Bluescope Steel - Managing Director and CEO's Report

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Kirby Adams, Managing Director and CEO

It is two years since BlueScope Steel's public listing, and in that time we have matured, grown and become more agile. During 2002/03 we worked hard to beat our prospectus forecast, further improve our performance and establish our credibility. As a consequence, we gained your permission to grow.

The 2003/04 financial year has seen us enter this growth phase. We have further implemented our downstream value added strategy, while continuing to reward shareholders. So with another outstanding 12 months behind us, I am pleased to report some of the highlights of your Company - BlueScope Steel.

A SECOND CONSECUTIVE OUTSTANDING YEAR

Once again, our financial performance has been strong. Revenue for 2003/04 was $5.8 billion, up from $5.3 billion in 2002/03, and $4.6 billion in 2001/02. This indicates strong market demand, but more importantly, it demonstrates that we have positioned ourselves to capitalise on that demand. We continue to develop long-term relationships of integrity with our customers around the world.

Net profit after tax increased 29 per cent, or $132 million, to $584 million. This is a measure of the skill with which people across all our businesses have managed production volumes, product mix, pricing and unit costs. Our earnings per share of 77.8 cents was up 36 per cent from 57.1 cents in 2002/03, and our after tax return on invested capital was a healthy 18.5 per cent. These two outcomes demonstrate how we have maintained shareholder returns as a priority.

Our Board of Directors generously extended $27 million of share offers to our employees in 2003 and 2004. As a result, more than 99 per cent of our employees who have taken advantage of our Employee Share Ownership Plans are now sharing in the capital appreciation and dividends that are flowing to all shareholders.

SAFETY - THE ZERO HARM IMPERATIVE

During the financial year we have experienced many safety successes, but one tragedy overshadows them all. On 29 June 2004, a contractor at our Brisbane Logistics Terminal in Queensland, Australia, was killed in a forklift accident.

If we cannot operate our business safely, then all our achievements are hollow. We must drive for even better safety and must persevere towards our imperative of Zero Harm.

It is my great hope that we shall never have another fatality. To achieve this goal, we have implemented a global program at every operating site to reduce and, where possible, eliminate the interaction of people and forklifts.

Our safety performance has otherwise continued to improve. Our lost time injury frequency rate is at a record low of 1.3 hours lost per million hours worked and our medical treatment injury frequency rate has been similarly reduced, as shown on page 23.

EXCELLENCE IN STEELMAKING

BlueScope Steel's strong financial results were achievable because of our solid foundation of low cost, high quality steelmaking. Our steelmaking operations were a major contributor to profitability over the last financial year.

Port Kembla Steelworks in Australia, New Zealand Steel at Glenbrook and North Star BlueScope Steel in Ohio, USA are among the world's finest steelmaking facilities. Each utilises a completely different technique to produce steel - one from iron ore and coke, one from ironsands, and one from scrap.

This financial year, Port Kembla Steelworks set a new production record of 5.145 million tonnes. North Star BlueScope Steel returned a strong profit and excellent operational performance, and for the third year in a row it was rated the number one flat rolled steel supplier in North America in the prestigious Jacobsen survey. New Zealand Steel completed a strong turnaround.

Our facilities have maintained their position at the low end of the international cost curve, helping ensure that our foundations remain strong and our comparative costs low.

GROWTH - ACCELERATING OUR PROGRAM

The past financial year has seen the Company accelerate its growth program. In keeping with our strategy of developing our downstream, value-added businesses, much of our investment has been in these areas.

In this financial year, we announced commitments to growth projects totalling over A$1 billion. These projects are in China, Vietnam, Thailand, Indonesia, North America, Australia and New Zealand. Of course, this figure includes the US$206 million acquisition of the US-based Butler Manufacturing - an event which we consider company defining, and which brings 4,400 new employees into our Company. We have put a lot of energy into making their transition to BlueScope Steel a great one.

Our steel coating, painting and rollforming businesses have also shown solid growth, reflecting our overall Company strategy. In Australia, innovative and timely products are adding even more value to our steel. For example, our BlueScope Water business has launched the Waterpoint® range of rainwater harvesting products, as well as the HydroRib® range, which supports stormwater management and irrigation.

In Asia, we are continuing to develop new brands in response to local market demand, including the LYSAGHT SMARTRUSS® system of steel roof trusses.

So this has been a year in which our Company has grown in innovation, capability and geographical presence. This growth is an expression of our strategy, and a response to global economic conditions. Stories about these exciting products follow in this Report.

A GLOBAL COMPANY

The recent acquisition of Butler Manufacturing substantially increases our presence in China, and dramatically raises our profile in downstream businesses in North America. It also emphasises the fact that BlueScope Steel has become a more global company, employing more than 16,000 people in 23 countries.

In Asia, for example, BlueScope Steel employees will soon number more than 3,000. Our extensive BlueScope Lysaght rollforming network is unmatched by any other company, with over 40 sites across 13 countries. We are the largest Australian manufacturing investor in China, Thailand, Indonesia, Malaysia and Vietnam.

In China, the Company is now the clear leader in pre-engineered steel buildings and premium steel building materials - both are high value-added applications of steel.

Our North American businesses have great potential. We have already taken significant steps to improve the performance of the Buildings Group, while the Vistawall business shows plenty of promise for future growth.

To conclude, this has been a challenging and rewarding financial year. BlueScope Steel is in a new growth phase and we are executing that growth in a controlled manner. There is a renewed self-belief and can-do spirit evident among our people. We are committed to safe operations, providing inspired and competitive solutions for our customers and strong financial performance. Our focus is on total shareholder return.

KIRBY ADAMS MANAGING DIRECTOR AND CEO

We are committed to safe operations, providing inspired and competitive solutions for our customers and strong financial performance. Our focus is on total shareholder return.

Graph: Total Revenue, EbitDA, Ebit, Capital Expenditure and Investments

COMMITTED // Employees like Chelsea Patten and Matt Coghlan at head office in Melbourne are contributing to our success.

A YEAR AS CHAIRMAN OF THE WORLD'S PEAK STEEL BODY

This financial year coincided with Kirby Adams' year as Chairman of the International Iron and Steel Institute (IISI).

The Brussels-based IISI serves as a world forum for the international steel industry and is one of the largest and most dynamic industry associations in the world.

For the global steel industry, this is a time of great change and progress. Enormous growth in consumption in China has driven massive increases in world steel demand over the past two years. The forecasts of the IISI indicate that this growth is likely to continue.

In 2003, China's demand for steel was 233 million tonnes - 27 percent of global steel demand. In 2010, the IISI expects China's demand to reach 385 million tonnes, representing 35 per cent of global demand.

The IISI aims to consolidate steel's position as a major foundation of a sustainable world. To achieve this, a number of initiatives are underway within the Institute. These cover: steel business information, benchmarking of best practices, developing new markets for steel, addressing sustainability and communicating a positive image of steel.

World Apparent Consumption of Finished Steel