Earnings Transcript for BSL.AX - Q4 Fiscal Year 2024

Mark Vassella: Good morning, and welcome to the BlueScope FY '24 Financial Results Presentation. I'm Mark Vassella, and I'm joined this morning by David Fallu, our Chief Financial Officer. Together, David and I will take you through the results materials, after which we'll have time for Q&A. We're joining you today from BlueScope's head office in Melbourne, part of the Eastern Kulin Nation, and I'd like to acknowledge the traditional custodians of this land, the Wurundjeri peoples. We pay our respects to elders, past, present and emerging, and to all First Nations people joining us today. Despite the volatile macro conditions in FY '24, BlueScope delivered a resilient performance. Underlying EBIT of $1.34 billion and a return on invested capital of 11.9%, as strong contributions from North Star and the downstream and value-add components of the business offset the impact of soft spreads in Asia on our steelmaking operations, particularly in the second half as regional spreads dropped below the long-term bottom of the cycle level. Thanks to that resilience, we've delivered just under $550 million in shareholder returns in FY '24 and finished the year with a $364 million net cash balance sheet. And today, the Board has approved a $0.30 per share dividend and an extension of the tenor of the existing buyback program to allow the remaining $270 million to be purchased over the next 12 months. This comes following the dividend review flagged in February, which I'll go into in a little more detail in a few moments. FY '24 saw the ongoing execution of key projects across the footprint under our strategy of Transform, Grow and Deliver that secure our long-term sustainable earnings and growth. These include the approval and commencement of the North Star debottlenecking project, which will increase the capacity of our leading U.S. mini-mill by a further 10%, continuation of the assessment of the value chain integration in the U.S., including updated phasing of investment to better match the capacity and capital cost with our growth expectations, solid progress at the number six blast furnace reline and MCL7 projects in Australia, securing the manufacturing future and growth for our Australian business. The New Zealand team is also making good headway on the new electric arc furnace, transforming the business to reduce its emissions by more than 45%. And we're continuing to work to take advantage of the significant value in our 1,200 hectare land portfolio in Australia and New Zealand. I'll touch on these projects more shortly. We've also made great progress towards the commitments we made to decarbonization several years ago. Two of the many highlights in the year were the achievement of a 12.2% reduction in our steelmaking emissions intensity, which aligns to our 2030 target level. This is a fantastic result for the business, and was delivered through the expansion of our ultra-low emissions North Star mini-mill and a range of optimization initiatives at Port Kembla and Glenbrook Steelworks. And the commencement of our partnership agreement with Rio Tinto and BHP, building on a body of work we've been undertaking for a couple of years now, work that's critical to the development of low emissions ironmaking technologies, utilizing Australia's hematite raw ores. In short, despite the cyclically soft macro environment, this is an exciting time for BlueScope as we reap the rewards of the hard work done in years gone by and continue to lay the foundations for the future. Before we get into the detail of the financial result, I'll start with safety. Our performance in 2024 was frankly disappointing. The increase in our lagging safety indicators is unacceptable, with TRIFR again increasing to well above the long-term range. Whilst our commitment to safety has not wavered, we recognized that our current safety performance required an intervention. We remain committed to our evolved approach, which places a deep focus on engaging our people to design solutions that deliver effective controls and build capacity. This is the core of our people-centered approach and provides us a range of useful tools in understanding and managing risks. However, it's become clear that we need to refocus on the basics. To address this, we've initiated a global Refocus on Safety program. This initiative emphasizes the fundamental practices that are essential for keeping our people safe, reinforcing the importance of doing the basics well. The refocus will involve ensuring rigorous adherence to foundational safety practices, strengthening our controls and gaining insights through our continued risk control improvement program and learning teams, driving a culture where every employee understands and commits to the safety basics and ensuring our frontline leaders have the resources they need, most importantly, the time to support their teams in the refocus. We also acknowledge the fatal injury of a customer's contractor driver in North America. Our thoughts are with everyone impacted by this tragic incident. Going forward, we will continue to report the leading indicators alongside our lag indicators. And whilst we're pleased with the progress made in building capability and capacity in our systems, our focus must turn to doing the basics well. To our financial highlights. As I noted earlier, FY '24 underlying EBIT of $1.34 billion represents a solid result in the context of external macro conditions. Underlying EBITDA in the second half of FY '24 came in at $621 million, at the bottom end of the guidance range we provided in February. This was impacted by the rapid contraction of U.S. spread late in the financial year at North Star, the delay of one of BlueScope Property Group sales, which has now closed in the last week, and a softer performance in New Zealand on tough macro conditions and operating challenges. In February, we flagged a review of the dividend, following which today, the Board has announced its intention to increase the annual ordinary dividend level to a target $0.60 per share per annum. This increase was made in light of the increased scale and resilience of BlueScope's portfolio and the reduced share count as a result of the buyback program. Accordingly, the Board has approved a final dividend for FY '24 of $0.30 per share. In addition, the Board has extended the tenor of the existing buyback program to allow the remaining $270 million to be purchased over the coming 12 months. Our continued success, including today's result, would not be possible without the ongoing hard work and dedication of the entire BlueScope team, and I again thank them for their support. David will take you through the business performance in detail in a moment. Our commitment to climate action remains at the forefront of our strategy and in FY '24, we have again made great progress in our decarbonization journey. On our performance in '24, as I noted earlier, the business has achieved a 12.2% reduction in its steelmaking greenhouse intensity since FY '18, aligned to our 2030 target level. This was driven by the ramp up of the North Star expansion and improvements at our Port Kembla and Glenbrook Steelworks. We're continuing to work in pursuit of our non-steelmaking target. However, given the nature of the operations and available emissions reduction levers, the progress towards our target remains challenging and non-linear, which this year's performance demonstrates. Across the business, we're progressing a range of R&D initiatives that are critical to unlocking decarbonization pathways for our business and industry. This includes our collaboration with Rio Tinto and BHP to develop DRI-ESF technology using the Pilbara ores, the installation of the EAF at New Zealand, which I mentioned earlier and Project IronFlame, our Australian DRI Options Study, which in the year refined multiple technical configurations across a range of locations for potential Australian DRI supply chains. Additionally, we're excited to release our second Climate Action Report in September, which will provide detailed insights into our progress and future plans. We're also continuing our important work across our broader key material sustainability topics. Whilst we've still work to do to better reflect the communities in which we operate, I'm pleased to say that we've hit a milestone with women now making up a quarter of the BlueScope workforce and we've continued our important work on sustainable supply chains. Our strategy to Transform, Grow, Deliver alongside our financial framework continues to drive our decision-making in pursuit of our purpose. We're continuing our work, transforming the business by positioning ourselves for a low-carbon world and how we're harnessing the opportunities from digital technologies. We've completed a significant body of work under the Growth pillar of the strategy, and the benefits of these investments are only just starting to be seen in our earnings. And we remain focused on ensuring we remain a sustainable organization with strong returns. And as I noted at the outset, we're reigniting our focus, ensuring a safe workplace. One example of the valuable opportunities we have within our existing business is the debottlenecking of North Star, which will add a further 10% to our recently expanded capacity. We've talked to you previously about this project. It's incredibly capital efficient, taking advantage of the latent melt capacity from the expansion project. Following recent Board approval, work's now underway across numerous projects such as updates to the ladle isle, the tunnel furnace, as well as cooling enhancements and a third downcoiler. Following completion of the feasibility study, the capital estimate has landed at USD 130 million, and the final volume has been revised to 300,000 kilotonnes per annum, aligned to the most efficient configuration of the mill. Once at full run rate in financial year '28, the North Star mini-mill will be producing nearly 60% more steel than it did in FY '22, materially increasing our exposure to the consolidated and rationalized U.S. steel industry and the robust steel spreads and returns it offers. We've also bolstered our raw material supply arrangements to support the further expansion, with the extension of the term and increase in volume of the HBI contract with Cliffs, along with the ongoing work at BlueScope Recycling to increase supply to 40% of North Star's requirements and to optimize the scrap mix for its best possible value and use. Staying in the U.S., we progressed our feasibility study into the further integration of our U.S. value chain, which presents a compelling medium to long-term opportunity for BlueScope. As previously noted, this project will connect North Star with three BCP sites, capturing through chain margins and underpinning the rollout of COLORBOND in the U.S., with internal supply of paint line feed using our proprietary AM technology. Longer term, we continue to see the need for 550,000 tonnes of pickling, cold rolling and metal coating capacity. However, our recent work has refined how this will be phased over the next five years to seven years. The first phase will look to install about 50% of that capacity, with indicative commissioning expected in 2028. The remaining capacity will then be added as required following the first phase. This approach reduces the upfront capital to USD 800 million across FY '26 to '28. The feasibility study is continuing, and we'll update you on our progress in the first half of the 2025 calendar year. And now to update you on the key projects underway in Australia and New Zealand. Having moved to execution 12 months ago, the number six blast furnace reline and upgrade project to secure ironmaking at Port Kembla is progressing to plan and on budget, with early works commenced and long lead time items ordered. Our new metal coating line in Western Sydney is also progressing well. We're expecting commissioning in FY '26, which will support the ongoing growth in premium branded products in Australia. As I mentioned earlier, we're well underway in New Zealand with the EAF project, including the commencement of civil works and domestic scrap supply contracts being put in place. And we continue to work on our multi-decade opportunity to position our 1,200 hectare land asset for maximum strategic value. Recently, we joined with the New South Wales Government to create a whole of government working group to drive redevelopment at the Port Kembla and West Dapto sites. In the near term, we're focusing on the opportunities, such as unlocking residential land supply from the West Dapto site and progressing the SuperTAFE concept as announced at our AGM last year. And we're also continuing our planning processes across the Western Port and Glenbrook sites. I'll now hand over to David who will take you through the results in more detail.

David Fallu: Thanks, Mark, and good morning, everyone. Let's turn to the results across our regions, starting with Australia on Slide 14. The Australian business delivered an underlying EBIT of $377 million in FY '24 and a return on invested capital of 10.3%. Second half underlying EBIT was $119 million, down on the first half as Asian steel spreads saw persistent weakness. Domestic dispatches softened in the half on the orderly pullback of activity levels across building and construction applications. This saw some softening in the half for sales of COLORBOND steel. However, volumes remained at historically robust levels. The softer benchmark spread performance in second-half '24 was further impacted by lower realized pricing as global freight rates contracted and by a lower contribution from export coke sales. Looking at the specific end-use segments for ASP on Slide 15. Across the board, we saw softer dispatches in the second half of '24, with all segments seeing a low point since the financial year 2020. What this chart does not show, however, is the mix improvement within the dispatch volumes as we increase the share of premium branded and value-added products like COLORBOND steel, which you'll see on the next page. Whilst the activity in construction sectors was softer through FY '24, we remain confident in the fundamentals supporting the medium-term outlook, with the ongoing shortage of housing stock combined with strong population growth. The conditions ASP observed in FY '24 are a great reminder of why our steelmaking cost base and our focus to grow domestic value-added products is so important. The business continues to focus on our Australian steelmaking cost base, with a necessary ambition for it to be cash breakeven, including sustained CapEx at the bottom of the cycle. In an Australian manufacturing environment of high and increasing electricity, gas and labor costs, this challenge requires ongoing optimization of our cost base each and every year, particularly as we roll on to new energy contracts at less and less competitive rates. Likewise, the focus on domestic and value-added products shifts sales volume up the margin curve, with the chart on Slide 16 showing the impressive and sustained volume growth across all key areas. These dynamics continued to maintain the business' margins at the post-restructure levels in FY '24, even as spreads averaged bottom of the cycle levels across the year. Our job is to continue to position ASP in the upper band of this chart, providing us the confidence to invest through the cycle within the ASP business and informs the rationale for replicating this model in the more favored U.S. market. Turning to the U.S. Our North American business saw a broadly similar result in FY '24, with an underlying EBIT of $935 million and a return on invested capital of 16.7%. Second half underlying EBIT was $518 million, an increase on the first half. The strength of the second half was driven by improved results at both North Star and BCPNA segments. At North Star, we saw strong spreads during the half, however, contracted sharply into the end of the half, impacting a portion of sales. Performance was also supported by increased volumes as the expansion ramp up was largely completed, delivering 340,000 tonnes in the second half. And at a Building and Coated Products North America level, continued strength in volumes and margins in pre-engineered buildings and West Coast coated and painted products along with an improved contribution from BlueScope Properties Group, with the completion of two project sales in the half. As Mark mentioned, another project that we expected to complete in the second half was deferred due to a delay of the purchaser's regulatory approvals. This was simply a timing issue with the transaction completing last week and all funds received. This was offset by continued underperformance in the BlueScope Coated Products business, which continues to work through the challenges of underutilization. This was driven by ongoing low volumes from BCP's foundation customer and slower external business development, limiting productivity gains on site. This is not where we need the performance to be, and the team is continuing to work to deliver the plan of bringing the business back into line with targeted post-acquisition performance, as well as working to evolve the business model to support the offering of packaging branded products, including running successful COLORBOND trials during the course of the year. Looking at activity levels across our North American end-use segments on Slide 18. Activity across key steel-consuming sectors remains solid. Non-residential construction activity remains at historically high levels, with lead indicators again improving. Auto demand remains robust, with the consumer preference shift to more steel-intensive vehicles continuing and manufacturing activity remains stable. At an overall market level, we've seen less confidence in direction as we approach the election this year, but we expect fundamental activity levels to be supportive as the election resolves and the likely commencement of an easing interest rate environment. Our Asia businesses continue to improve, delivering an underlying EBIT of $160 million in FY '24 and a return on invested capital of 16.1%. Second half underlying EBIT was $64 million, down on the first half, largely due to typical seasonality in China. Another solid performance out of Southeast Asia was seen in the second half of '24, with slightly higher volumes across the region. Improved earnings were seen in Malaysia and Indonesia in the half, whilst Thailand delivered a record full-year result in FY '24. China delivered a softer performance in the half, as noted on typical seasonality and softer dispatch volumes within our Indian business, delivered a similar result to the first half of '24 as it continues to integrate volumes under the supply agreement with Tata Steel. The New Zealand and Pacific Islands business delivered an underlying EBIT of $44 million in FY 24, and a return on invested capital of 5%. Second half underlying earnings was $18 million, down on the first half. The softer performance in the half and full year in the NZPI business comes against a backdrop of soft macroeconomic conditions and lower levels of construction activity, which was compounded by elevated conversion costs and a weaker vanadium contribution. FY '24 has been a challenging year for the business. However, we are confident that we have a solid business that can withstand the current external operating conditions and is poised to benefit from the macroeconomic recovery in New Zealand when it comes. Turning to the group underlying EBIT movements on Slide 21. The year-on-year movement shows the benefit of our diversified operations, with the impact of spread across Asia and the U.S. broadly netted out. What is also clearly evident is the impact of inflation with our cost-saving initiatives of $30 million, not enough to tame the $100 million in escalation and other conversion cost increases. The first half to second half WACC forwards shows the strength of the U.S. in offsetting lower Asian spread impacts, along with a similar tale of inflation impacts on costs. Turning now to the financial framework and key financial indicators and settings. The financial framework is integral to how we manage the BlueScope business through the cycle. You'll all be familiar with this guiding document, which provides enduring confidence in BlueScope's ability to not only weather industry and macroeconomic cycles, but also capitalize on them for long-term quality, earnings and growth. You'll note that we have slightly updated the framework for a revision to our net debt target, which has been adjusted to now sit at $400 million to $800 million following a review. This reflects the change in BlueScope's business model and earnings power seen in recent years, and remains comfortably in line with our goal of retaining a strong balance sheet and credit metrics. The group delivered a return on invested capital of 11.9% over the past 12 months, with robust contributions from North America and Asia. Our ROIC was delivered on an increased invested capital base as we invest to sustain and grow the business for the long term. Cash generation was again robust despite slight working capital builds and elevated capital investment spend on growth and sustained projects. Turning to our capital structure. The balance sheet remains strong with $364 million of net cash at 30 June. As noted, we have increased our net debt target range to $400 million to $800 million. And as at 30 June, we have a healthy buffer to this target level, which partially derisks our capital pipeline, particularly in volatile operating environments. And we have ample liquidity of over $3 billion, with maintenance of our investment grade credit ratings from both Moody's and S&P. As noted on the slide in July, with the support of our banking partners, we increased and repriced our core bilateral loan facilities to $1.5 billion from $1.3 billion, providing longer-term, more cost-effective liquidity. On capital expenditure, in the second half of '24, we continued to progress a range of initiatives, including the MCL7 coating line project, the New Zealand EAF project, and the blast furnace six reline project. In FY '25, we're expecting a broadly similar sustained spend and a progressive step-up in spend on the range of projects Mark mentioned at the outset of the presentation. More information on the capital spend profile for these projects is included in the analyst support materials available on our website. Turning to shareholder returns. As Mark mentioned, following the review of our annual target dividend level, the Board's intention is to increase the annual ordinary dividend level to target $0.60 per share per annum, given the increased scale and resilience of BlueScope's portfolio as well as the reduced share count. Aligned to this revised target, BlueScope's aim to distribute at least 50% of free cash flow to shareholders. The Board has approved the payment of a fully franked final dividend of $0.30 per share, and an extension of the share buyback program to allow the remaining amount of up to $270 million to be bought over the next 12 months. The buyback remains an important component of our capital management strategy, particularly given the EPS accretion that comes from a materially reduced share count with over 150 million shares bought back and cancelled since 2017. With that, I'll hand back to Mark to take you through the current operating conditions, the first-half earnings guidance and the regional outlook commentary.

Mark Vassella: Thanks, David. At the start of the first half of FY '25, we're seeing a convergence of near-term headwinds across BlueScope's footprint. The ongoing softness in Asian steel spreads has been clear over the last 12 months, driven by high regional steel production and exports, affecting both steel prices and raw material costs. This is having an impact on our steelmaking business in Australia as spreads remain at historical bottom-of-the-cycle cash breakeven levels. Across global economies, we're seeing inflationary pressures, which are compounding the softer industry conditions, particularly in Australia, which includes higher electricity costs. And in the U.S., spot pricing visibility and channel purchasing behavior saw spreads plummet to post-pandemic bottom-of-the-cycle levels, despite demand in steel-consuming sectors remaining stable. These challenges across our two biggest regions reinforced the relevance and the importance of BlueScope's strategy to maintain globally competitive steelmaking costs, and the ongoing shift to domestic value-added products to support our margins. In response to these challenges, we are increasing our focus on cost and revenue performance across the businesses. We have great experience in knowing where and how we can flex our cost base. As we've seen these challenges emerge in real time, work is well underway on executing that remediation plan. This is driving an outlook that's materially higher than what the pre-2017 business model would have delivered. In particular, given the level of Chinese exports, we're reviewing what adjustments we may need to make to ensure the ongoing resilience of the Australian business in a potentially sustained low-spread environment. This involves looking at where we can get fit, including offsetting inflationary cost headwinds such as energy. Again, we have the demonstrated capability to execute on this. It's important to note that this is about ensuring our ability to sustain solid performance in the context of potential structural changes in the external environment, rather than the existential crisis we've seen in the past where we had to fix the underlying model. And lastly, to ensure that the competition for capital between growth and shareholder returns remains balanced, we're reviewing the prioritization and timing of capital expenditures. Now turning to the group outlook. Underlying EBIT in first half FY '25 is expected to be in the range of $350 million to $420 million. The underlying assumptions for this guidance are set out on the page. We're guiding to a result in North America around half that of the second half of FY '24 on materially lower spreads at North Star and continued easing of margins at building and coated products. In Australia, we're expecting a moderately softer result to the last half as stronger benchmark spreads are offset by weaker realized pricing and higher costs, including the impact of the reset in electricity contracts with a similar level of domestic dispatches. From our Asian businesses, we expect a result approaching 50% higher than the prior half on typical seasonality in the China business, with stability in the Southeast Asian and Indian businesses. For New Zealand and Pacific Islands, we expect a result approaching double that of the second half FY '24 on improved domestic volumes and improved cost performance. And finally, we're expecting a slightly improved performance on intersegment, corporate and group costs. Before we take your questions, I'd like to step back and talk for a moment about BlueScope's resilience and capacity to grow and deliver through the cycle. As we know, recent years have been marked by a cyclically stronger macro environment, resulting in very strong results, which we've used to deliver shareholder returns and invest for sustainable earnings and growth. In contrast, right now, we're seeing almost the exact opposite of this, as we enter FY '25 with the convergence of near-term challenges. Whilst these challenges are a headwind to earnings in the short term, they also demonstrate the resilience that we know exists within the business, which is underpinned by our operating and regional diversification. This resilience is not only our suite of high-quality assets, leading brands, robust balance sheet, but also the capability and institutional expertise we have in managing it. That's the depth of the bench strength we have in our world-class BlueScope team. This capability enables us to quickly respond to the dynamic environment we operate in across the global and regional steel industries and in the service of our customers in the construction, automotive, manufacturing and agriculture sectors. And what's particularly exciting for me and actually quite unique is the scale of the growth opportunities available to BlueScope within its core business. There's a lot happening in this space as we drive improved margins, volumes and resilience across the businesses, all leveraging our core capabilities. And we're securing our longer-term future with our comprehensive decarbonization program and broader approach to sustainability, all in the pursuit of our purpose and our bond. Thank you for your time this morning. And with that, I'll now turn it over to Q&A.

Operator: Your first question comes from Rohan Gallagher with Jarden Group.

Rohan Gallagher: A question in relation to North Star, if I may. Can you unpack the North Star? Obviously, it suffered from declining steel spreads late in the half. But in terms of -- was there any increased costs or any structured costs continuing in terms of conversion that is keeping the cost base at elevated levels?

Mark Vassella: Rohan, look, as we've called out before, there's the general inflationary impact that's occurred across the industry, mate, but nothing particularly. We got to the run rates towards the end of the year that we had expected that 3 million tonne a year run rate. The business has been operating very well. So, we've settled in at those rates. And I might just give David -- I'll get David just to give you a bit of an update about what happened with spreads in that last bit where we saw them change quite dramatically.

David Fallu: Yes. And, Rohan, I guess those additional tonnes are sold on spot rather than contract and they obviously received the weaker spread versus the contracted volumes.

Rohan Gallagher: Yes. I was just curious as to any disruption associated with the debottlenecking expansion.

Mark Vassella: No, no.

Rohan Gallagher: The 3.4 million tonne sort of target.

Mark Vassella: Yes, no, sorry, I missed that nuance in your question. Sorry. No, we haven't really -- there's no interruption for debottlenecking. We've approved that project. So, we've started some work, as I said. So ladle cranes -- ladle aisle cranes. I'll get that right in a second. They've been ordered because they're a long lead time item. The work's being done on the pre-heating of the slab and the technology around mill bar gaps and the engineering work for the downcoiler are also underway, but they've had no impact in this half in terms of operational performance. I'm sorry. I missed that point.

Rohan Gallagher: No, it was a poor question on my behalf. Just to follow-up associated with that and a big picture, if I may. Despite the relatively stable demand you're seeing in the U.S., steel spreads have almost halved in the last 12 months. Can you just sort of help us unpack that as to why you haven't seen any sort of supply-side responses? Or is there anything structurally that we need to sort of take into consideration or is it just -- it's just the market?

Mark Vassella: Yes. I was kind of hoping you might be able to help me unpack that a bit because I'm as confused with it as you are, mate. Look, I think there's been a couple of things that have happened. I think the Nucor pricing change strategy has had quite an impact on the market. There's no doubt about that. I mean, we've been cruising along with CRU as a regular Wednesday price update, and then Nucor came into the market with their price indication, weekly price indication, and quite frankly, upset the market pretty materially. Now, given again that demand level, underlying demand level, one wouldn't think that, that should be sustaining. But we've seen, there's no question, just a general softness and uncertainty in the last little bit, not driven by underlying demand. I'm not looking for excuses here, but I think the particularly crazy election cycle that we're going through in North America as well typically creates some uncertainty. But yes, I'm a bit perplexed about it as well. There doesn't seem to be any fundamental reason or structural reason as to why it's come off so much. But from our perspective, I still look at those fundamentals going forward and think it's ultimately the right place for us to be. But yes, it is a little perplexing, I've got to say.

Rohan Gallagher: Yes. And just a follow on final one, David. I noticed your working capital levels have increased to 17% of sales from historically 14%, 15%. Is that just purely timing? Or is there a buildup of inventories with market softening, etc.?

David Fallu: Yes, no, look, there is an element of volume in that, which we would expect to unwind in the '25 year. However, there is also just with an increase in pricing that leads to a higher denominator as well from a working capital perspective.

Operator: Your next question comes from Lyndon Fagan with J.P. Morgan.

Lyndon Fagan: Look, the first one was just on North's expansion. The previous guide was going to 3.5 million tonnes for the debottleneck. It looks like today it's 3.3 million tonnes. Just wondering if you can talk through that and whether there's another target to get up to 3.5 million tonnes. And then the second one I had is really just about the cash conservation situation. I guess the first half CapEx guide is above the first half EBIT guide, so that implies the business is free cash flow negative. And I guess I'm just wondering, what can you actually do to restructure the Aussie business, given it's already well run?

Mark Vassella: Sure. So, firstly, on the volume, yes, look, what we've done is, as we've gone through the analysis and thought about what's the right mill configuration, so effectively, what are the right products for us to produce to get the best return out of the mill? We've come to the 3.3 million tonnes, Lyndon, as you point out. So, that is a revision down from the initial estimates. I think we were sort of saying 400,000 tonnes to 500,000 tonnes was the potential opportunity. Look, I've got no doubt once that team gets into not only the debottlenecking, there is always incremental volume opportunity for us. That business has got a long track record of doing that. I think the nameplate capacity of the mill when we first started was 1.4 million tonnes, and they got to 2.1 million tonnes before we did the upgrade. So, I would expect, Lyndon, that we would continue to see incremental volume growth out of that. We'll get after this first piece, or chunk of it for the debottlenecking because that's real and material and something that we're very excited about. But I would expect incremental growth after that on -- what that is hard to say. And then the cash conservation issue, so there's -- look, there's a few things that are going on. I mean, for a while now, people have been saying to us, you got a $400 million debt target and you got $700 million worth of cash, what the heck's going on? What the heck was going on is we knew we had a large capital pipeline that we had to meet, and we also know that our business is cyclical. And lo and behold, we're now in a position where we are at the bottom of the cycle. So from our perspective, Lyndon, this is no surprise about where we're at. I'd rather us not be at the bottom of the cycle, but this is no surprise about where we're at. And it's why we are so strident in our views around the strength of the balance sheet in a business like ours. What can we do about cash conservation? Well, there's a whole bunch of work that's underway right now. Rohan touched on it in terms of working capital. There'll be a release of working capital. We'll push hard on that. And we're also looking and thinking carefully about the CapEx program that we've got. And A, what can we just physically do? Because we always have our eyes way bigger than our belly and the capital programs come in from the teams and there's no way in the world we can achieve them, quite frankly. So, there's always a bit of buffer there. But also, we're just going to be a little circumspect about what we spend when and what we prioritize to ensure that we can keep control of that. So, that's how we think about it. You're right, it is a well-run business. That doesn't mean there's not opportunity for us to get in there and cut costs. And the team are really focused on that now as well. But they're the sorts of things that we're typically looking at and we'll manage as we go through this softer period.

Lyndon Fagan: Quick follow-up. Why not pause the buyback, $270 million? Obviously, a good outcome to buy the stock under $20, but perhaps the balance sheet at this point in the cycle could do with that on there.

Mark Vassella: Yes. Well, I mean, I think the thing to think, remember, Lyndon, is we've got the cash still sitting in on the balance sheet. The beauty of the buyback is it gives us the flexibility to be able to react quickly. We said we wanted to review the dividend. I think bumping that 10% or $0.10, I'm sorry, not 10%, $0.10 is a reflection of that absolute level of dividend that we committed to at the $0.50 per share, plus a review of just what the underlying business can do at the bottom of the cycle, particularly given our shift of earnings to North America. But the beauty of the buyback is if we decided we needed to pull back on that, then we could do that. And that's why an extension of the existing buyback, rather than additional buyback is where the Board landed. And quite frankly, if circumstances change and improve, then it gives us the flexibility to move it up as much as we have the opportunity to be a little more nuanced about how we think about it if things get tougher.

Operator: Your next question comes from Paul Young with Goldman Sachs.

Paul Young: Mark, just sticking with -- on the topic of CapEx and you talk about phasing CapEx and dividends. We're actually executing on all the projects. A couple of questions on the $800 million guide for the second half of '25. Would you say that in that case, just based on your comments, that, that is peak CapEx for half?

Mark Vassella: Look, that's a large amount of CapEx because, clearly, we're into a couple of projects that are underway. We're nowhere near a situation where we need to think about impacting or delaying projects that are underway. So if you think about the big lumps that we've got, we, of course, have the blast furnace continuing and doing really well. MCL7, there's a building there now. I saw some photos just from last week where we've got a structure up, which is very exciting. And the EAF in New Zealand, then we're getting the offset capital returns from the GIDI funds that we scheduled with the New Zealand Government. So, that's reflective of those spends and we think that's well within our balance sheet capability to continue to do that. When I talk about deferring capital or thinking about the prioritization of capital, it's more outside of those projects that are already underway. We're nowhere near a situation where we need to intervene with the sorts of projects that we've got underway. So, that's really reflective of the spend that we're going to have in the half based on the capital profile of those big projects.

Paul Young: Yes. Understood, Mark. And then maybe leading on to the U.S. midstream, the $800 million of CapEx you've outlined for that 275 project on the three different stages there. That seems a little bit higher when you benchmark against other projects in the U.S. Is that because of the greenfield's components of that, just buying land, establishing utilities? And also when -- it's probably a little bit -- it's probably a little bit more advanced than I thought. When are you expecting to go to potential FID on this project?

Mark Vassella: Yes. Well, that is an example of where, as we've looked about -- looked at it and thought about how we will grow into that market, what we need to spend and when, which is why we've reverted back to effectively cold rolling, pickling and one metal coating line. When we put the $1.2 billion number out, that was full volume on two metal coating lines. We've decided that we don't think we need to do that right away. And quite frankly, building one metal coating line, that gives us optionality if other opportunities emerge that don't require a second metal coating line. Let me say that. So from our perspective, that's a good example of where we're thinking a little more judiciously about the capital spend and the phasing and the timing of that. So it's still within that envelope of the $1.2 billion that we put out. It seems a little higher. It is a greenfield site. So, there is an infrastructure spend that goes with just starting on a greenfield site. But I would caution it's also still pre-feasibility, and the team are working very hard on how we get that capital number down. So, we're trying to give you guys a lead and a guide on quantum and phasing, but it is still early in the capital estimate cycle.

Paul Young: Got it. Yes. Just last one on -- turning to the Aussie business. And I see, just on domestic volumes that you're -- within your guidance, you're assuming flat volumes versus the June half. Yes, I'd just note that you did push some painted and coated, et cetera, into the export market that increased and also your volumes are back to sort of 2019 levels. Understand the mix is better than what it was in 2019. But what gives you the, confidence that the domestic volumes won't go down further in December half?

Mark Vassella: Well, we think at this sort of level, we're expecting similar volumes half-on-half. I mean, that's our call on it at this stage. I think what gives me confidence about the Aussie market is it's been a pretty tough six months, quite frankly. And of course, we've seen the work through of that bump in the supply chain post-COVID. When I step back and again, think about it and look at the fundamentals, Paul, I mean, the housing crisis in this country, the shortage of housing, there's no way in the world this can last for too long. So, we've given an outlook of similar volumes half-on-half. But I still think in the medium and longer term, this is going to be an attractive market for us to be making more COLORBOND in.

Operator: Your next question comes from Simon Thackray with Jefferies.

Simon Thackray: Just want to unpack that previous question a little bit more. Just on the balance of domestic versus export tonnes, how should we be thinking about the mix for exports both out of Australia and New Zealand? And at the same time, what's the outlook for the domestic pricing premium now, given the fall in import parity prices you've called out? So that's the sort of first part of the question. I really want to understand how many days of risk are left on pricing in this first half, given the lags and given your comments that volumes are expected to be flat half-on-half?

Mark Vassella: So, I mean, typically, it's a couple of months of domestic pricing lag impact, Simon. And three months or four months on export, where we obviously -- what we can sell domestically, we look to export. That's just the balancing figure for us from the steel-make perspective. We've seen some changes. I mean, we were down a bit on exports of painted product into the U.S. We're actually starting to transition more to the local domestic supply for painted in the U.S. We will export some out of New Zealand and Australia to feed the seeding program for COLORBOND in North America. Both have that AM technology. New Zealand moved to the AM technology this year. So, that gives us some flexibility with the New Zealand business as we build that base as well. So, export is the balance for us, obviously, in terms of how we -- what we do with the steel that we make, but also how we think about the absolute amount of steel that we produce depending on spreads and what that supply chain equation looks like on a monthly basis, quite frankly.

Simon Thackray: And just the expectation in terms of the pricing premium, Mark?

Mark Vassella: So, look, we've called out a couple of things there. I mean, the first thing I'd say is we've announced a price increase for COLORBOND that'll take effect in the second half. So that's gone -- that's in the market now. And what we've called out around realized pricing is one of the advantages or one of the benefits we got in the sort of post-COVID period was the impact of freight rates on import parity pricing. And as we've seen freight rates come off, that premium has come out of the pricing component. I mean, interestingly, we're seeing freight rates go back up again. So, some of the products that we compete against from an import parity perspective comes in, in containers. So, the movement you've seen in container freight rates has an impact on IPP pricing. So, we're still comfortable with the domestic premiums that we're getting and then we'll take advantage of what other premiums we can get around import pricing when they're available.

Simon Thackray: Yes, no, fair enough. If we can just stay with Australia for a bit of a follow-up. Just given the state of steel markets globally and China capacity, billet finding its way around the world everywhere, it seems. Any comment on the state of Whyalla and BlueScope's involvement there and possible future involvement given the progress in Project IronFlame for DRI and the current sort of technological superiority of magnetite for DRI production?

Mark Vassella: Yes. I mean, well, I read last week about the redundancies in Whyalla. I mean, that's awful. We get no joy out of steel industry or steel markets globally being under pressure. That's not something that we get any joy out of at all. So, I feel for that business because they're obviously experiencing the tough conditions that we're experiencing as well. I think we've been able to, over the journey, try and insulate our business more from some of those wild swings, things like the continued growth in premium-branded products, the fact that we've got a really strong balance sheet. Again. I mean, this is something we should just write in big black letters on the wall that it's very easy when you're in the up cycle to forget about the impact of the down cycle. So, having the financial strength that we have means we can ride through these sorts of cycles. So look, from our perspective, we're hopeful that things continue to improve or improve for the Whyalla business. In terms of the broader studies we're looking across the country maybe in terms of what the opportunities might be. There's some magnetite ores in South Australia, of course, but there's magnetite ores in Perth as well. And the work both in IronFlame and the joint venture with Rio and BHP, they're still very early days. It's hard to call a particular location or a particular resource that we would invest in, but there's a bunch of work going on in that space and I'm really pleased with the progress we're making there.

Simon Thackray: That's super helpful. And then one final follow up, just in terms of BF 5 at Port Kembla. I mean, nameplates 2.8 million tonnes, you've been producing near enough 3 million tonnes for a while. Will you throttle back the use of scrap to bring that production down, to keep the export tons to a minimum? Is that how we should be thinking about BF 5 at the moment?

Mark Vassella: Yes. It depends on the economics, mate. So we, literally, on a monthly basis, go through the process of -- we have a minimum margin that we -- expectation that we want to meet. So, before we make decision on final tonne importing scrap to add to the steelmaking process, to get that volume, we actually make that call on a monthly basis. So, that goes up and down depending on what we believe the spreads are that we can achieve or the margin that we can achieve in terms of our export sales. So, yes, you're absolutely right. That's the way we manage it.

Operator: Your next question comes from Andrew Scott with Morgan Stanley.

Andrew Scott: Mark and David, just a couple from me really around ASP. First of all, just trying to understand your expectations that you put out there for Asian spreads. You've got a lot in the book. I know it's a volatile sort of time at the moment, but it seems to be looking at a bit of improvement from where we are here. I'm just wondering what's baked into that assumption?

David Fallu: Yes, no, that's correct, Andrew. I guess, there's a component of that which is our view of lags into the business, translating into this half and effectively, the forecasting that we undertake. But you're correct, it's got an improvement on where we sit today on spot.

Andrew Scott: Okay. And then, I think it was at the half, the ASP breakeven crept up. It looks more like 200 to 220 now. I think you're calling out $25 million of electricity, increased costs. I don't know if that falls into the steelmaking spread or other parts of the business. But, Mark, more broadly, you alluded to other initiatives and levers. You have to deal with the lower steel prices. I don't expect a full list, but can you just talk to us about what you're looking at there? And in particular, is it cost driven? Is it putting -- finding new home -- new domestic homes for locally made steel so that you're exporting less? Just interested in any color there.

Mark Vassella: Yes. And look, Andrew, it's all of the above. I mean, it's what we do in terms of the production volume. You are right, energy absolutely falls into the conversion costs of the steelmaking business and a $50 million impost on the business is a big chunk and very difficult to get out and mitigate in any one year. But there's a lot of work going into just how we reduce the amount of energy that we consume. Tania and her team are all over this in terms of any discretionary spend and costs, but it also goes to productivity and efficiency as well. A couple of the assets, we've had some issues within the last six months and the team are all over that as well. We've talked before about the opportunities and the benefits we're seeing with some of the digital technologies that we're rolling out around asset management. So it's the full list. And what's pleasing about this from my point of view is -- and I was at Port Kembla just a couple of weeks ago with the team. David and I were there for the quarterly business review, and there was no fear in the eyes of any of those guys and girls. They know exactly what to do and they're after it. It's a long list -- a long shopping list as you identified. There's a long shopping list of things that the team are after and they've rolled their sleeves up and they're getting into it now. So, all of the normal things that you would expect the team are getting after.

Andrew Scott: Got it. And just a last one. You've been pretty clear with the North American coated business. The acquisition maybe hasn't been to plan so far. The commercial construction, non-resi component in the U.S. looks pretty ugly looking forward. Can you call that the trend has stabilized or even inflected? Or are we still heading downwards?

Mark Vassella: I think you've been kind to me. We've called it being absolutely not to our expectation. So, there's an enormous amount of effort going into BCP to get it back to our business case. And look, yes, right at the moment, the conditions aren't fabulous, Andrew, but we said at the start that this is a medium and long-term play here. We still fundamentally believe there's going to be a spot for COLORBOND in North America. It's why we continue to work on the Orion pre-feasibility study. That's a very big market. And even the numbers we've called out today, 280-odd thousand tonnes of metal coating. That's 280,000 tonnes in a 5 million tonne East Coast painted market. So it's not like we need massive amounts of market share. So, I'm looking through where we are right now as we have to with an investment like Orion and the BCP investment. I'm looking through where we are right now and looking out into the medium and longer term and still fundamentally believe in the outlook for that economy.

Operator: Your next question comes from Owen Birrell with RBC.

Owen Birrell: Just a couple of questions. Just, I guess, following on those questions around the Building and Coated Products North American business. Your guidance sort of talks to, what, 2/3 of the earnings from the last half? And you talk about sort of, I guess, easing of cyclically strong margins. I'm just wondering if you can provide a bit of color as to how that margin compression differs between the West Coast assets, the coil coater acquisition and the BlueScope Buildings business.

Mark Vassella: Yes. So the way to think about that, Owen, is we've seen in the West Coast assets, particularly the downstream business on the West Coast and in the building -- and in the building BBNA, Butler and Varco Pruden business. We've seen the benefit of the softer steel prices, allowing us to improve our margin because we've set steel prices for some of the contracts that we sell into up to a year in advance. So, we have that timing and the lag, the benefit of a falling steel price, given what we have built into the standard costing model and the construction components that go into the building, as I said, up to a year in advance. So, that's been the reason. That's been the reason for the margin, the stronger margins in that space. We just naturally don't believe that those fantastic margins are going to last forever. So, we typically think about it reverting to more of a mean margin, which is what you see with some of our forecasting and some of our outlook expectations. But it's been very strong, surprised us a bit on the upside. In the half, we're reporting on a bit stronger than we expected it to be, which is a reflection of the fact that the team have managed it really well. So if there's any upside, it's -- the team will continue to manage it really well as we see steel prices fall. Now, of course, when it goes the other way, you can get caught on the way up as well. But that's really the margin that we're talking about in terms of the building product space. That's different from BCP. It's more in that building space, in the downstream finished products, the downstream roofing and walling business.

Owen Birrell: And so in terms of, I guess, the coil coaters part of the business, I guess, sort of the painting component, have you stabilized your gross margins in that business into the next half? Do you expect? Or are we going to see possible improvement coming through there?

Mark Vassella: Yes, no, we've stabilized it. The team have intervened. We've invested a lot in terms of capability in that business. They've stabilized the issues. We're still facing a market where we've got an external foundation customer that continues to see volume fall away, but the team is stepping into that space and supplementing that volume with the external market. So, I'm pretty comfortable now that there's a plan in place, the capability, more importantly in the business now. And we started to see that business stabilize.

Owen Birrell: And just, I guess a follow-up question for the same market. You provided a bit more color around your coating line proposal. Can I just confirm the $800 million CapEx, that's the guide for that first phase, the pickling and coating lines that you're going to put in, will they have 550,000 tonnes of capacity and therefore, restricted by the metal -- one metal coating line of 275,000 tonnes?

Mark Vassella: No. No. So, we would match the volume. So it'd be 275,000 tonnes of capacity, mate.

Owen Birrell: Well, then confirming why the $800 million versus the $1.2 million for only half the capacity? Is a large amount of that just associated with the fact that you've got a greenfield site and there's a lot of, I guess, the upfront infrastructure that's required? Is that where the additional CapEx comes from?

Mark Vassella: That's exactly right. That's exactly right. So the greenfield site, building the infrastructure. So, all of there's -- there's additional cost that comes with that. Correct.

Owen Birrell: And do you have a location that you can share?

Mark Vassella: Do we have a location? We haven't confirmed a location. But the things we're thinking about is, obviously, where does it sit relative to the BCP paint lines, but also relative to North Star. So the logistics costs, obviously, and supply chain costs are something we think about in terms of where the location will be. But we'll announce that as we get further into the assessment.

Operator: Your next question comes from Lee Power with UBS.

Lee Power: Mark, just your comments around the similar domestic volumes. Can you just give us an idea, the higher value products, COLORBOND, TRUECORE? Are you saying they're flat or is there further declines in that space?

Mark Vassella: No, we've called. We think we'll get similar -- we'll get similar volumes. Whilst our volumes were off, the absolute COLORBOND, I think about 288,000 tonnes or so, still a pretty strong level. We're still seeing market share growth in COLORBOND. We're more than 60% now, we believe, of new roofs are going into COLORBOND, and we think we can continue to grow that. So, that's the level that we think we can replicate in the first half. And as I pointed out earlier, we're back sort of bottom level of that range of detached housing starts that we've seen historically, the information that we continue to provide. And if -- again, I think about the fundamentals of a housing shortage and the opportunity for that market to grow, particularly if interest rates ease a little bit, then I'm comfortable we can grow that volume more.

Lee Power: Excellent. And then the U.S. BCP business, can you actually give us an idea of what it contributed in the second half? And I guess part of that turnaround is you need the market to help you. But kind of wondering around some of the timing of the self-help initiatives that you've talked to as well.

Mark Vassella: Yes. So it contributed a negligible amount to the result, and that's not where we want it to be from a business plan perspective. We have the resources in it now. It's largely been an investment in people and systems, and that investment's been made, but it contributed a negligible amount, mate.

Lee Power: Cool. And then just one final one. Asia, I mean, it doesn't get the airplay that it kind of once did. China's obviously a pretty large part of that division. Domestic environment we know is tough. It sounds like given your ASP comments, you don't expect that to improve anytime soon. How does that kind of change your medium-term outlook and thinking around that division?

Mark Vassella: Yes. So China, specifically, we're not a big player in China, even though it's a profitable business for us and makes a fabulous return. And we're not exposed to the residential construction market. So, that gives us a bit of flexibility, Lee, in terms of how we operate there. There's no doubt whilst we had a cyclical -- the cyclical decline that you expect in the second half in China, the numbers were off a bit and that's just a reflection of the broader, softer economy in China. We're not immune to that. But over the last couple of years, we've been able to pick segments where we can -- that are still growing and where we can make money. So, for example, over the last year or two, there's been quite a lot of growth in electric vehicle construction. So the Butler business has been quite strong in that space. So, we have the flexibility to move in China. So, I'm not expecting disastrous results from our China business, notwithstanding how soft the broader Chinese economy is because of our flexibility to sort of move to segments where there's still some activity that we can take advantage of. And then on the broader Asia business, really good result out of Thailand. We're starting to see better results out of Malaysia. The turnaround there's happening. Indonesia is getting better, but still not where it needs to be. And Vietnam is just really hyper competitive. You've heard me say that before, but there's a lot of investment, a lot of Chinese investment, quite frankly, in Vietnam as well. So, that's the market that's the most competitive, but pretty good result, pretty good return on our invested capital, record result out of Thailand. And I know Asia has been questioned in the past, but again, the diversified nature of our portfolio right now, it's contributing nicely to the group.

Operator: Your next question comes from Paul McTaggart with Citigroup.

Paul McTaggart: So, one of the few benefits of lower prices, of course, is working capital kind of release. And we did touch on that and obviously, gives you some confidence around the balance sheet. Could you give us a sense of what you think you might be able to release in the year ahead?

Mark Vassella: In terms of volume reduction, what we saw, Paul, was, obviously, a buildup in volumes to support service through a challenging supply chain period. That's the opportunity for us from a volume perspective within the Australian market. And in terms of -- that will be a balance of making sure we're continuing to hit the DIFOTs that we want to achieve for our customer base, but making sure we're doing that on a right setting of inventory. But if we look at how much of that is purely from a volume perspective, it would probably be about 1/3.

Paul McTaggart: And in the year ahead, mate, suffice to say, I thought working capital might come down circa $400 million. So, you might release that given lower prices. Would that be out of the ballpark?

David Fallu: Look, that would see basically a full release of the build to date. So, I don't think you will see a full release of that build in the first half.

Paul McTaggart: Okay. All right. And just one quick question. Exporting product out of Australia to the U.S., are you getting caught up with any kind of tariffs now in terms of that product?

Mark Vassella: No. So, Paul, we had the pass, as you recall, under the Section 232. So, that remains in place. There are some anti-dumping levies that have been put on some product for us. So, for example, hot rolled coil onto the West Coast. So if we were exporting hot rolled coil to the West Coast, we'd be subject to an anti-dumping levy there. But we're selling a relatively small amount of volume. We keep below the de minimis levels. We watch it carefully. We're respectful of the market and the role that we can play there. So, we watch that quite carefully. But no 232 tariffs. And in other products where there are anti-dumping levies, we stay away from that.

David Fallu: Yes. Biggest impact on exports, Paul, is actually where we're seeing spreads in respective markets, both weakness in North America and Asia. And so that actually goes to the commentary Mark was making around how we flex exports versus production domestically.

Operator: Your next question comes from Daniel Kang with CLSA.

Daniel Kang: Most of my questions have been asked. So, just a couple of quick ones. On BCP and coil coatings, you spoke about the team targeting external customers beyond the foundation customer. Just wondering if you can provide an update on the competitive landscape there and maybe some color on the initiatives that you're putting through to reclaim share and increasing utilization rates.

Mark Vassella: Yes. Thanks, Dan. So the volume that we're targeting there are in the toll processing tonnes. So much the same as the model that we acquired and the Cornerstone assets, which are taking toll painted products. So, we're targeting toll painted product where we can grow that. There's some attractive markets -- margins, I'm sorry. In the aluminum painting business as well. So that's an opportunity for us. The sorts of initiatives that we've put in place, a lot of it's gone to mill reliability, so asset reliability. We took Jeff Joldrichsen out of North Star and put him into that business as the lead operational person, I'm going to say six months or seven months ago now. So, Jeff's got his feet under the desk. He's made some changes to the facilities and the capability in the facility. So, we're really targeting mill line performance and operational performance, which is giving us more volume. We've done some work around systems, and we've also done some work around sales and marketing capability. So, ensuring that we've got the people on the ground to actually get out there and make the sales. So, there's a bit of a chicken-and-egg there. We needed the mills to be reliable, to actually give the sales team the confidence to go out and get new customers and new volume. So, that's what we're seeing. And in terms of competitiveness, there's no issue with us being able to compete in the market, whilst the markets are a bit softer in the U.S. Again, they're very big markets and we're talking about quite small tonnes in the scheme of things. So, I don't get any sense, Dan, there's any issue about us being uncompetitive in that market. It's really about us making sure that we've got a supply chain package that works for the customers.

Daniel Kang: Got it. And just secondly just with regards to the premium products, COLORBOND, TRUECORE, great to hear that you maybe gaining share in a soft market. Can you talk about any competitors that may be coming through to challenge that and just remind us of the aspirational target that you're aiming for in terms of market share?

Mark Vassella: Well, I mean, there's lots of competitors, of course. I mean, the roof tile, obviously, is their major competitor and that's the market that we're very, very focused on. There's other steel coated and painted material that comes into the country as well. So, we're very cognizant of that in terms of how we position the product from a pricing perspective, the value proposition for the customer. So, we're very mindful of that and very attuned to what our competitors are doing and we've been successful on a slow and steady base and I'm encouraged by that. But we're still super diligent, mate, in terms of the package that we offer and ensuring that we're competitive and we give the customers what they want.

David Fallu: And I guess the other point, Daniel, is it's also supported by extension in category moving beyond the roof to cladding opportunities and other segments.

Operator: Our next question comes from Peter Steyn with Macquarie.

Peter Steyn: Mark and David, all my questions are actually being asked.

Operator: Your next question comes from Nicole Penny with Rimor Equity Research.

Nicole Penny: It's Nicole from Rimor Equity Research. If we could focus on the mid-term earnings contribution and outlook of some of the key strategic initiatives mentioned for Australia and the U.S., specifically and beyond operating cost control, what would you summarize as the two or three key strategic steps that would deliver the most meaningful contribution to earnings in the medium term, please?

Mark Vassella: Yes. Thanks. Thanks, Nicole. So, I mean, obviously the expansions at North Star, we're really just starting to see the earnings come in for that. I mean, unfortunately, with spreads where they are right at the moment, that's not the kicker. But if you -- I think our exposure to the upside, Nicole, is significant, quite frankly. If you think about the expansion that we've already put through at North Star, we then have the debottlenecking tonnes, which over the next couple of three years, we'll invest in that another 300,000 tonnes. So, I think that's a significant opportunity for us. In more the medium term, it's that growth opportunity around COLORBOND in North America that's going to be -- that needs our metal coating line to feed that. So, that's probably more in the medium term than the nearer term where North Star really is ready to go once spreads start to kick. And then in Australia, whilst there's no significant change in earnings to the investment in the blast furnace or the electric arc furnace in New Zealand, we're still in a position where we think there's still great organic growth opportunities in Australia and New Zealand as we continue the shift of product into that higher value-add and premium product where we get the best margin returns. So, I mean, they're the immediate initiatives that I would call out in terms of that medium or -- yes, medium-term growth perspective.

Operator: The next question comes from Chen Jiang with Bank of America.

Chen Jiang: Well, a lot of questions got asked already. Just a few follow-up, please. So, firstly, for the building and coated product from U.S., you guided around 2/3 of that -- of the second half EBIT as the first half FY '25. I'm wondering, is that mainly due to margin or volume? Are you being able to provide any color on the quantum of that business? And also to Mark's comment, the Cornerstone acquisition, understand that it's a long game and then it's not fully integrated into the business. But again, I'm wondering how should we think about the volume because you already mentioned the margin compression, et cetera? I have a few after this.

David Fallu: Yes. So, look, in relation to the building coated products in the U.S., that primarily is a margin story, along with a slight reduction in the number of expected property sales is the only other delta there. And I guess in terms of how we sort of see that play forward, the team is still aiming to maintain that margin and as much as we can. And the expectation is that we don't see that margin going back to where that business has historically been. And that's reflective of the work the team's done, primarily around managing complexity in the projects they're bidding on. And -- sorry, can I just ask for the second part of your question there?

Chen Jiang: It's the Cornerstone, the acquisition two years ago. We haven't seen either volume or margin expansion into the business. So, how should we think about it in regards to timing?

David Fallu: Yes. So, primarily that relates to the performance of Cornerstone in the market. So, that is a challenge for us because Cornerstone's volume and share and when we refer to share loss, it's referring to that customer's share of the market's loss is something that we have less control over. And that's why the focus is on gaining external customers, which the business didn't have historically pre-acquisition for us to supplement that volume in order to improve volumes and the operational performance of the facilities that we have. So, that's really where that focus is from the teams to ensure that we can take away reliance from our sales into Cornerstone.

Chen Jiang: Sure, sure. And then coming back to Australia. Good to hear, COLORBOND have price increase. And now given China keep exporting their steel into Asian market or into the global market, for your premium products, what give you the confidence that you will have a flat half-over-half volume given? And also if you can remind us your market share for COLORBOND and other premium products in Australia?

Mark Vassella: So, Chen, I mean, there's a couple of things there. We're talking about sort of overall volumes being flat half-on-half. Whilst there's an enormous amount of volume coming out of China, it's typically not in the products that affect, for example, COLORBOND. It's more in the more commoditized products that we see that impact, and then the impact on import pricing and what that means for our pricing in the domestic market. So, I'm confident that the value proposition we have, that is COLORBOND in Australia would withstand any imports that might come from China. And painted product is not an easy product to import either. It's high value and easily damaged. So the service proposition that we have across the market, I think is one of the inherent strengths of the COLORBOND product. So, I'm okay with the half-on-half call. We've been seeing large amounts of exports come out of China now for more than 12 months. So it's not like it's just emerged and the markets fundamentally changed. This is something we've been dealing with now for a year, which quite frankly is longer than we typically would have expected given historical spreads and the adjustments that tend to get made when spreads get to this sort of level. So, we're comfortable with the call at this stage of similar volumes half-on-half.

Chen Jiang: Sure, sure. And then just under guidance or under assumption, you factored in improving Asia HRC price, which is above spot. However, your U.S. spread assumption seems like a spot U.S. spread assumption. I'm just wondering what is the thinking behind that? Does that mean you have more visibility into your Australia business than U.S.?

Mark Vassella: No, I'd say that it reflects our view. I think the visibility within both markets is just as strong. We just like to be clear on the assumptions that we make behind the guidance we put forward. But I think the insight as much as we can have them and we've been -- we've seen movements that have been different before, we just want to be clear around what the assumptions are behind the guidance.

Chen Jiang: Yes. Sure, sure. Maybe last one. Just your market share for COLORBOND and TRUECORE and other premium products in the domestic market, given those building material products company kind of provided a weak volume guidance. I'm wondering, is your guidance implying or increasing volume in the -- or increasing market share domestically?

Mark Vassella: Yes. Well, again, we've called, Chen, a couple of times that we think we've got the -- we think we've grown share in TRUECORE and framing. Absolutely. And we still think there's lots of opportunity for us to continue to grow share in that space, which is a big component of the MCL7 investment in Western Sydney. And we still see, we think, a steady and solid increase in share in COLORBOND, both in terms of roofing and as David pointed out, in terms of expanding the wallet and the opportunity that we can sell our painted product into other solutions like walling. So, we're still confident with that. We're still investing in that, investing in new coating technologies, investing in capacity and the assets to allow us to continue to grow that share. So, yes, we're still confident that we can continue to grow share in those premium-branded markets.

Operator: Your next question comes from Keith Chau with MST Marquee.

Keith Chau: So first one, just a follow-up on COLORBOND. Seems like you're holding your own with respect to COLORBOND. And as you pointed out, Mark, TRUECORE is doing a bit better. Can you help us understand whether market share gains have accelerated or not? And the reason why I ask is there's a key competitor, [Riftar], that went into administration a few months ago. So just keen to understand whether you've seen some benefit in that. And then secondly, in TRUECORE and periods gone by, there's been discussion that homebuilders are more willing to test out new products when the market is a bit slower. Obviously, we've been through a period of rapid growth, detached housing construction. But we are going through that quieter period. So, keen to understand where you've had some traction with homebuilders in Australia testing the product or trying to get out a bit more.

Mark Vassella: Keith, good -- yes, good call. I mean, that's exactly right. This is a time when it is a bit softer. That gives us the opportunity to market the benefits and the attributes that come with a product like TRUECORE when everyone's busy. No one's got time to stop and think about how they do things differently. And, of course, when things are a bit softer and we think there's opportunities with TRUECORE around off-site fabrication, for example, that provide efficiency and cost benefits for builders as well, and let them get to a point where they can get a frame up and get a cash payment sooner, so a speed to construction component. So, that's something that the teams are working really hard on now. And just in terms of COLORBOND, I mean, I wouldn't call any specific jump. We've seen improvements in share in the two big East Coast markets of Sydney and Melbourne, and that's been quite a deliberate strategy on our part. They were our softer share areas. We've tended to be stronger in the smaller capital cities and in regional Australia, but we've seen improvements in Sydney and Melbourne in areas like re-roofing, for example, where the product, again, has a whole bunch of benefits. So, yes, we're seeing. We're comfortable with the work that -- I think the team are doing a fabulous job, quite frankly, inside ASP, with how we brand and market COLORBOND and a lot of time and effort goes into that.

Keith Chau: Okay. And then a follow-up question, actually, right back to Rohan's question at the start and maybe I'm just asking the same question, but the other way. But, obviously, in the last couple of periods at North Star, the unit conversion costs would have been relatively high, given the inefficiencies as you ramp up that asset or the expansion of volumes at that asset. Can you help us understand, notwithstanding the guidance that has been provided, whether there's a quantifiable unit efficiency to come out of conversion costs at North Star in the upcoming periods?

Mark Vassella: Yes, I mean, we said right at the start, one of the interesting things, Keith, about that business is it's got such a low fixed cost that this really wasn't a game about driving down the conversion cost per tonne or the operating cost per tonne. So, you guys have been there. It's a very low fixed cost. Really, just your overhead labor, quite frankly. So, we don't expect that there would be a significant reduction in operating cost for the volume. It's really the incremental margin we're going to get from those additional tonnes that add to the profitability of the asset. There has been some inefficiency as we've gone through the ramp-up program. And again, as we've called out, we've seen the impact of inflationary pressures across the industry that's had an impact on the operating cost per tonne as well. That's not just a North Star issue. But yes, I mean, the team's up and running now, more than 300,000 tonnes. And every day I look at the North Star production from the day before, and they're really settling in nicely at that 3 million tonnes run rate.

Operator: There are no further questions at this time. I'll now hand back to Mr. Mark Vassella for closing remarks.

Mark Vassella: Thanks, all. And we know it's a busy time and we appreciate you guys turning up, and I think that's broken the record for our list of questions today. So, really appreciate you guys being interested and taking the time out to talk to us, and we'll talk to you over the coming weeks. So, thank you very much. Take care.