Steel Investor Presentation October 2009 Paul Zuckerman, Chief Executive Steel
Disclaimer 2 This presentation contains not only a review of operations, but also some forward looking statements about Fletcher Building and the environment in which the company operates. Because these statements are forward looking, Fletcher Building s actual results could differ materially. Media releases, management commentary and analysts presentations, including those relating to the August 2009 full year results announcement, are all available on the company s website and contain additional information about matters which could cause Fletcher Building s performance to differ from any forward looking statements in this presentation. Please read this presentation in the wider context of material previously published by Fletcher Building.
The Steel Division s breadth of operations is unique 3 Long Steel Coated Steel Steel Distribution Companies Sims JV Pacific Steel Group Fiji Rolling Pacific Coilcoaters Dimond Stramit Fletcher Easysteel CSP Coating Systems Fletcher Reinforcing Operations Scrap collection Bar and wire rod making Paints coiled steel Roll formed roofing and cladding Other rolled products Australia and NZ Steel stockist and distributor Fencing and wire products Galvanising services Reinforcing fabrication Mesh Markets Construction industry Infrastructure Residential building Commercial construction Infrastructure NZ construction and manufacturing Infrastructure Rural and vineyards
Long Steel making has taken place in NZ since 1962 4 Rod Mill established in 1962 at Pacific Steel site Wire mill added in 1968 Electric Arc Furnace installed 1972 Sims scrap JV commenced 1992 on adjacent site with the existing Fletcher shredder In 1977 the old 1962 rolling mill replaced with Danielli rod and bar mill
Steel Division operates in 40 locations across Australasia 5 Steel Flows Dimond Pacific Steel Cyclone CSP Coating Systems Pacific Wire Sims Fletcher Easysteel Fletcher Reinforcing Stramit
with a diversified geographic revenue stream 6 Steel Division F04 Revenue Source Steel Division F09 Revenue Source Pacific and Other 6% Australia 8% Pacific and Other 3% New Zealand 36% Australia 61% New Zealand 86% Source : Management Estimates
and a diversified demand-side Steel Division Australasian Demand-side share (%) 37 27 17 12 7 Residential Infrastructure Building Construction Manufacturing Rural Source : Management Estimates
The steel industry underwent a huge shock 8 World Steel Pricing (US$/tonne) New Zealand s total steel imports (tonnes p.a.) 1200 600,000 1000 500,000 800 400,000 600 300,000 400 200,000 200 100,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Hot Rolled Coil Rebar 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ann. YTD 6.09 Source : Steel Business Briefing and Statistics New Zealand
Domestic steel demand has fallen accordingly 9 New Zealand housing consents (Years ending March) NZ Housing Consents (yrs ending March) Australian non-res work done (2007 prices A$b) Australian Non-res Work Done ('07 prices A$b) 35000 35 30000 30 25000 25 20000 20 15000 15 10000 10 5000 5 0 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 0 2003 2004 2005 2006 2007 2008 2009 f 2010 f 2011 f 2012 f 6000 5000 New Zealand Other construction (RGFCF NZ$m) Australian engineering work done 80 70 (2007 prices A$b) Australian Engineering Work Done ('07 prices A$b) 4000 3000 60 50 40 2000 30 20 1000 10 0 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 0 2003 2004 2005 2006 2007 2008 2009 f 2010 f 2011 f 2012 f Source: Infometrics
What did this mean for the industry? 10 Stock overhang Reduced production capacity Inventory write-downs and losses Job losses although surprisingly very little industry rationalisation
What did this mean for Fletcher Steel? 11 Peak to trough volume declines of ~20% Some restructuring required: Previous restructuring (since 07) helped Since 07 workforce declined by 11% Three branch closures Reduced capacity through shift reductions and longer shuts
Global steel production is on the rise, while demand is still uncertain 12 107.9 98.9 87.3 81.9 World Crude Steel Production (million tonnes) 86.7 85.2 92.1 89.0 95.7 98.7 103.9 106.5 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Source: IISI
In any case, we have gone back to core principles We have reduced our cost base We have invested We are listening to our customers We are seeking out growth
Our cost structure has been reduced and right sized where required 14 Savings realised (% production cost reduction relative to 2007) 6.1 4.5 Labour cost reduction ($m) 13.2 10.1 F08 F09 Pre Restructuring Base Post Restructuring Across the board procurement savings Smarter logistics Supported by robust manufacturing Focused branch structure Right-sized sales force Consolidated Auckland Branch
We have continued to invest for the future 15 Knoxfield T-Bay Crane 20,000 m 2 facility Stramit s largest Consolidated four previous locations Environmentally friendly New Rolling Mill Crane Improves productivity Reduced dispatch time
We are improving our product offering DGL Freight System Purpose-built trailers Optimised to carry Dimond goods Can carry other FB products Bar Counting Improves yield What customers want Less rework
We are growing our existing businesses 17 Picture goes in here Expand Value Add Steel processing capability Components not just steel Expanded Placing Successfully launched at New Lynn Has application at large infrastructure projects
We are targeting new opportunities 18 Home Improvement Alteration and Additions, Outdoor living area, Pergola s, Carports. Significant market opportunity Complementary to current business New Substrate and Coating Options Further substrate differentiation Improved product performance Delivers right product for specific market segment Increased brand awareness
Steel Division Summary 19 We managed the downturn Quickly reduced our costs Managed our inventory We are looking towards the future Lower fixed cost base Improving our customer relationships Seeking out growth