Steel

The Steel division has 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 business is composed of Stramit, Dimond and Pacific Coil Coaters (PCC).
  • Long steel businesses consist of Pacific Steel, Pacific Wire, Fletcher Pacific Steel (Fiji) and our 50 percent interest in Sims Pacific Metals.
  • Distribution and services businesses include the EasySteel steel merchandising business, the CSP hot-dip galvanising business, the Cyclone fencing business and Fletcher Reinforcing.

Performance overview

Operating earnings for the year, excluding unusual items, were up 52 percent on the prior year to $154 million.

Consistent with other steel businesses, 2009 was a year of two very different halves. The first half was characterised by very strong demand, steel shortages and robust pricing. With the industry downturn at the end of October the situation became one of very weak demand, excess supply and significant inventory overhang, and very weak pricing. Managing in this highly volatile environment has been extremely challenging.

A highlight for the year was the generation of $182 million of operating cashflow of which a reduction in working capital contributed $22 million. This result was driven by proactive inventory management and rapid reductions in the cost base as volumes fell. Pacific Steel, in particular, had maintained tight inventory levels that benefited the business when prices began to decline.

Sales for the year rose by three percent to $1,321 million. Sales in the second half of the year were 30 percent lower than the first half of the year as a result of much lower volumes and pricing. A reduction in demand in the commercial and residential markets, however, was offset by strong demand from infrastructure spending in New Zealand and Australia.

Earnings in the long steel products businesses, which include earnings from the division’s 50 percent investment in Sims Pacific Metals, increased 215 percent over the prior year, driven by a strong first half year.

Fletcher Reinforcing had a strong year. Volumes increased by eight percent on the prior year due to the large number of infrastructure projects in New Zealand. These projects included the New Lynn Rail Trench in which learnings from the Otago Reinforcing acquisition (which was completed in 2008) were successfully applied. An on-site processing facility was created from which product could be supplied, cut, bent, and placed – a first for Fletcher Reinforcing on such a large scale. The project was delivered on time and on budget in a safe environment.

Reduced demand from the residential and light commercial markets resulted in a decline in volume for the rollforming and coated steel businesses in Australia and New Zealand. Both businesses responded quickly to the change in the market by restructuring to match lower demand volumes, requiring staff to be reduced by 13 percent, and closing three unprofitable branches.

During the year, Stramit moved into its new purpose-built manufacturing and distribution centre at Knoxfield in the outskirts of Melbourne. The new site replaces three different manufacturing sites and is expected to achieve significant synergies and production efficiencies. The consolidation was completed in May without incident.

Stramit Buildings, which was formed in 2008 upon the acquisition of Fair Dinkum Homes and Sheds, Garage World and Shed Boss, continued to perform strongly during the year. This business exceeded financial expectations during the year and continues to further diversify and enhance Stramit’s business model by providing a dedicated distribution channel.

Back to topLooking ahead

Investment in infrastructure spending in key markets will continue to support demand for steel products. The restructuring carried out by division businesses during the year has created a strong competitive base for the future. The Steel division is well positioned to benefit from the eventual rebound in housing and light commercial work.