Steel

The Steel division operates a diversified portfolio of steel businesses across three broad business lines, primarily in Australia and New Zealand. Each of the division's businesses has a leading market position and widely recognised brands.

• The rollforming and coatings businesses comprise Stramit, Dimond and Pacific Coil Coaters (PCC).
• Long Steel businesses consist of Pacific Steel, Pacific Wire, Fletcher Pacific Steel (Fiji) and a 50 percent interest in Sims-Pacific Metals
• The distribution and services businesses include the EasySteel steel merchandising business, the CSP hot-dip galvanising business and Fletcher Reinforcing.

Performance overview

Steel's operating earnings for the year were $82 million, 47 percent lower than the prior year's record levels. Prior year earnings were driven by historically high steel prices and very strong demand in the first half of the year. Since the global financial crisis, the steel industry has been in a consolidation phase whilst global inventories re-aligned to the reduced demand environment. Accordingly, 2010 was a difficult operating environment characterised by uncertain demand and declining prices.

Sales for the year declined by 11 percent to $1,172 million, continuing the trend seen in the second half of the prior year.

Capacity reduction initiatives implemented in the prior year meant that businesses were well positioned for a sustained downturn, and as such only modest restructuring was required in 2010.

The rollforming and coated steel businesses in both Australia and New Zealand experienced volume declines over the prior year. Rollforming volumes in the residential and light commercial markets continued to be weak in 2010, although Australian government stimulus spending in schools and other areas boosted sales. Competition in rollforming was intense, reducing margins, particularly in the New Zealand market. Operating earnings declined by 14 percent.

Operating earnings in the long steel businesses declined by 63 percent with a reversal in the record steel prices seen in 2009. In Pacific Steel, average selling prices reduced by 30 percent from the prior year. Volumes were four percent higher with an increase in export volumes offsetting lower demand within New Zealand. Although earnings were significantly lower than the prior year the result demonstrates that Pacific Steel can be profitable throughout the economic cycle.

The consistency of Pacific Steel's earnings has been achieved through a focus on improved customer service, including investment to reduce plant shut-down risk, improve delivery time reliability and an expanded product offering.

Earnings in the distribution and services business declined by 63 percent. The primary driver of this decline was the Easysteel distribution business. Easysteel's operating earnings were well down on the prior year due to a combination of contracting margins and low volumes. Easysteel's margins contracted as lower selling prices caused the value of existing inventories to reduce.

Back to topLooking ahead

Although 2010 has been a very difficult year the businesses within the Steel division have focused on reducing costs and maximizing cashflow and seeking out new profitable customers.

With the existing base businesses well positioned to participate in any economic recovery the focus is on exploring high return growth opportunities and improving the resilience of our businesses for the longer term. The Steel division is assessing a number of organic growth opportunities and continues to explore potential acquisitions.