BROADENING OUR HORIZONS - Arrium

OneSteel Annual Report 2011REVIEW OF OPERATIONS CONTINUEDRECYCLING20The acquisition of the Metals Trading and Ace Metals businessesat the end of the prior year has improved the Australian Recyclingbusiness’s competitive position, particularly in Victoria, helpingto secure volumes at source. Operational synergies have beenachieved from the closure of a number of yards during the year,which has improved the cost base of the Australian business.During the year, Recycling has focused safety efforts on theidentification and control of high risk workplace activities, achievingdiscernible improvements in the interaction of mobile equipmentand pedestrians, greater employee awareness and identification ofrisk. The business was recognised in the OneSteel internal safetyawards, winning the OneSteel Safety Initiative of the Year.Greg Waters Chief Executive RecyclingOneSteel’s Recycling business supplies steelmaking raw materialsto domestic and international steel mills. The Recycling businessoperates in 15 countries through a combination of physicaloperations in the form of collection sites and trading offices thatsupply raw materials to foundries, smelters and steel mills inAustralia and globally.Within Australia, the Recycling business now operates from over36 locations, including five ferrous shredder production facilities.OneSteel’s Asian non–ferrous business operates in four countriesand carries out the group’s non–ferrous trading. Recycling operationsin the United States consist of nine locations throughout the Eastand South East, including a ferrous shredder in Tampa, Florida.OneSteel’s recyclable material is sourced from the rural, mining,demolition and manufacturing industries and the general public.The Recycling segment also sells raw materials to OneSteel’sManufacturing segment. All sales between OneSteel’s Recyclingand Manufacturing businesses are conducted on commercial termsequivalent to those negotiated with external parties.The year was marked by significant price and foreign exchangevolatility stemming from changing world economic performance,European debt issues and economic uncertainty in the US.Sales revenue for the year strengthened 34% to $1,507 million,reflecting an increase in sales volumes and higher average salesprices in US dollars, partly offset by the appreciation in the Australiandollar. Sales volumes at 2.24 million tonnes were 19% higher, drivenby ferrous volumes, up 17%, and non-ferrous volumes, up 32%. TheUS business led the ferrous volume growth, achieving a 34% increaseyear on year due to its strong market position and customer focus.Australian ferrous volumes improved 9% despite difficult marketconditions including the short supply of scrap arisings resultingfrom weak construction and industrial activity. Non-ferrous volumeperformance was a direct outcome of centralising global salesthrough our Hong Kong trading office and increasing our exposureto end users rather than intermediary customers.EBIT for the year increased to $21 million compared to $8 millionfor the prior year. This result reflects a significantly stronger secondhalf performance compared to the $5 million EBIT loss for the firsthalf. Margins were generally flat compared to the prior year partlydue to the impact of the stronger Australian dollar, improvementsin the US business and the non-ferrous operations in Australia andAsia were the major drivers of the improved result.improvements in the US businessand the non-ferrous operations inAustralia and Asia were the majordrivers of the improved resultOutlookWe expect our US and Asian businesses to build on the improvedperformance from the 2011 financial year, despite economicuncertainty through a number of supply regions.We anticipate that the Australian economy will remain challenginguntil there is a lift in domestic market confidence and the supplyof scrap arisings. The Australian business has targeted furthersubstantial cost reductions to support a longer-term sustainableposition.The international demand/supply balance for scrap steel is expectedto keep USD prices stable in the short to medium term.Recycling — Historical informationFY11 FY10 FY09 FY08Revenue/Income ($m) 1,507.2 1,123.7 1,124.0 1,404.1EBITDA ($m) – Underlying 37.6 22.9 (21.8) 98.4EBIT ($m) – Underlying 20.9 7.7 (38.6) 86.5Sales Margin (%) 1.4 0.7 (3.4) 6.2Assets ($m) 652.5 710.7 614.1 741.5Funds Employed ($m) 554.3 618.4 537.7 620.8ROFE (%) 3.6 1.3 (6.7) 13.9Employees (number) 1,033 1,019 1,016 1,127Ferrous tonnes – external (mt) 1.03 0.75 0.89 0.88Ferrous tonnes – internal (mt) 0.96 0.94 0.77 0.83Non-ferrous tonnes (mt) 0.25 0.19 0.1 0.18