BlueScope & Nippon Steel Sign JV for Coated Products to Strengthen Growth Prospects
- Aug 16, 2012
BlueScope and Nippon Steel Corporation have agreed to form a new joint venture encompassing BlueScope's ASEAN and
North American building products businesses. Nippon Steel Corporation (NSC) of Japan will be the world's second largest
steelmaker following completion of its merger with Sumitomo Metals.
The new 50:50 joint venture, called NS BlueScope Coated Products, provides a strong platform to capture expected growth
in the $40 billion per annum building and construction sector in ASEAN and North America. The JV will facilitate entry into
new markets not currently accessible to BlueScope. For example, the JV will supply whitegoods manufacturers offering
products to Asia's fast growing middle class. The JV will also speed up entry into emerging markets in the ASEAN region.
NSC's investment recognizes an agreed enterprise valuation for the JV of US$1.36 billion. BlueScope will receive
approximately US$540 million in net proceeds through NSC's 50% acquisition of BlueScope's interest in the businesses
after allowing for taxes, minority interests and transaction costs. BlueScope will continue to consolidate the business for
financial reporting purposes. The cash consideration received from NSC will be recognised within equity, therefore no gain
or loss on this transaction will be recorded in the income statement.
BlueScope Chairman Mr Graham Kraehe AO, welcomed NSC's significant investment. "It clearly highlights the long-term
strategic value created by BlueScope over many years. It's a great vote of confidence in our strategy, global reach,
capabilities and our people. It will enhance BlueScope's growth and opens an exciting new era for the company."
BlueScope's Managing Director and CEO, Mr Paul O'Malley, said "We chose to partner with NSC because it is one of the
world's largest and most innovative steel companies. NSC brings access to new technology and a broader range of
customers in new product areas, including an established customer base of Japanese companies operating in ASEAN,
which opens new market opportunities for NS BlueScope Coated Products.
"NSC is investing in BlueScope's business to expedite expansion into this fast growing Asian region. Over many decades
BlueScope has established the region's pre-eminent metal coating and painting footprint, with well recognized brands, broad
channels to market, and long-standing local relationships.
"Importantly, our two companies have worked together for many years and understand each other's technical expertise and
business approach. We have a 40-year association built on technology collaboration, with more than 65 projects completed
together since 1970. So this joint venture starts with a solid foundation", said Mr O'Malley.
NSC Representative Director and President, Mr Shoji Muneoka said "NSC is delighted to be entering into this strategic
partnership with BlueScope. This builds on our close relationship. The global building products business has strong
momentum and is well positioned to benefit from future growth throughout Asia and the US. We look forward to working
closely with BlueScope to expand the product and customer base to grow earnings and maximize value for both parties."
The joint venture will comprise BlueScope's current building products businesses in ASEAN (Indonesia, Malaysia, Thailand,
Vietnam, Singapore and Brunei) and North America (Steelscape and ASC Profiles). The footprint of this business also
covers Myanmar, Cambodia, Laos and the Philippines. The business presently employs approximately 3,000 people.
NSC and BlueScope will each hold 50 per cent of a new joint venture company, headquartered in Singapore. BlueScope will
appoint the Chief Executive of NS BlueScope Coated Products. NSC will appoint the Chairman and a number of key
executives to assist with business development and the introduction of new technology and products. The transaction is
expected to complete in the March 2013 quarter, once regulatory approvals have been obtained.
The JV does not include BlueScope's building products businesses in Australia, China and India, or its Global Building
Solutions business that operates across the world (including in ASEAN countries).
Mr O'Malley said, "This is a significant new platform to enhance our growth opportunities in some of the fastest growing
markets in the world. The proceeds received from NSC will afford BlueScope further financial flexibility and balance sheet
strength to continue to grow businesses delivering strong returns.
"NSC's major investment in this part of BlueScope's portfolio is a tribute to our reputation for leading products and strong
brands, our extensive global networks and our channels to market, and the strong partnerships developed by our excellent
people," said Mr O'Malley.
2H FY2012 Results - In Line With Underlying Guidance
In a week's time the Company will present the full year audited results for FY2012.
The year-end audit is not complete, however the reported net loss after tax (NLAT) for the year is expected to be
approximately $1 billion. This in large part reflects the cost of the major Australian steelmaking business restructure as
announced in August 2011 and impairment charges of approximately $310 million in the Australian businesses.
The Company expects to deliver on previous guidance for an underlying net after tax loss1 for 2H FY2012 (before year end
net realizable value provision on inventory and including Metl-Span operational earnings) that is lower than the underlying
net after tax loss1 in 1H FY2012 of $76M.
Mr O'Malley said the Company has reduced net debt to $384 million at 30 June 2012. "This is a very good outcome, that
was achieved with a more favorable working capital reduction than originally expected. Adjusting for the favourable timing
of various year end cashflows, a net debt balance of approximately $580 million would be a more appropriate amount to
compare against our year end net debt target of $650-$750 million. This represents a reduction of more than $200 million
from our 31 December 2011 balance of $796 million.
As noted above, the Board has decided to recognize non-current asset impairment charges totalling approximately $310
million within the Australian businesses. These charges result from a slower recovery in domestic demand than previously
expected. Furthermore, as a result of increased volatility in equity markets, a higher discount rate has been applied to
expected future cash flows. The impairment charges are across Australian Distribution (approximately $160 million), Coated
and Industrial Products Australia (CIPA) (approximately $135 million), Lysaght Australia ($10 million) and BlueScope Water
"We expect our Coated and Industrial Products Australia business to deliver positive underlying EBITDA in FY2013, with a
positive contribution in 2H FY2013, after a neutral to negative contribution in 1H FY2013 (subject to spread, FX and market
conditions). Capital expenditure of $140 million is expected within the CIPA business. A third of this will be invested in
manufacturing facilities to deliver the next generation of COLORBOND® and ZINCALUME® steel products, an investment in
our future in Australia that draws on technology developed with NSC.
"In summary, the Board has made a decision to recognize impairment charges within the Australian businesses, our 2H
FY2012 underlying result is expected to be in line with guidance and our year-end net debt of $384 million is a very good
outcome. NSC's investment in our business will make US$540 million of net proceeds available to fund opportunities for
future profitable growth from a further strengthened balance sheet. The CIPA business is expected to deliver a positive
underlying EBITDA in FY2013," said Mr O'Malley.
1 Underlying financial results reflect the Company's assessment of financial performance after excluding certain unusual items such as restructuring costs, asset
impairments and discontinued operations. This financial information is provided to assist readers to better understand the financial performance of the underlying
About BlueScope Steel
BlueScope Steel is the leading steel company in Australia and New Zealand, supplying a large percentage of all flat steel products sold in these markets. The company's products play a big part in people's everyday lives, being vital components in suburban houses, landmark buildings and structures and popular makes of cars.
Source: BlueScope Steel
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