BROADENING OUR HORIZONS - Arrium

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OneSteel Annual Report 2011REVIEW OF OPERATIONS CONTINUEDNew Zealand distribution28OneSteel’s New Zealand Distribution segment comprises a50.3% shareholding in Steel & Tube Holdings Limited, a publiclisted company in New Zealand that processes and distributes acomprehensive range of steel and allied products to the residentialand non-residential construction markets and rural industries.Revenue decreased 3% to $296 million from $304 million in theprevious corresponding period due to lower prices and flat volumes.However, EBIT increased 53% to $20 million due to a greater focuson operating expenses and improved margins. The business alsoimplemented a new operating model during the year to leveragekey differentiating strengths of the business.The New Zealand economy struggled to gain momentum throughthe year, with many of the business’s key sectors continuing todeteriorate. Market conditions in the construction segment remainedsubdued, with weak demand squeezing margins during the period.Residential construction remains at historical lows, with buildingconsents declining by 14% compared to the previous year. Privatelyfunded non-residential construction activity also declined furtherduring the year. Despite the subdued conditions, Steel & Tube hasmaintained a steady market share position in its core products.The manufacturing segment started the year slowly with a slightimprovement in the second half. Government infrastructure projectscontinued to assist volumes during the year. The rural segmentshowed signs of recovery, with record agricultural commodity pricesand particularly strong demand for dairy from Asia.Oil and gas projects were reasonably strong in the first half, withactivity expected to improve as new opportunities come on line.The company suffered minimal disruptions to business operationsas a result of the Christchurch earthquakes; however, it continues toprovide ongoing support to employees and their families that wereimpacted. We expect that the rebuild will be significant, althoughspread over a long period and we continue to position the companyfor the opportunities ahead.The business continues to focus on lowering its cost base, cash andbalance sheet management, inventory costs and the rationalisationof premises.OutlookLooking ahead, we expect the construction segment to remain weakin the short to medium term with the residential segment improvingmarginally towards the second half due to the Christchurch rebuild.The business continues to position itself to reflect the current andforeseeable economic environment and remains well positionedwith strong operating cash flows and a strong balance sheet.The business continues to position itself to reflect the currentand foreseeable economic environment and remains well positionedwith strong cash flows and a strong balance sheetNZ Distribution — Historical InformationFY11 FY10 FY09 FY08 FY07 FY06Revenue/Income ($m) 296.2 303.8 399.9 435.7 405.2 390.4EBITDA ($m) – Underlying 24.7 18.2 42.7 39.0 45.9 48.7EBIT ($m) – Underlying 19.9 13.0 37.2 33.8 40.6 43.7Sales Margin (%) 6.7 4.3 9.3 7.8 10.0 11.2Assets ($m) 173.4 175.2 183.8 206.2 219.6 175.1Funds Employed ($m) 113.8 114.9 154.3 173.9 119.1 106.2ROFE (%) 17.4 9.7 22.7 19.4 36.0 39.1Employees (number) 692 711 787 834 881 907
Review of Operations$296 MILLIONNEW ZEALAND DISTRIBUTION SALES Revenue29
Page 3 and 4: 2About OneSteel6Chairman’s Review
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Page 23: Review of Operations$1,507 MILLIONR
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