2001 Annual Report - OneSteel

Inventories were managed down $106.1 millionfrom a peak of $646.4 million in December2000, to $540.3 million by June 2001.The underlying inventory reduction was$144.8 million to $501.6 million or 22.4%,excluding the Email inventories.These measures led to a positive cash flowoutcome of $170.1 million for the year whichwhen applied to repaying debt provided adecrease in net borrowing of 11.1% from$857.2 million, as at 30 June 2000, to$762.4 million by the end of June 2001. Inline with the debt reduction, OneSteel’s gearingratio declined from 42.4 to 40.6 (debt, to debtplus equity).Declaration of the final dividend totalled 3 centsper share fully franked, bringing the dividends forthe year to 6 cents fully franked resulting in apayout ratio of 116.5% of profit.A dividend reinvestment plan exists whichprovides the facility for shareholders in Australiaand New Zealand to reinvest their dividends inshares at a price calculated on the weightedaverage market price during the five trading daysbefore and including the record date for therelevant dividend. The record date for the Finaldividend was Friday, 21 September 2001.PROTECTING FUTURE EARNINGSA strategic framework was developed to guidethe businesses into the future. The ManagingDirector’s review provides details on howOneSteel performed against that framework overits first year.I would like to mention two significant strategicevents that took place during the year. The firstwas the successful takeover of Email Metals inconjunction with Smorgon Steel, and secondly, theannouncement made in May 2001 for the closureof the Brisbane Bar Mill.During the year OneSteel successfully acquiredthe Email Metals business in a joint bid withSmorgon Steel. This acquisition was strategicallysignificant for a number of reasons.Firstly, prior to the acquisition Email wasOneSteel’s largest single customer and it wasparamount that we positioned OneSteel to protectits medium to long-term earnings.Secondly, the acquisition provides a widerdistribution platform both geographically and inproduct range for OneSteel to interact with itsextended customer base.Lastly, the acquisition allows OneSteel to broadenits revenue base whilst increasing the absorptionof manufactured goods from OneSteel’s majorproduction facilities.At the time of “spin-out” BHP had floated thecompany with a balance sheet fully gearedthrough substantial borrowings. The need toprotect shareholder’s longer-term earnings by theacquisition of Email Metals placed furtherpressure on the balance sheet at a time whenshort-term trading conditions were impacting ontrading results. Consequently, the rate ofrestructuring required by the business acceleratedand this led to our public announcement inMay 2001.A major component of the announcement was theclosure of the Brisbane Bar Mill which is to becompleted by April 2002. The closure of this Millwill provide for increased loading on OneSteel’sother Mill operations located in Newcastle andSydney. By reducing production, the overall unitcost of production will decrease for bar millproducts. The closure required the write-off of theasset including the substantial goodwill attributedby prior owners.MEDIUM-TERM STRATEGIC FOCUSOneSteel has the size, capability andtechnological mix to build a competitiveadvantage. The primary objective of managementover the next two years is to transform OneSteelinto a highly efficient, lean, market flexibleorganisation firmly focused on the market and itscustomers’ needs.The major areas of focus over the medium termcontinue to be the reduction of debt, increasedcash generation through improved workingcapital management, reduction of costs throughcloser business integration and furtherdevelopment of channels to market.By further reducing debt and costs, OneSteel willbe in a position to entertain further growth optionsof an organic or “step change” nature.This task will be demanding as we expect thefirst six months of the 2002 financial year to besimilar to the subdued last six months. However,the second six months should benefit fromOneSteel’s successful winning of the steel railrequirements of the Alice Springs to Darwinrail contract.I would like to thank the directors for theircontribution and support during a demandingyear and our executive team led by Bob Everyand OneSteel’s 7,000 employees around theglobe for their commitment and effort. In verychallenging times, all have remained focusedon the tasks at hand.This effort has put OneSteel in a position to lookto the future with some optimism.Peter SmedleyChairmanMAJOR BUSINESS: Alice to Darwin Railway Contract – April 2001Photo (left to right) – Franco Moretti, CEO AsiaPacific Transport Company; The Hon John Olsen MP, Premier ofSouth Australia; The Hon John Howard, PM; Former Northern Territory Chief Minister, Denis Burke at the turningof the first sod ceremony for the Alice Springs to Darwin railway line.In April 2001, OneSteel was awarded a contract to supply steel rail for the Alice Springs to DarwinRailway Project. The large supply contract was awarded by the design and construction contractor to theproject, Adrail. The rail will be manufactured and supplied by OneSteel Whyalla Steelworks and thecontract will provide for approximately 144,000 tonnes of 50kg/m standard carbon rail to be suppliedover a 20-month period, commencing in the latter half of 2001. OneSteel is proud to be associated with anationally significant project such as the rail link between Alice Springs and Darwin.7