
Exchange fluctuations
Transfers
Unwinding of discount
Carrying amount end of year
(b) Recognition and measurement
Restructure
Product claims
Workers
compensation
Restoration and
rehabilitation
48.4
22.5
(7.3)
(32.0)
-
(0.1)
-
0.3
31.8
48.4
3.1
(8.6)
(9.2)
-
(0.5)
(0.3)
0.6
33.5
90.8
7.5
(2.5)
(10.5)
-
(0.3)
(3.2)
1.1
82.9
45.5
4.1
-
(1.9)
(15.6)
(0.4)
-
0.6
32.3
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.
-20-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
10 Provisions (continued)
(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 $112.9M (2016: $94.1M).
(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 16 years.
(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 $24.0M (2016: $27.4M) has been recognised for expected future reimbursements
associated with workers compensation recoveries from third parties. This amount is included in non-current other receivables (refer to
note 6) as there is no legal right of offset against the workers compensation provision.
-21-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
10 Provisions (continued)
(h) Restoration and rehabilitation
Restoration and rehabilitation provisions includes $4.2M (2016: $19.5M) for New Zealand & Pacific Steel segment in relation to its
operation of its iron sands mine in Waikato North Head. The provision has been classified as non-current as the timing of payments
to remedy the site will not be made until cessation of its operation, which is not expected for many years. The movement in the
provision from prior period relates to sale of the Taharoa Mining business on 1 May 2017.
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 2017, the defined contribution expense recognised in the profit and loss amounted to $87.4M
(2016: $90.1M).
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
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 2017.
-22-
11 Retirement benefit obligations (continued)
(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
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
2017
$M
2016
$M
(1,011.3)
730.3
(281.0)
(1,109.5)
718.7
(390.8)
(d) Defined benefit funds to which BlueScope Steel employees belong
$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
Employer contribution
Average duration of defined benefit plan
obligation (years)
Significant actuarial assumptions
Discount rate (gross of tax)
Future salary increases (i)
New Zealand Pension
Fund
Butler Manufacturing
Base Retirement Plan
2017
(588.1)
433.1
(155.0)
19.2
14.6
2016
(644.0)
402.0
(242.0)
16.7
16.2
2017
(423.2)
297.2
(126.0)
9.7
2.3
2016
(465.5)
316.7
(148.8)
2.8
0.9
Total
2017
(1,011.3)
730.3
2016
(1,109.5)
718.7
(281.0)
28.9
16.9
(390.8)
19.5
17.1
13.5
14.1
12.3
13.1
%
2.9
2.0
3.3
2.0
%
3.5
-
3.7
-
(i) 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
(f) Actuarial assumptions and sensitivity
Discount rate
Salary growth rate
Consolidated
2017
$M
2016
$M
8.2
242.4
419.9
51.4
8.4
730.3
2.8
219.9
441.9
9.6
44.5
718.7
Impact on defined benefit
obligation
Increase in
assumption
$M
Decrease in
assumption
$M
Change in
assumption
+/-1%
+/-1%
(149.8)
19.7
171.7
(18.9)
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 2017.
-23-
11 Retirement benefit obligations (continued)
(g) Reconciliations
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 - 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 - North America
Total included in employee benefits expense
Actual return on plan assets
(i) Amounts recognised in other comprehensive income
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
Plan assets
Defined benefit obligation
2017
$M
2016
$M
2017
$M
2016
$M
718.7
-
18.8
-
-
41.9
(9.9)
(48.7)
-
16.9
(4.8)
2.3
-
(4.9)
-
730.3
708.6
-
26.6
-
-
6.6
36.0
(44.8)
-
17.1
(5.3)
2.7
(25.6)
(3.2)
-
718.7
1,109.5
11.1
-
27.6
1.6
(78.1)
(13.2)
(48.7)
1.5
-
-
-
-
-
-
1,011.3
926.5
10.9
-
34.1
13.6
152.6
46.9
(44.8)
0.2
-
-
-
(25.6)
-
(4.9)
1,109.5
Consolidated
2017
$M
2016
$M
11.1
(2.3)
8.8
4.9
6.4
-
28.9
55.8
10.9
(2.7)
7.5
3.2
5.5
(4.9)
19.5
30.0
Consolidated
2017
$M
2016
$M
118.4
(408.4)
(160.6)
(526.8)
Actuarial gains (losses) recognised in other comprehensive income during the year - DB plans
Cumulative actuarial (losses) recognised in other comprehensive income
(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 2018 are $31.0M.
-24-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
11 Retirement benefit obligations (continued)
(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.
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
Year ended 30 June 2017
Opening net book amount
Additions
Depreciation charge
Disposals
Disposal of subsidiary
Impairment charge (note 14(e))
Asset reclassifications
Assets reclassified to held for sale from PP&E (a)
Asset reclassifications to computer software
Exchange fluctuations
Closing net book amount
At 30 June 2017
Cost
Accumulated depreciation and impairment
Net book amount
Assets under construction included above:
Land and
Buildings
$M
Plant,
machinery
and
equipment
$M
804.5
20.4
(39.9)
(0.4)
(3.1)
(16.7)
3.5
(5.3)
-
(19.1)
743.9
3,029.6
355.3
(288.0)
(4.4)
(1.4)
(69.3)
(3.5)
-
(3.5)
(37.0)
2,977.8
Total
$M
3,834.1
375.7
(327.9)
(4.8)
(4.5)
(86.0)
-
(5.3)
(3.5)
(56.1)
3,721.7
1,451.8
(707.9)
743.9
10,622.4
(7,644.6)
2,977.8
12,074.2
(8,352.5)
3,721.7
0.1
297.7
297.8
-25-
12 Property, plant and equipment (continued)
At 1 July 2015
Cost
Accumulated depreciation and impairment
Net book amount
Year ended 30 June 2016
Opening net book amount
Additions
Business acquisitions
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
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Land and
buildings
$M
Plant,
machinery
and
equipment
$M
Total
$M
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
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
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
Assets under construction included above:
0.1
250.1
250.2
(a) Assets held for sale
Buildings China reclassified $5.3M from land and buildings to assets held for sale, associated with the restructuring of the engineered
building solutions businesses.
(b) 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
(c) Sale and disposal of property, plant and equipment
Consolidated
2017
$M
2016
$M
195.4
(106.7)
88.7
273.8
(185.0)
88.8
Consolidated
2017
$M
2016
$M
Net loss on sale and disposal of property, plant and equipment
(2.3)
(5.3)
-26-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
12 Property, plant and equipment (continued)
(d) 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.
(e) 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 a year and considered against the remaining useful life.
13 Intangible assets
Consolidated
Year 30 June 2017
Opening net book amount
Additions
Amortisation charge
Impairment charge (note 14 (e))
Reclassifications from PP&E
Exchange fluctuations
Closing net book amount
At 30 June 2017
Cost
Accumulated amortisation and impairment
Net book amount
Patents,
trademarks
and other
rights
$M
Goodwill
$M
Computer
Software
$M
Customer
relationships
$M
Other
intangible
assets
$M
1,202.5
-
-
(12.0)
-
(33.9)
1,156.6
1,668.3
(511.7)
1,156.6
6.9
-
(0.9)
-
-
(0.1)
5.9
90.8
14.4
(20.3)
(3.2)
3.5
(1.7)
83.5
20.8
(14.9)
5.9
326.6
(243.1)
83.5
400.9
-
(29.6)
-
-
(10.9)
360.4
470.1
(109.7)
360.4
35.4
-
(1.7)
-
-
(0.2)
33.5
41.9
(8.4)
33.5
Total
$M
1,736.5
14.4
(52.5)
(15.2)
3.5
(46.8)
1,639.9
2,527.7
(887.8)
1,639.9
-27-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
13 Intangible assets (continued)
Consolidated
At 1 July 2015
Cost
Accumulation amortisation and impairment
Net book amount
Year 30 June 2016
Opening net book amount
Additions
Business acquisitions (note 20 (a) (ii))
Amortisation charge
Impairment charge (note 14 (e))
Reclassifications from PP&E
Exchange fluctuations
Closing net book amount
At 30 June 2016
Cost
Accumulation amortisation and impairment
Net book amount
(a) Recognition and measurement
Patents,
trademarks
and other
rights
$M
Goodwill
$M
Computer
software
$M
Customer
relationships
$M
Other
intangible
assets
$M
804.1
(461.7)
342.4
342.4
-
923.2
-
(38.7)
-
(24.4)
1,202.5
1,704.6
(502.1)
1,202.5
20.8
(13.2)
7.6
290.4
(213.6)
76.8
7.6
-
-
(0.9)
-
-
0.2
6.9
76.8
25.0
0.4
(17.5)
-
5.5
0.6
90.8
21.3
(14.4)
6.9
321.6
(230.8)
90.8
105.1
(56.8)
48.3
48.3
-
389.8
(25.3)
-
-
(11.9)
400.9
483.4
(82.5)
400.9
39.8
(4.9)
34.9
34.9
-
-
(1.7)
-
-
2.2
35.4
42.2
(6.8)
35.4
Total
$M
1,260.2
(750.2)
510.0
510.0
25.0
1,313.4
(45.4)
(38.7)
5.5
(33.3)
1,736.5
2,573.1
(836.6)
1,736.5
(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 2017, $26.2M (2016: $22.1M) 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.
-28-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
Building Products North America
Buildings North America
North Star BlueScope Steel LLC
Buildings China
Total goodwill
Building Products ASEAN, North America & India
BlueScope Buildings
North Star BlueScope Steel
BlueScope Buildings
2017
$M
3.6
284.7
865.0
3.3
1,156.6
2016
$M
3.7
293.1
890.6
15.1
1,202.5
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 $3.8M (2016: $3.9M) 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.
(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
2.5% (2016:2.5%).
- The growth rate used to extrapolate the cash flows for each CGU beyond the forecast period does not exceed
- 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
the 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 base post-tax discount rates range from 8.4% to 9.3% (2016: 8.5% to 9.7%).
- 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.
-29-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
14 Carrying value of non-financial assets (continued)
(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 13.3% pre-tax discount rate (2016:
13.0%).
At 30 June 2017 the recoverable amount of this CGU is 2.1 times (2016:1.6 times) the carrying amount of $452.0M (2016: $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 4.4% per annum (2016: 5.8%) from the 2016/17 financial year over the three-year projection
period.
However, the timing and extent of this increase is uncertain. To illustrate the sensitivity of these assumptions, if they were to differ
such that the expected cash flow forecasts for Buildings North America were to decrease by 51% (2016: 39%) across the forecast
period, without implementation of mitigation plans, the recoverable amount would 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 13.6% (2016: 13.7%).
At 30 June 2017 the recoverable amount of the CGU is 1.6 times (2016: 1.2 times) the carrying amount of $1,735.6M
(2016:$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. Spread increased significantly during the year ended 30
June 2017, and the long-term sustainability of this increase is uncertain. To illustrate the sensitivity of these assumptions, if they were
to differ such that the expected cash flow forecasts for North Star BlueScope Steel LLC were to decrease by 37% (2016: 12%) across
the forecast period, without implementation of mitigation plans, the recoverable amount would 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) and New Zealand & Pacific Steel (NZPac) which has a recoverable amount in line with its carrying
amount. The carrying amount of these CGUs are determined taking into the key assumptions set out above.
For ASP, recognised external forecasters estimate the US dollar relative to the Australian dollar to remain around the average
2016/17 level and a decrease in global commodity steel prices less than any decrease in iron ore and coal raw material costs. The
Group believes that the long term assumptions adopted are appropriate. Earnings before interest, tax and depreciation improved
significantly during the year ended 30 June 2017, however, ASP remains exposed to variable macroeconomic factors and to illustrate
the sensitivity of these assumptions, if they were to differ such that the expected cash flow forecasts were to decrease by 36% (2016:
10%) across the forecast period, without implementation of mitigation plans, the recoverable amount would be equal to the carrying
amount.
For NZPac, recognised external forecasters estimate the US dollar relative to the New Zealand dollar to remain around the average
2016/17 level and a decrease in global commodity steel prices relative to the average 2016/17. The Group believes that the long term
assumptions adopted are appropriate. Earnings before interest, tax and depreciation improved significantly during the year ended 30
June 2017, however, NZPac remains exposed to variable macroeconomic factors and to illustrate the sensitivity of these
assumptions, if they were to differ such that the expected cash flow forecasts were to decrease by 10% across the forecast period,
without implementation of mitigation plans, the recoverable amount would be $46M below the carrying amount.
-30-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
14 Carrying value of non-financial assets (continued)
(e) Recognised impairment charges (write-backs)
Segment
Australian Steel Products - PP&E
Australian Steel Products - Goodwill
New Zealand Steel - PP&E
BlueScope Buildings impairment write-back
Building Products Indonesia - PP&E impairment
Buildings China - PP&E, goodwill and intangibles
Castrip investment (note 23(e))
Building Products India PP&E (note 23(e))
Net impairment expense of non-financial assets from continuing operations
Discontinued operations: New Zealand Steel Mining Ltd
Total impairment expense recognised
2017
$M
2016
$M
Discount rates
2017 (%)
2016 (%)
-
-
-
-
50.3
43.9
-
4.7
98.9
7.0
105.9
150.3
38.7
182.2
(1.1)
-
-
2.3
-
372.4
182.4
554.8
-
-
-
-
14.8
13.0
-
-
-
13.5
-
13.7
13.7
13.4
-
-
-
-
-
-
13.4
-
Current period impairments recognised in Building Products Indonesia is a result of an uncertain regulatory environment including
tariffs, import quotas and other regulatory measures and ongoing margin compression. The impairment was based on a recoverable
amount of $190.0M. Additionally, for the six months ended 31 December 2016, Buildings China recognised impairments in relation to
engineered building solutions for $28.6M of property, plant and equipment no longer required, and $12.0M of goodwill and $3.3M of
other intangibles assets as a result of uncertainty regarding future earnings. The impairment was based on a recoverable amount of
$12.9M.
Prior period impairments recognised were against assets in the Australian Steel Products and New Zealand and Pacific Steel
Products segments. The impairments followed the review of steel and iron ore price assumptions and discount rates in light of
macroeconomic and global steel market challenges. A subsequent review in December 2016 resulted in a further $7.0M of property,
plant and equipment being impaired in relation to Taharoa iron sand mining assets within the New Zealand and Pacific Steel
segment. The Taharoa iron sand mining business was subsequently sold on 1 May 2017.
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
2017
$M
2016
$M
750.1
2.9
753.0
(1.1)
751.9
547.3
2.5
549.8
(0.9)
548.9
-31-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 net profits 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
2017
$M
2016
$M
773.9
380.4
101.2
24.0
(51.0)
(9.1)
4.3
(105.1)
(80.6)
6.0
(322.3)
228.6
130.0
1.6
(7.5)
31.0
23.5
3.5
1,132.4
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
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
2017
2016
Current
$M
Non-
current
$M
Current
$M
Non-
current
$M
-
14.2
7.8
22.0
34.3
-
1.1
(4.2)
31.2
-
130.6
-
130.6
161.1
650.3
-
(10.0)
801.4
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
53.2
932.0
228.6
1,099.2
-32-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
2017
$M
2016
$M
505.5
1,113.8
1,619.3
380.8
971.6
1,352.4
88.7
88.8
1,708.0
1,441.2
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
Australian bank loan
- $850M syndicated bank facility with a syndicate of banks. The facility is currently undrawn.
- Comprises three tranches, maturing in November 2017, December 2018 and November 2019.
- Facility is secured against specific trade receivables and inventories of the Australian, New Zealand and
North American businesses, excluding Building Products North America and North Star.
- Three facilities totalling THB 1,300M ($50M), maturing December 2017, March 2019 and January 2020,
available for NS BlueScope Steel (Thailand) Ltd cash requirements.
- One facility totalling MYR 30M ($9M), maturing April 2018, to support working capital and other short-term
Non-Australian bank loans
cash requirements for NS BlueScope Steel (Malaysia) Sdn Bhd.
Senior Unsecured Notes
- One US$15M 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 2019 and March 2020 for NS BlueScope Coated
Products joint venture.
- One US$45M term facility maturing July 2019 for NS BlueScope Coated Products joint venture.
-
In November 2016, remaining US$110M senior unsecured notes were repaid prior to maturity date and
US$2.0M premium paid on early redemption.
- 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.
Working capital facility
An inventory financing facility for BlueScope Steel (AIS) operates as a sale and repurchase facility whereby
the inventory is sold upon shipment and repurchased by BSL at the point of consumption. The facility limit
is US$55M (inclusive of GST) and matures February 2018. The facility is currently undrawn.
-33-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
16 Borrowings (continued)
(c) Bank overdrafts
Bank overdraft facilities are arranged with a number of banks with the general terms and conditions agreed to on a periodic basis.
(d) Lines of credit
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
Consolidated
2017
$M
48.9
1,374.8
1,423.7
1.1
195.4
196.5
47.8
1,179.4
1,227.2
2016
$M
50.8
1,568.0
1,618.8
0.9
304.7
305.6
49.9
1,263.3
1,313.2
-34-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
16 Borrowings (continued)
(e) Contractual maturity analysis
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 2017
Notes
< 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
9
1,802.9
32(d)
4.8
-
-
3.0
6.0
6.0
29.9
1,847.8
-
-
-
-
4.8
57.4
59.6
117.0
16.8
58.1
74.9
163.5
55.0
218.5
666.8
47.1
713.9
14.6
8.7
23.3
80.3
49.1
129.4
999.4
277.6
1,277.0
30 June 2016
Notes
(117.0)
(74.9)
< 1 year
$M
1 - 2
years
$M
(23.3)
(713.9)
(218.5)
Contractually maturing in:
4 - 5
3 - 4
2 - 3
years
years
years
$M
$M
$M
(129.4)
(1,277.0)
> 5 years
$M
Total
$M
Payables
x
Derivative financial
instruments
x
Borrowings
-Principal
-Interest
9
1,480.7
7.3
32(d)
2.2
-
-
-
3.0
6.0
16.5
1,513.5
-
-
-
2.2
233.5
75.4
308.9
209.3
71.3
280.6
48.0
60.8
108.8
308.9
280.6
108.8
22.6
59.0
81.6
81.6
691.7
51.9
743.6
141.9
71.0
212.9
1,347.0
389.4
1,736.4
743.6
212.9
1,736.4
-35-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
16 Borrowings (continued)
(f) Finance costs
Interest and finance charges paid/payable
Ancillary finance charges
Provisions: unwinding of discount
Consolidated
2017
$M
*Restated
2016
$M
71.2
16.9
2.1
90.2
78.6
22.4
2.6
103.6
*Certain amounts shown here have been restated to reflect retrospective changes made to discontinued operations (refer to note 24).
(g) Non-cash financing activities
Consolidated
2017
$M
2016
$M
Acquisition of plant and equipment by means of finance leases
6.8
40.9
Current period represents a US$4.3M finance lease addition in North America Building Products segment for a warehouse lease.
Prior period related to a US$29M finance lease addition in New Zealand steel for the use of equipment associated with the transport
of iron sands, fully disposed as part of the sale of the investment on 1 May 2017.
(h) 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.
-36-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
17 Contributed equity
(a) Share capital
Issued fully paid ordinary shares
(b) Movements in ordinary share capital
Parent Entity
Parent Entity
2017
Shares
561,111,434
2016
Shares
571,346,300
2017
$M
4,554.4
2016
$M
4,688.1
Date
Details
Number of shares
Issue Price
$M
1 July 2016
Opening balance
FY15 KMP STI share awards
FY13 LTIP share award
FY13 CEO LTIP share award
FY13 Retention share award
FY15 KMP STI share buy-back
Share buybacks (c)
Share rights - Tax deduction (d)
Balance
30 June 2017
571,346,300
129,621
393,362
323,547
1,700,497
-
(12,781,893)
-
561,111,434
$4.12
$3.30
$3.51
$4.57
-
($11.74)
-
4,688.1
0.5
1.3
1.1
7.8
(0.3)
(150.1)
6.0
4,554.4
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 (d)
Balance
30 June 2016
(c) Share buybacks
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
On 20 February 2017, the Company announced an on-market share buyback program of up to $150M. At 30 June 2017, 12,781,893
shares had been bought back at an average cost of $11.74 (transaction costs of $150,000).
(d) 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.
(e) 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.
-37-
17 Contributed equity (continued)
Total borrowings
Less: Cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
(f) Recognition and measurement
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Notes
16
15
Consolidated
2017
$M
2016
$M
985.2
(753.0)
232.2
5,538.7
5,770.9
1,327.8
(549.8)
778.0
4,985.3
5,763.3
4.0%
13.5%
Ordinary shares
Ordinary shares are classified as equity and have no par value. Ordinary shares carry one vote per share, the right to participate in
dividends and entitle the holder to the proceeds on winding up of the Group in proportion to the number of shares held.
The proceeds of share buybacks are deducted from equity, including directly attributable incremental costs (net of income taxes). No
gain or loss is recognised in profit and loss.
18 Reserves
Hedging (b) (i)
Share-based payments (b) (ii)
Foreign currency translation (b) (iii)
Non-distributable profits (b) (iv)
Asset realisation (b) (v)
Controlled entity acquisition (b) (vi)
(a) Movements in reserves
Consolidated - June 2017 ($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
Deferred tax
Transfer to inventory
Transfer to profit and loss
Transfers from retained profits
Exchange fluctuations
Closing balance
Consolidated
2017
$M
2016
$M
(1.0)
73.3
(81.8)
17.3
188.8
(21.9)
174.7
1.6
59.5
(19.4)
16.3
188.8
(21.9)
224.9
Hedging
Share-based
payments
Foreign
currency
translation
Non-Distributable
profits
Asset
realisation
Controlled
entity
acquisition
Total
1.6
1.9
-
-
-
0.7
(5.2)
-
-
-
(1.0)
59.5
-
-
24.0
(10.2)
-
-
-
-
-
73.3
(19.4)
-
(15.8)
-
-
-
-
1.7
-
(48.3)
(81.8)
16.3
-
-
-
-
-
-
-
1.0
-
17.3
188.8
(21.9)
224.9
-
-
-
-
-
-
-
-
-
188.8
-
1.9
-
-
-
-
-
-
-
-
(21.9)
(15.8)
24.0
(10.2)
0.7
(5.2)
1.7
1.0
(48.3)
174.7
-38-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
18 Reserves (continued)
Consolidated - June 2016 ($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
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
(21.9)
225.1
-
-
-
-
-
-
-
-
-
188.8
-
(11.6)
-
-
-
-
-
-
-
-
(21.9)
(0.2)
23.2
(11.8)
(1.3)
19.6
0.6
0.8
(19.5)
224.9
(b) Nature and purpose of reserves
(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
Recognises 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
Records 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.
-39-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
19 Dividends
(a) Ordinary shares
Final dividend for 30 June 2016 of 3 cents per fully paid ordinary share paid on 10 October 2016
(2016: 3 cents).
Fully franked based on tax paid at 30%
Interim dividend of 4 cents per fully paid ordinary share was paid on 31 March 2017 in relation to
the year ended 30 June 2017 (2016: 3 cents).
Fully franked based on tax paid at 30%
Total dividends paid
Parent entity
2017
$M
2016
$M
17.2
17.1
23.0
40.2
17.1
34.2
(b) Dividends not recognised at year-end
For the year ended 30 June 2017, the Directors have approved the payment of a final dividend of 5 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
2017
$M
2016
$M
14.1
14.1
31.3
31.3
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 of prior years
(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.
-40-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
20 Business combinations (continued)
(ii) On 30 October 2015, BlueScope acquired the remaining 50% share of North Star BlueScope Steel LLC for a purchase
consideration of $999.5M ($987.7M net of transaction costs and cash balances acquired). 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.
(b) 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
-41-
Note
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
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
Equity
holding
2017
%
Equity
holding
2016
%
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
21 Subsidiaries and non-controlling interests (continued)
Name of entity
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
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
NS BlueScope Lysaght Myanmar Limited
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 (Thailand) Ltd
Steel Holdings Co Ltd
NS BlueScope Lysaght (Thailand) Ltd
BlueScope Buildings (Thailand) Ltd
BlueScope Steel International Ltd
ASC Profiles LLC
-42-
Note
(a)
(g)
(b)
(b)
(b)
(b)
(g)
(b) (g)
(b)
(b)
(b)
(b)
(c)
(e)
(b)
(b)
(b)
(b)
(b)
(b)
(b)
Principal place of
business
Australia
Brazil
Brunei
China
China
China
China
China
China
China
China
China
China
China
Fiji
Hong Kong
India
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Myanmar
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
Equity
holding
2017
%
Equity
holding
2016
%
100
100
30
100
100
100
100
100
100
100
100
100
100
100
64
100
100
50
50
100
50
100
60
100
50
50
30
25
50
100
100
100
100
65
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
30
100
100
100
100
100
100
100
100
100
100
100
64
100
100
50
50
100
50
100
100
100
50
50
30
25
50
100
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
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
21 Subsidiaries and non-controlling interests (continued)
Name of entity
Note
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
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 Construction Engineering (Michigan) LLC
BPG Ocoee 1 LLC
BlueScope Lysaght (Vanuatu) Ltd
BlueScope Buildings Vietnam Ltd
NS BlueScope Lysaght (Vietnam) Ltd
NS BlueScope Vietnam Ltd
(b)
(b)
(b)
(f)
(f)
(c) (d)
(b)
(b)
Principal place of
business
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Vanuatu
Vietnam
Vietnam
Vietnam
Equity
holding
2017
%
Equity
holding
2016
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
100
50
100
100
100
100
100
100
39
100
50
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50
50
100
50
100
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 ASIC
Corporations (wholly-owned Companies) Instrument 2016/785 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 1 May 2017 the Group sold its 100% interest in New Zealand Steel Mining Ltd to Taharoa Mining Investments Limited.
(f) New entities incorporated during the year.
(g) This entity is in the process of being liquidated and deregistered.
-43-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
21 Subsidiaries and non-controlling interests (continued)
(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.
(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
2017
%
2016
%
Thailand
USA
60
50
60
50
2017
$M
2016
$M
155.8
155.3
19.2
39.3
160.1
146.1
23.6
12.6
The summarised financial information of these subsidiaries is 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
2017
$M
2016
$M
Steelscape LLC
2016
2017
$M
$M
173.9
191.9
365.8
-
102.3
3.8
106.1
259.7
103.9
155.8
172.9
179.4
352.3
-
81.8
3.5
85.3
267.0
106.9
160.1
295.0
131.9
426.9
-
94.0
22.3
116.3
310.6
155.3
155.3
212.0
134.3
346.3
-
37.3
16.8
54.1
292.2
146.1
146.1
-44-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
(a) Movements in carrying amounts
Carrying amount at the beginning of year
Share of profits after income tax
Dividends received/receivable
Currency fluctuation
Carrying amount at the end of the year
NS BlueScope (Steel)
Thailand Ltd
2017
$M
2016
$M
Steelscape LLC
2016
2017
$M
$M
433.5
(395.0)
38.5
410.0
(364.9)
45.1
663.5
(584.9)
78.6
560.5
(535.3)
25.2
(6.5)
(5.8)
32.0
19.2
23.1
39.3
23.6
21.5
-
78.6
39.3
25.6
-
25.2
12.6
2.6
NS BlueScope (Steel)
Thailand Ltd
2017
$M
2016
$M
Steelscape LLC
2016
2017
$M
$M
26.1
(30.5)
(31.6)
(36.0)
52.3
(23.6)
(36.8)
(8.1)
61.3
(8.3)
(48.9)
4.1
23.2
(8.1)
2.4
17.5
Consolidated
2017
$M
2016
$M
7.5
8.6
Principal Place
of Business
Saudi Arabia
Saudi Arabia
Malaysia
New Zealand
Ownership interest
2016
2017
%
%
30
30
25
50
Consolidated
2017
$M
2016
$M
8.6
3.4
(4.3)
(0.2)
7.5
30
30
25
50
7.3
3.9
(3.3)
0.7
8.6
(b) Contingent assets and liabilities relating to associates
There were no contingent assets and liabilities relating to investments in associates.
-45-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
22 Investment in associates (continued)
(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
2017
$M
2016
$M
36.7
30.7
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.
(a) Movements in carrying amounts
Carrying amount at beginning of year
Share of profit 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
2017
$M
2016
$M
Tata BlueScope Steel
2017
$M
2016
$M
-
-
-
-
-
-
-
112.8
28.7
(24.2)
(124.5)
-
7.2
-
30.7
5.7
-
-
(0.3)
0.6
36.7
24.5
7.3
-
-
(0.3)
(0.8)
30.7
(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.
-46-
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
Financial assets held at fair value
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
Group's share of capital commitments
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Tata BlueScope Steel
2017
$M
2016
$M
10.4
21.7
55.4
11.3
24.4
170.2
3.6
297.0
38.2
1.5
5.3
-
175.8
2.8
223.6
73.4
50.0
36.7
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
North Star BlueScope
Steel LLC(i)
2017
$M
2016
$M
Tata BlueScope Steel
2017
$M
2016
$M
-
-
-
-
-
-
-
-
470.1
(405.6)
(6.8)
(0.3)
57.4
-
28.7
-
344.0
(300.7)
(11.9)
(20.0)
11.4
-
5.7
-
340.0
(287.9)
(14.8)
(22.5)
14.8
-
7.4
-
(i) For the year ended 30 June 2016, North Star BlueScope Steel LLC's results represented four months of the Group's equity
accounted share of profit.
-47-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 $2.8M (2016: $5.1M).
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
$5.2M (2016: $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 $5.6M
(2016: $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
Current period includes fixed asset write-downs of $4.7M within Building Products ASEAN, North America and India segment for the
India joint venture in relation to engineered building solutions assets no longer required.
Prior period included $2.3M of impairment losses recognised in relation to the Group's 47.5% investment in Castrip LLC. On 8 July
2016, the Group sold its 47.5% interest in Castrip for US$20M (A$26.6M). The investment in Castrip was held at $Nil value.
(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.
-48-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
24 Discontinued operations
(a) Description
New Zealand Steel Mining Ltd
The Group discontinued its Taharoa New Zealand Steel Mining business upon sale of the business on 1 May 2017, with retrospective
changes made to the comparative period results.
(b) Financial performance of discontinued operations
Taharoa
Mining
$M
2017
Other
$M
Consolidated
Total
$M
Taharoa
Mining
$M
2016
Other
$M
108.7
0.5
(7.0)
(4.8)
(82.9)
14.5
-
14.5
-
0.8
-
-
(0.4)
0.4
-
0.4
108.7
1.3
(7.0)
(4.8)
(83.3)
14.9
-
14.9
115.0
-
(182.4)
(5.5)
(128.2)
(201.1)
-
(201.1)
-
-
-
-
(0.7)
(0.7)
0.1
(0.6)
Total
$M
115.0
-
(182.4)
(5.5)
(128.9)
(201.8)
0.1
(201.7)
x
Revenue
Other income
Impairment of non-current assets (note
14(e))
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.
(c) Cash flow information - discontinued operations
The net cash flows of discontinued operations held are as follows:
x
Net cash inflow (outflow) from operating activities
Net cash inflow (outflow) from investing activities
Net cash inflow (outflow) from financing activities
Net increase in cash generated by the operation
Consolidated
2017
Taharoa
Mining
$M
Other
$M
Total
$M
Taharoa
Mining
$M
2016
Other
$M
13.0
(10.5)
(10.3)
(7.8)
0.1
-
-
0.1
13.1
(10.5)
(10.3)
(7.7)
(11.1)
(27.5)
(4.2)
(42.8)
(12.0)
-
-
(12.0)
Total
$M
(23.1)
(27.5)
(4.2)
(54.8)
-49-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 2017 in respect of:
(i) Outstanding legal matters
BlueScope has initiated legal proceeding against South32 alleging certain coal supply contract non-compliances estimated at
approximately $86 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 (2016: $3.8M).
(ii) Guarantees
In Australia, BlueScope Steel Limited has provided $87.6M (2016: $87.6M) in guarantees to various state workers compensation
authorities as a prerequisite for self-insurance. An amount, net of recoveries, of $51.5M (2016: $55.6M) 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 2017 totalled
$93.0M (2016: $88.4M).
(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.
(iv) Regulatory
The Group is subject to extensive government laws and regulation, including environmental, greenhouse gas emissions, tax,
occupational health and safety, competition law and trade restrictions in each of the countries in which it operates. The Group is also
subject to risks posed by the conduct of our employees and other participants in the supply chain and to the risk of regulatory
investigations into compliance with government laws and regulations which could be lengthy and costly.
Over the last financial year, the Australian Competition and Consumer Commission (ACCC) has been investigating potential cartel
conduct by BlueScope relating to the supply of steel products in Australia, that involved a small number of BlueScope employees in
the period from late 2013 to mid-2014. BlueScope has co-operated, and continues to co-operate, with the ACCC’s investigation.
(b) Contingent assets
There are no material contingent assets required for disclosure as at 30 June 2017.
-50-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
2017
$M
2016
$M
67.9
-
67.9
37.5
0.4
37.9
(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 year ended 30 June 2017 was $88.8M (2016: $101.8M). 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
2017
$M
2016
$M
89.7
223.4
153.6
466.7
110.4
249.0
209.1
568.5
(ii) Finance leases
The Group leases various property, plant and equipment with a carrying amount of $88.7M (2016: $88.8M).
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.
Notes
Consolidated
2017
$M
2016
$M
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
16
16
-51-
27.9
92.7
127.3
247.9
(103.1)
144.8
14.2
130.6
144.8
31.9
132.6
210.8
375.3
(151.6)
223.7
13.1
210.6
223.7
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
26 Commitments (continued)
(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
(i) BlueScope announced on 21 August 2017 Mr Mark Vassella as its new Managing Director & CEO from 1 January 2018, after Mr
Paul O’Malley announced his retirement effective 31 December 2017 as Managing Director & CEO. The remuneration arrangements
for Mr Vassella and the retirement conditions for Mr O’Malley are outlined in the Remuneration Report.
(ii) BlueScope announced on 21 August 2017 the appointment of Jennifer Lambert as a non-executive director effective 1 September
2017. Ms Lambert will nominate for election at the Annual General Meeting on 11 October 2017.
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 was assessed 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. The shares will be
issued in late August 2017.
(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 $Nil exercise price.
(iii) Deferred Equity Award
The Board awarded deferred equity awards to senior management throughout the Group, with no performance hurdles required to be
met. The equity award gives the right to receive an ordinary share at a later date subject to continued employment with the Group.
-52-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
28 Share-based payments (continued)
(b) Fair value of share rights granted
The fair value of the share rights granted during the year ended 30 June 2017 are as follows:
Fair Value inputs
x
Grant date
Latest expiry date
Share rights granted
Fair value estimate
at grant date ($)
Cash rights (i)
Valuation date share
price ($)
Expected dividend
yield (%)
Expected risk-free
interest rate (%)
Expected share price
volatility (%)
KMP FY17 STI
awards
1 Jul 2016
30 Jun 2017
267,893
Supplementary
FY17 KMP LTIP
(TSR)
Supplementary
FY17 KMP LTIP
(EPS)
FY17 LTIP (Senior
management) (TSR)
1 Sept 2016
31 Aug 2020
94,519
1 Jul 2016
30 Jun 2019
94,519
1 Sept 2016
31 Aug 2020
877,270
8.47
-
8.59
1.50
1.51
5.88
-
8.59
1.50
1.49
8.22
-
8.59
1.50
1.42
40.00
40.00
40.00
4.88
38,550
7.75
1.50
1.57
40.00
FY17 Deferred
Equity Awards
(Senior
management)
1 Sept 2016
31 Aug 2019
780,000
7.42
50,250
7.75
1.50
1.52
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.
(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)
LTIP (CEO, KMP &
Senior management)
Retention share
awards (KMP &
Senior
management)
Deferred Equity
(Senior
management)
3,532,763
267,893
(188,063)
-
3,612,593
-
10,531,818
1,104,858
(802,513)
(184,750)
10,649,413
-
1,828,354
-
(1,814,011)
(14,343)
-
-
2,728,710
830,250
-
(138,526)
3,420,434
-
(i) The average share price for the year ended 30 June 2017 was $9.93 (2016: $4.79).
The weighted average remaining contractual life of share rights outstanding at the end of the period was 1 year (2016:1.6 years).
(d) Expense arising from share-based payment transactions
Employee share rights expense
Employee share awards expense
Total net expense arising from share-based payments
Consolidated
2017
$M
2016
$M
24.0
3.5
27.5
23.2
2.6
25.8
The carrying amount of the liability relating to share-based payment plans at 30 June 2017 is $4.3M (30 June 2016: $2.7M). This
liability represents the deferred cash amounts payable under LTIPs and Deferred equity awards.
-53-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
28 Share-based payments (continued)
(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.
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 and other long-term benefits
Share-based payments
Consolidated
2017
$'000
2016
$'000
7,739.9
303.5
12,622.0
20,665.4
8,147.4
261.1
11,528.1
19,936.6
-54-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
29 Related party transactions (continued)
(c) Transactions with other related parties
The following transactions occurred with related parties other than Key Management Personnel or entities related to them:
Sales of goods and services
Sales of goods to associates
Interest revenue
Interest revenue
Superannuation contributions
Contribution to superannuation funds on behalf of employees
(d) Outstanding balances
Consolidated
2017
$M
2016
$M
3.3
0.1
2.3
0.1
104.4
107.2
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
Joint ventures
Current receivables (loans)
Associates
Current payable (purchase of goods and services)
Associates
(e) Terms and conditions
Note
6
Consolidated
2017
$M
2016
$M
0.5
1.6
1.3
3.3
0.2
-
1.3
2.9
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 $1.2M
(2016: $1.3M). These transactions have been made on commercial arm's length terms and conditions.
-55-
30 Parent entity financial information
(a) Summary financial information
Summarised Statement of comprehensive income
Revenue
Other Income
Net impairment (expense) write-back of non-current assets
Finance costs
Other expenses
Profit (loss) before income tax
Income tax expense (benefit)
Net profit (loss) for the year
Other comprehensive income (loss) for the year
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
2017
$M
2016
$M
2,894.2
2,668.0
13.8
0.7
14.6
(100.5)
(2,750.3)
71.8
102.0
173.8
-
(724.9)
(111.8)
(2,368.8)
(536.8)
(0.6)
(537.4)
-
Total comprehensive income (loss) for the year
173.8
(537.4)
Summary of movements in retained losses
Retained losses at the beginning of the year
Net profit (loss) for the year
Transfer to profits reserve
Other
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
(1,523.4)
173.8
(173.8)
(0.1)
(1,523.5)
(986.0)
(537.4)
-
-
(1,523.4)
2017
$M
2016
$M
4,615.5
1,542.9
6,158.4
2,122.3
62.6
2,184.9
3,973.5
4,554.4
67.4
875.2
(1,523.5)
3,973.5
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
Profits reserve
Profits reserve represents profits available for distribution to BlueScope Steel Limited shareholders as dividends.
-56-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
30 Parent entity financial information (continued)
(b) Guarantees entered into by the parent entity
In Australia, the parent entity has given $87.6M (2016: $87.6M) 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
2017
$M
2016
$M
915.0
650.3
195.1
1,760.4
917.0
816.8
200.9
1,934.7
As at 30 June 2017, the parent entity had capital commitments of $6.6M (June 2016: $5.2M). 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 $108.0M (2016: $90.2M) and intercompany payables
of $6.1M (2016: $86.9M) of BlueScope Steel Limited have been recognised as a tax consolidated adjustment.
-57-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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 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 ASIC (wholly-owned Companies) Instrument 2016/785
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 ASIC (wholly-owned Companies) Instrument 2016/785 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
Net impairment (expense) write- back of non-current assets
Freight on external despatches
External services
Finance costs
Other expenses from ordinary activities
Profit (loss) before income tax
Income tax benefit
Net profit (loss) for the year
Other comprehensive income for the year
Total comprehensive income (loss) for the year
-58-
2017
$M
2016
$M
3,681.1
3,519.4
14.2
88.8
26.5
(2,409.8)
(523.6)
(63.9)
18.7
(215.0)
(264.5)
(102.0)
(77.2)
84.5
102.7
187.2
-
187.2
(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)
-
(470.0)
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
2017
$M
2016
$M
(1,308.3)
187.2
(173.8)
(0.1)
(1,295.0)
(838.3)
(470.0)
-
-
(1,308.3)
2017
$M
2016
$M
69.7
4,475.5
478.2
18.5
5,041.9
8.4
15.7
1,012.2
584.1
84.6
32.6
0.3
1,737.9
6,779.8
778.0
1,547.7
166.5
7.5
2,499.7
0.7
19.5
55.4
2.6
78.2
2,577.9
4,201.9
4,554.4
67.4
(0.1)
875.2
(1,295.0)
4,201.9
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 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
Transfer to profits reserve
Other
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
Other
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
-59-
32 Financial instruments and risk
(a) Financial assets and liabilities
30 June 2017
Financial assets
Receivables
Derivative financial instruments
Financial liabilities
Payables
Borrowings
Derivative financial instruments
30 June 2016
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 2017
Loans and
receivables
$M
Derivative
instruments
$M
Financial
liabilities at
amortised cost
$M
Total carrying
amount
$M
1,363.9
-
1,363.9
-
-
-
1,363.9
-
7.3
7.3
-
-
(4.8)
2.5
-
-
-
(1,847.8)
(985.4)
-
(2,833.2)
1,363.9
7.3
1,371.2
(1,847.8)
(985.4)
(4.8)
(1,466.8)
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)
-60-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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.
Risk
x
Foreign
exchange risk
x
Interest rate
risk
x
Commodity
price risk
x
Liquidity risk
x
Credit risk
(Counterparties/
Geographical)
Exposure arising from
Measurement
Management
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.
Foreign currency payables and
receivables (primarily USD) and
net investments in foreign
currency.
Floating interest rate bearing
liabilities (2017: $203.4M, 2016:
$305.2M) and investments in cash
and cash equivalents (2017:
$753.0M, 2016: $549.8M).
International steel prices (primarily
hot rolled coil and slab), and
commodity prices including iron
ore, coal, scrap, zinc, aluminium
and electricity.
Sensitivity
analysis and
cash flow
forecasting
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 Buildings
Group within the Australian
operations.
-61-
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
Commodity option
Financial assets
Trade and other payables
Borrowings
Forward foreign exchange contracts
Financial liabilities
Net exposure
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
2017
$M
2016
$M
103.9
35.2
1.0
-
5.3
145.4
165.5
72.8
2.4
240.7
23.4
44.6
4.0
0.1
-
72.1
167.7
77.7
0.9
246.3
(95.3)
(174.2)
This exposure for the Group does not reflect the natural hedge of USD assets against USD liabilities of AUD 183.4M (2016: AUD
70.2M).
Judgement of reasonably possible movements:
AUD/USD + 10% (2016: +10%)
AUD/USD - 10% (2016: -10%)
Post-tax profit
higher (lower)
Equity
higher (lower)
2017
$M
4.9
(6.0)
2016
$M
12.5
(15.3)
2017
$M
4.9
(6.0)
2016
$M
12.5
(15.3)
(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)
Commodity option - non-current asset (iii)
Financial assets
Forward foreign exchange contracts - cash flow hedges (i)
Forward foreign exchange contracts - fair value hedges (i)
Financial liabilities
Net exposure
Consolidated
2017
$M
2016
$M
-
1.0
1.0
5.3
7.3
2.4
2.4
4.8
2.5
3.6
1.4
0.1
-
5.1
2.0
0.2
2.2
2.9
(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, plant and equipment 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.
(ii) Forward commodity contracts
The Group has entered into forward contracts for the purchase of electricity for its New Zealand Steel business. This forward contract
has been designated as a cash flow hedge with the effective portion of gains and losses recognised directly in equity.
-62-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
32 Financial instruments and risk (continued)
(iii) Commodity option
As part of the sale agreement of New Zealand Steel Mining Limited to Taharoa Mining Investments Limited (TMIL), BlueScope is
eligible to receive future royalties of US$1.66 per DMT when the Platts Index Quotation is equal or greater than US$65 per DMT. The
royalty period is for iron sand shipments made between years 2 and 11 from 1 May 2017. The royalty agreement ends on 10 May
2028.
The key model variable inputs impacting the value of the derivative are the Platts index iron ore price, the historical volatility of iron
ore prices, the credit worthiness of TMIL and production risk. The June 2017 royalty value has been assessed at US$4M. The royalty
value will need to be reassessed at each reporting date with any movement in the fair value of the derivative to be fair valued through
the profit and loss and included in discontinued operations.
(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)
2017
2016
Carrying
amount
$M
Fair value
$M
Carrying
amount
$M
Fair value
$M
650.3
(650.3)
682.6
(682.6)
816.8
(816.8)
897.5
(897.5)
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 (level 3).
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 and forward foreign exchange contracts
are considered level 2 valuations (note 32(d)) and the commodity royalty option is considered level 3.
(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, is 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.
-63-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
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
2017
$
2016
$
3,950,000
4,096,000
-64-
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
34 Other accounting policies
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
Consolidated
2017
$
2016
$
38,000
694,000
61,000
357,000
106,000
666,000
80,000
873,000
44,000
1,173,000
(a) 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 2017 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 is not expected to result in a material change to the financial
statements and disclosures of the Group upon implementation. The new standard will result in an increase in the impairment
allowance against trade receivables due to the change to an earlier recognition of the allowance via the use of an expected credit
loss model.
(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 has the potential to
change the timing and in some cases the quantum of revenue recognised.
Management has carried out an assessment of the impact of the new standard and based on the work performed to date, it expects
that it will not have a material impact on the Group's recognition and measurement of revenue.
(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 out as part of the adoption of the new
standard.
-65-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
34 Other accounting policies (continued)
(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.
(vi) IFRIC Interpretation 23 – Uncertainty over income tax treatments (effective 1 July 2019)
IFRIC 23 clarifies the application of recognition and measurement requirements in AASB 112 Income Taxes when there is uncertainty
over income tax treatments and removes most of the choice about how to reflect uncertain tax positions in the financial statements.
A full assessment of the amendments to the standard is yet to be carried out. However, the amendments are not expected to result in
any change to the financial statements of the Group.
(b) 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.
-66-
BlueScope Steel Limited
Notes to the consolidated financial statements
30 June 2017
34 Other accounting policies (continued)
(c) 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
are 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.
-67-
Directors' Declaration
BLUESCOPE STEEL LIMITED
FOR THE YEAR ENDED 30 JUNE 2017
In the Directors' opinion:
(a)
(b)
(c)
(d)
the financial statements and notes set out on pages 1 to 67 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 2017 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
21 August 2017
-68-
EXTENDED FINANCIAL
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6
(
SHAREHOLDER INFORMATION
AND CORPORATE DIRECTORY
SHAREHOLDER INFORMATION
As at 31 July 2017
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
65,228
12,688
1,264
644
62
79,886
Securities
19,442,606
25,874,949
8,921,113
14,938,607
491,934,159
561,111,434
Based on a closing share price of $13.180 on 31 July 2017, the number of shareholders holding less than a
marketable parcel of 38 shares is 7,725 and they hold 153,221 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
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AMP LIFE LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
BOND STREET CUSTODIANS LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
NATIONAL NOMINEES LIMITED
BRISPOT NOMINEES PTY LTD
WARBONT NOMINEES PTY LTD
UBS NOMINEES PTY LTD
BOND STREET CUSTODIANS LIMITED
NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT>
Securities
202,064,862
89,331,020
77,540,476
42,228,653
17,321,008
15,494,881
11,856,616
7,600,869
3,481,375
3,368,546
2,571,442
2,014,996
1,682,102
1,202,740
1,132,530
900,411
889,968
715,000
620,652
579,458
%
3.47
4.61
1.59
2.66
87.67
100.00
%IC
36.01%
15.92%
13.82%
7.53%
3.09%
2.76%
2.11%
1.35%
0.62%
0.60%
0.46%
0.36%
0.30%
0.21%
0.20%
0.16%
0.16%
0.13%
0.11%
0.10%
TOTAL
Balance of Register
Grand TOTAL
482,597,605
78,513,829
561,111,434
86.01%
13.99%
100.00%
Substantial Shareholders
As at 31 July 2017, BlueScope has been notified of the following substantial shareholdings:
Name
Number of securities held
Share Registrar
Link Market Services Limited
Ausbil Investment Management Limited
BlackRock Group
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.
35,530,219
30,351,491
Auditor
Website Address
CORPORATE DIRECTORY
Directors
Managing Director and Chief Executive Officer
J A Bevan
Chairman
P F O’Malley
D B Grollo
K A Dean
P Bingham-Hall
E G W Crouch AM
L H Jones
R P Dee-Bradbury
D J Counsell
P F O’Malley
T J Archibald
Products
D J Counsell
Chief Legal Officer and Company Secretary
S Dayal
Chief Executive, NS BlueScope
S R Elias
Chief Financial Officer
Chief Executive, BlueScope Buildings
P Finan
A Highnam
M R Vassella
Executive General Manager, People and Performance
Chief Executive, BlueScope Australia and New Zealand
Secretary
Executive Leadership Team
J M Lambert (from 1 September 2017)
Managing Director and Chief Executive Officer
Chief Financial Officer, BlueScope Australia and New Zealand and BlueScope Coated
Notice of Annual General Meeting
The Annual General Meeting of BlueScope Steel Limited will be held at the Grand Hyatt, 123
Collins Street, Melbourne at 10.00am on Wednesday, 11 October 2017
Corporate Governance Statement
An overview of BlueScope Steel’s corporate governance structures is presented in the 2017
Registered Office
Level 11, 120 Collins Street, Melbourne, Victoria 3000
Corporate Governance Statement which is available online at:
http://www.bluescope.com/about-us/governance
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
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
(ASX code: BSL)
www.bluescope.com
Securities Exchange
BlueScope Steel Limited shares are quoted on the Australian Securities Exchange
CORPORATE DIRECTORY
Directors
J A Bevan
Chairman
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
J M Lambert (from 1 September 2017)
Secretary
D J Counsell
Executive Leadership Team
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
D J Counsell
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
The Annual General Meeting of BlueScope Steel Limited will be held at the Grand Hyatt, 123
Collins Street, Melbourne at 10.00am on Wednesday, 11 October 2017
Corporate Governance Statement
An overview of BlueScope Steel’s corporate governance structures is presented in the 2017
Corporate Governance Statement which is available online at:
http://www.bluescope.com/about-us/governance
Registered Office
Share Registrar
Auditor
Securities Exchange
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