Bluescope Steel - Asia Coated and Building Products

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Annual Report 2004

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Asia Coated and Building Products

Positioned in many of the world's most energised economies, BlueScope Steel's Coated and Building Products Asia businesses continued to grow during the year, in conjunction with this powerhouse region.

BlueScope Steel began manufacturing in Asia in 1965, with a rollforming facility in Singapore. Our network of metallic coating, painting and rollforming operations is now the most extensive of any company. We are also focused on growing our leading position in pre-engineered buildings in Asia.

We are a leading Australian manufacturing investor in each Asian country in which we operate. Our Asian businesses sell to customers in the building, construction and manufacturing industries across the Asia-Pacific region, and hold premium positions in niche markets in a range of Asian countries with our range of branded products.

As the results show, we have continued our progress in building the profitability of our Asian businesses. In 1999/00, our Asian business segment contributed $11 million in earnings before interest and tax. This progressively increased to $54 million in 2000/01, $71 million in 2001/02, and $84 million in 2002/03. In 2003/04 this figure reached $100 million.

During the year, BlueScope Steel announced new Asian investments totalling over A$500 million, with the expenditure to occur over the next two years in Vietnam, China and Thailand. These investments are targeted at building our position in the downstream, value-added markets we service.

In 2003/04, Coated and Building Products Asia again showcased the advantages of operating as a network of local businesses. As participants in domestic markets we supply products which meet our customers' needs. We also offer our customers shorter lead times, better technical support and better delivery performance than our competitors.

This local focus is also demonstrated by our market-leading brands, many of which have been tailored to specific countries. For example our Clean Room Chicken Sheds have helped control the spread of disease in Thailand. The expansion of our Asian operations means BlueScope Steel will soon have over 3,000 employees working in the Asia-Pacific region. For our Asia-based employees, the workplace is becoming safer. In 2003/04, this business segment achieved 2.5 million working hours without any injuries that resulted in lost time.

Through BlueScope Lysaght Asia, we operate 23 steel rollforming facilities in 12 countries in Asia and the Pacific - China, Indonesia, Malaysia, Thailand, Vietnam, Brunei, Singapore, Sri Lanka, Taiwan, Fiji, New Caledonia and Vanuatu. These facilities produce and distribute the LYSAGHT® brand of steel rollformed products and accessories for roofing and walling applications, as well as structural decking and pre-engineered buildings, using our own coated steel.

We also operate 60 sales and marketing offices across the region, selling to the commercial, industrial and residential sectors of the building and construction industry. Our Coated Products Asia businesses include metallic coating and painting facilities in Thailand, Malaysia and Indonesia. New facilities are under construction in Vietnam and China, with a major facility extension underway in Thailand.

Among our premium brands in Asia are Clean COLORBOND® steel and ZINCALUME® steel, as well as the newly acquired brands of the BlueScope Butler and Vistawall businesses, and specific branded products developed for individual markets. All hold strong market positions.

VIETNAM

BlueScope Lysaght Vietnam has built its current market position from rollforming operations which commenced in Ho Chi Minh City in 1993, and Hanoi in 1996. These two facilities have provided the foundation for us to move into larger scale production.

In August 2003, we announced our intention to construct a A$160 million metallic coating and painting facility in Ba Ria, Vung Tau Province, 80 kilometres south east of Ho Chi Minh City.This will be 100 per cent owned by BlueScope Steel. The facility will have an annual production capacity of 125,000 tonnes of metallic coated and 50,000 tonnes of painted flat steel products. The zinc-aluminium alloy coating technology utilised at the facility will be a first for the Vietnam market.

Work progressed to schedule during the year. Initial earthworks were completed, construction of the main plant buildings is progressing well, and we expect the plant to start operating early in the 2006 calendar year. During the year we also conducted a successful customer product-seeding program, one of a number of initiatives designed to generate market demand for BlueScope Steel products.

INDONESIA

Our Indonesia business is the country's only local manufacturer of zinc/aluminium coated and pre-painted steel. We market a number of Indonesia-only brands to the building and construction industries. These include PELANGI®, ABADI®, GEMILANG® and ANCOR^TM steel.

In January 2004, an expansion was completed at our Indonesia metallic coating and painting facility in Cilegon, near Jakarta, doubling our paint line capacity from 25,000 to 50,000 tonnes per year. Strong sales in residential roofing - up 50 per cent year on year - means this capacity increase is now fully utilised.

We also have BlueScope Lysaght operations at three locations - Jakarta, Medan and Surabaya. Sales of our LYSAGHT® SMARTRUSS^TM steel roof trusses increased sharply, by over 100 per cent, from the same period last year. During the year, we also increased our metallic coating capacity from 90,000 tonnes to 100,000 tonnes. This was achieved largely through software modifications. Sales of pre-engineered buildings commenced in Indonesia this year, in line with our PEB expansion strategy.

MALAYSIA

Our Malaysia operation serves customers in the building and manufacturing markets in Malaysia, Singapore, Brunei, Sri Lanka and China, and is currently the main supplier of feedstock to BlueScope Steel's China business. BlueScope Steel (Malaysia) experienced robust demand in 2003/04. An increase in domestic sales was supported by the development of new applications in door and window frames, as well as strong sales to the domestic hardware market.

BlueScope Steel owns 60 per cent of our metallic coating and painting facility at Kapar-Selangor, in Malaysia. Our partner is PNB Equity Resource Corporation Sdn Bhd, a large local equity fund. BlueScope Lysaght operates rollforming facilities at Shah Alam in Kuala Lumpur, Kota Kinabalu in Sabah and Bintulu in Sarawak.

THAILAND

BlueScope Steel (Thailand) operates a high quality cold rolling, metallic coating and painting facility, selling to local and export markets. We own 75 per cent of this facility, with the remaining 25 per cent held by Loxley, a local investor. Market demand for BlueScope Steel (Thailand) products was healthy during 2003/04.

Sales of PEBs increased significantly, with innovative new products achieving strong sales in the chicken and duck shed segments. LYSAGHT SMARTRUSS^TM sales were also strong, doubling year on year. Our growth initiatives for Thailand reflect this demand. In January 2004, we announced a second metallic coating line at our Rayong site, to more than double our metallic coating capacity to 420,000 tonnes per annum. This metallic coating line is scheduled for start up around the middle of the 2005 calendar year, with significant construction work having occurred during the year.

BlueScope Lysaght operates three rollforming facilities at Bangkok, Khon Kaen and Rayong, supplying coated steel building products for commercial, industrial and residential uses.

BlueScope Steel now holds the number one position in pre-engineered buildings and premium steel building products in China. We are Australia's leading manufacturing investor in that country. Our involvement with China spans 89 years, since we began exporting steel there in 1915.

In 1995, we commenced operating on the ground in China, with the commissioning of our Shanghai and Guangzou rollforming plant. In 2003, we opened two modern factories at Langfang(near Beijing), and at Chengdu, both of which are operating profitably. These four manufacturing centres cover the east, south, north and west growth regions of China. To support these facilities, we have developed an extensive distribution network of over 30 sales and technical offices.

BlueScope Steel's acquisition of Butler Manufacturing in April 2004 brings two additional manufacturing sites to our China operations. These are in Shanghai (1996) and Tianjin (2003). The addition of BlueScope Butler China to our portfolio has added great capabilities and products, and a new group of employees skilled in premium PEB design and construction.

In February 2004, we commenced construction of a major metallic coating and painting facility at Suzhou, 80 km west of Shanghai. This facility, which will involve capital investment $A280 million, is planned for completion in 2006. It will supply China's booming building and construction markets. The new plant will manufacture 250,000 tonnes of metallic coated steel, and 150,000 tonnes of painted steel. All our facilities in China are 100 per cent owned by BlueScope Steel.

Demand for steel in China has exploded since 1995. At that time, China was consuming 13 per cent of world steel production. In 2003, it accounted for 27 per cent, or 233 million tonnes of steel. The strong growth in China's demand for steel is expected to continue. China is modernising on an unprecedented scale, and BlueScope Steel has developed an important niche in this dynamic market.

Consequently, we are poised to grow with China, and we look forward to an exciting future for our operations in this vibrant and fascinating country.

$100m Record EBIT for our Asian Business

UNIQUE SOLUTIONS // Architect and Rangsit University lecturer, Janejud Sri-Aroon, above, stands outside his redesigned President Building at Rangsit University near Bangkok, Thailand.

Graph of Sales Revenue and ABIT for 2002, 2003 and 2004

LOCAL FOCUS // Many of our products are developed to suit the climatic conditions of specific Asian countries. BlueScope Steel's products feature throughout this international French school in Thailand, above.

DYNAMIC SKYLINE // Shanghai's futuristic skyline, above, is a showcase of steel products

SOLID FOUNDATIONS // Over the past 12 months, we have approved investments of $500 million to drive the growth of our Asian businesses. Construction of our new coating and painting facility in Ba Ria, Vung Tau Province near Ho Chi Minh City in Vietnam, above, is now well advanced.

UNIQUE SOLUTIONS // President Building at Rangsit University near Bangkok, Thailand. The 11-storey building features a striking, curved wall of over 300 windows, and houses a 700-seat auditorium. The design demonstrates energy conservation and acoustic principles to the University's 450 architecture students. Around five tonnes of BlueScope Lysaght's ZINCALUME® steel were used in construction, with many structures pre-fabricated to ensure safety and minimise disruption.

We now oprate the world's leading pre-engineered building business

CUSTOMER SATISFACTION // Jian Kai, Chief Engineer Shanghai Xinan (Group) Co. is a satisfied customer of BlueScope Butler in China. He is pictured inside a completed pre-engineered building (PEB) at Shanghai Industrial Park.