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, rollforming and coatings, long steel, and distribution and services, has a leading market position and widely recognised brands.

Performance overview

Operating earnings for the year were $83 million, in line with the prior year. For the Australasian steel industry, 2011 was a very difficult year. The combination of low global steel utilisation and the very strong Australian and New Zealand currencies made exporting steel products to the region attractive. In our long steel business, where we are a manufacturer, this has been particularly harmful and has resulted in very low margins.

Demand has again been weak with overall volumes declining three percent during the year. Overall volumes for the year are 18 percent below where they were before the 2008 global financial crisis. New Zealand is particularly soft. Overall activity has been low and the Canterbury earthquakes have delayed activity in the region. Revenues were slightly ahead of the prior year despite the slowdown in the second half.

Despite the difficult market, the Steel Division focused on seeking out new profitable customers, optimising pricing and margins and positioning the businesses to take advantage of the economic recovery when it arrives.

The rollforming and coated businesses in Australia and New Zealand again experienced volume declines over the prior year. Rollforming volumes were inconsistent and heavily affected by the Canterbury earthquakes, the South Queensland floods, and Cyclone Yasi. The general downturn in new housing development in South East Queensland has reduced volumes at Stramit, which has strong share in this market. Despite the poor market conditions, careful management of pricing and costs helped hold margins. During the year Stramit Buildings launched its new brand SOL which, through licensees, offers consumers a variety of home improvement products such as patios and car ports. Earnings improved by 32 percent to $58 million for the year.

Market conditions in the long steel product businesses have been extremely difficult. As a result, earnings declined 61 percent to $12 million. Overall volumes at Pacific Steel were seven percent behind prior year with New Zealand domestic demand down 19 percent due to a reducing number of major infrastructure projects, low residential construction and pressure from imported products. The high Australian Dollar meant import competition into the Australian market was intense.

Earnings in the distribution and services businesses improved by 86 percent, to $13 million. This was mainly driven by the Easysteel distribution business. Easysteel had seen its profits drop as a result of the 2008 global financial crisis, but strong management of this business during 2011 saw it return to more normal levels of profitability. Fletcher Reinforcing's earnings declined during the year due to low volumes in infrastructure and residential, and increasing price competition.

Back to topLooking ahead

Market conditions are not expected to improve substantially in 2012 as such the business will continue to focus on streamlining the cost base while continuing to pursue profitable customers and manage margins effectively.