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Corus Group plc
2004 Preliminary Results Presentation17 March 2005
1
Agenda
Welcome & introduction
Financial performance
Priorities, Restoring Success & outlook
Conclusions
Jim Leng
David Lloyd
Philippe Varin
Jim Leng
2
Jim Leng
3
David Lloyd
Group financial results
Segmental analysis
Financing
4
2004
Group financial summary
(9.25)p10.05p7.80p2.25pEarnings per share (p)
(2.3)%19.0%--Return on net assets (%)(142)(45)(32)(13)Restructuring & impairment costs
(66)627467160Group operating profit/(loss) (before restructuring & impairment costs)
250934620314EBITDA (before restructuring & impairment costs)
3.1%10.0%12.8%7.0%EBITDA margin (%)
(1,013)
(305)
(255)
(208)
7,953
2003
(854)
446
559
582
9,332
(854)
346
396
435
4,855
H22004
(1,203)
100
163
147
4,477
H12004
Profit/(loss) before taxation
Net debt
Retained profit/(loss)
Group operating profit/(loss)
Turnover
£ million
5
Segmental analysisExternal Turnover - £9,332m
Aluminium
CORUS METAL TRADING
CORUS ALUMINIUM EXTRUSIONS
CORUS ALUMINIUM ROLLED PRODUCTS
CORUS PRIMARY ALUMINIUM
CORUS METAL SERVICES NORTH
AMERICA
Distribution & Building Systems
DISTRIBUTION & BUILDING SYSTEMS
CORUS INTERNATIONAL
CORUS CONSULTING
Strip Products
CORUS STRIP PRODUCTS IJMUIDEN
CORUS STRIPPRODUCTS UK
CORUS PACKAGING PLUS
CORUS TUBES
CORUS COLORS
CORUS SPECIAL STRIP
COGENTPOWER
CORUS TUSCALOOSA
TEESSIDE CAST PRODUCTS
Long Products
CORUS CONSTRUCTION & INDUSTRIAL
CORUSENGINEERING STEELS
LONG PRODUCTS DOWNSTREAM BUSINESSES
CORUS RAIL
Main components
* Before restructuring & impairment costs
Completed transactions
Operating Profit*- £627m
Quarterly Reporting from June 2005
25%
56%
12%
7%
20%
42%
27%
11%
6
2004
SegmentationStrip products
(*) before restructuring & impairment costs
£392/t£424/t£360/tAverage revenue (£/t)
14.4%
361
276
5,896
2,502
H22004
9.0%
201
110
6,164
2,222
H12004
386Operating result (*)
11.9%Margin
562EBITDA (*)
12,060
4,724
Deliveries (kt)
Gross turnover
£ million
6.1%
239
47
£338/t
11,592
3,916
2003
+16%
+4%
+21%
%movement
7
2004
SegmentationLong products
9.2% 0.7%
15
(47)
£262/t
8,194
2,149
2003
+22%
-
+21%
%movement
£319/t£333/t£305/tAverage revenue (£/t)
13.2%
175
146
3,991
1,330
H22004
5.1%
65
31
4,181
1,275
H12004
177Operating result (*)
Margin
240EBITDA (*)
8,172
2,605
Deliveries (kt)
Gross turnover
£ million
(*) before restructuring & impairment costs
8
2004
1.0%
22
(1)
£327/t
6,942
2,272
2003
+25%
(9)%
+15%
%movement
£411/t£440/t£382/tAverage revenue (£/t)
6.2%
85
72
3,138
1,381
H22004
1.8%
22
11
3,210
1,225
H12004
83Operating result (*)
4.1%Margin
107EBITDA (*)
6,348
2,606
Deliveries (kt)
Gross turnover
£ million
SegmentationDistribution & building systems
(*) before restructuring & impairment costs
9
2004
7.2%
74
31
£1,719/t
598
1,028
2003
(3)%
+10%
+6%
%movement
£1,665/t £1,702/t£1,627/tAverage revenue (£/t)
7.4%
41
23
326
555
H22004
8.9%
48
27
330
537
H12004
50Operating result (*)
8.2%Margin
89EBITDA (*)
656
1,092
Deliveries (kt)
Gross turnover
£ million
SegmentationAluminium
(*) before restructuring & impairment costs
10
Group operating resultOperating Bridge 2004 vs 2003
£693m year on year improvement
Before restructuring & impairment costs$ exchange rate impact= net c.£80m gain
(200)
0
200
400
600
800
1,000
1,200
1,400
2003 2004
£ millionSales Price/
Mix
Other
Inputcosts
Volume/Manufacturing Aluminium
€ exchange rate impact = net c.£20m gain
11
Group operating result£693m improvement 2004 vs 2003
Approximately 30% of improvement is due to ‘Restoring Success’
Before restructuring & impairment costs
2003 2004
£ million
Sales Price/Mix
OtherVolume/
Manufacturing Aluminium
(200)
0
200
400
600
800
1,000
1,200
1,400£ million
Inputcosts
impact of Restoring Success= c.£215m
12
EBITDA analysis
(*) excluding corporate costs
27
-142
103
-74
135
5
113
10
189
100
336315Corus UK (*)Corus Netherlands
Carbon
Before restructuring & impairment costs£ million
H1 2002
H2 2002
H1 2003
H2 2003
H1 2004
H2 2004
13
2004
Profit and loss account
(9.25)p10.05p7.80p2.25pEarnings per share (p)
(305)446346100Retained profit
5
(55)
(72)
15
18
435
1
(64)
(49)
53
12
147
(53)(119)Tax
3
(101)
45
9
(208)
6Minority interests
(121)
68
30
582
JVs and associates
Group operating profit/(loss)
Net interest
Disposals
H22004
H12004 2003£ million
14
2004
Cash flow from operations & net borrowings
18(340)
308
582
(12)
159
-
(854)
118(312)(203)
568
(1,013)
78171Other operational movements (net)(10)(12)(328)Working Capital364163145
Depreciation (inc. accelerated depreciation)
(208)435147Operating profit
(854)
349
(29)-
60(187)(98)
603
(1,203)
H22004
(1,203)
(190)
17-
58(125)(105)
(35)
(1,013)
H12004
(1,013)
223
(22)29162
(163)(169)
224
(1,236)2003
Other movements (net)
Movement in net debt
Equity issue (net proceeds)
Closing net debt
Disposals & acquisitions
Operating cash flow
Opening net debt
Capital expenditureInterest and Tax
£ million
15
Total working capital % Turnover*
Stocks - £m
Trade Debtors and Creditors - £m
38953665 3621
30003200340036003800
2002 2003 2004
Carbon steel stocks kt
18.218.318.3
17.5
18.0
18.5
2002 2003 2004
13371404
1732
1300
1500
1700
2002 2003 2004
995 970 1201
11881047 986
-1800
-800
200
1200
2002 2003 2004Debtors Creditors
* Last 3 months turnover annualised
Working capital
16
2004
Balance sheet
355341Other debtors & creditors
(2)%19%Return on Net Assets (%)
37%
2,843
(1,013)
(673)
1,190
2,984
2003
27%Gearing (%) (Net debt/net tangible worth)
3,300Net assets
(854)
(679)
1,433
3,059
Net working capital
Fixed assets
Net borrowings
Provisions, accruals, etc.
£ million
17
Rebuilding our financial position
* Normalised interest excluding one-off new debt issue costs
1236
1013854
500700900
11001300
2002 2003 2004
-0.6
9.3
2.5
-5
0
5
10
2002 2003 2004
2797 2836
3258
2500
3000
3500
2002 2003 2004
27%
37%
20%25%30%35%40%
2002 2003 2004
46%
Shareholders’ Funds - equity interests £m
Net debt £m
EBITDA/Interest*
Gearing %
18
Financing
• Debtor Securitisation programme increased by £60m to £275m and maturity extended from 2007 to 2009
• New €800m 7.5% 2011 bond/tender for €400m 2006 bond
• €800m replacement bank facility until 2008
• No significant maturities until 2007
19
Summary
• Underlying operating profit £627m
• 30% of the improvement attributed to Restoring Success
• Retained profit £446m (EPS: 10p)
• Net debt reduced to £854m (27% Gearing)
• Debt maturities extended
• Quarterly reporting – June 2005 onwards
• IFRS restatement – May 2005
20
Philippe Varin
‘Restoring Success’
‘The Corus Way’
Market outlook and trading update
21
Our priorities
2004… 2006: ‘Closing the competitive gap’
• Deliver ‘Restoring Success’
• Improve our commercial performance
• Dispose non core assets
• Refinance 2006 - 2008 bond maturities
Next steps – ‘The Corus Way’
• Becoming a value player in steel
22
The competitive gap
-5%
0%
5%
10%
15%
20%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004H1
2004H2
Corus6%
EU average*(excl. Corus)
2.6%4.5%
(*) EU Average consists of Arcelor, ThyssenKrupp Steel, Salzgitter, Voestalpine, Rautaruukki and SSABPre-October 1999 figures based on pro-forma average of British Steel and Hoogovens. Saltzgitter Q4 2004 result estimate
EBITDA margin on sales
23
Restoring Success programme
0
200
400
600
800
Net downside impact of external factors: exchange rates & trend price/cost squeeze
2003 competitive gap c.£400m
Sum of annualised expected benefits from end H1 2003
Existing plans£210m
UK Restructuring£120m
New initiatives£350m
Cumulative gross: £680m
Full implementation of all initiatives is designed to close the competitive gap by end of 2006
EBITDA impact
£m
24
Restoring SuccessProgress to date
0100200300400500600700800
H2 2003 H1 2004 H2 2004 Target
£350m
£120m
£210m
£680m
£52m
£220m£335m
UK Restructuring benefits start H2 2005
Existing plans
New initiatives
Annualised exit rate benefits
UK Restructuring£m
25
Restoring SuccessExisting plans
Savings on track
• 1,200 Manning reductions secured
• World Class IJmuiden (£50m p.a.) completed
– DSP output increased to 1.1mt
• High Performance Strip UK (£120m p.a.)
– £70m p.a. exit rate savings secured since June 2003
Annualised exit rate benefits – £210m target by end 2005
0
50
100
150
200
250
H22003
H12004
H22004
H22005
£52m
£126m
£210m
£m
£165m
26
Key objectives• £120m p.a. EBITDA improvement
• Maximum cash cost of £250m
• Strip Products based at Port Talbot:Scale raised from 3.8 to 4.7mt p.a.
• Engineering Steels based at Rotherham:Scale raised from 0.9 to 1.1mt p.a., process improvements and closure of Stocksbridge steel making
• Long Products based at Scunthorpe:Scale raised from 3.8 to 4.5mt p.a.
Current status• £160m capital investment
nearing completion
• Investments progressing on time & within budget
• Commissioning underway
• Teesside resolution –long-term offtake agreements
• Initial benefits in H2 2005 & full benefits end 2006
Restoring SuccessUK Restructuring update
27
Restoring SuccessUK Restructuring update
New caster installationat Port Talbot
Commissioning of new small bloom caster at Rotherham
28
Objectives from June 2003£350m p.a. EBITDA improvement
Manufacturing & supplies - £200m p.a.• ‘Manufacturing excellence’,
purchase savings and supply chain optimisation
Support function review - £70m p.a.• Support function rationalisation,
including IT and financial shared services
Volume & mix opportunities - £80m p.a.• Specific developments towards
premium end markets
Progress to December 2004Exit rate benefits of £170m
• Significantly ahead of original target• Substantial improvement in
manufacturing KPI’s• Tangible purchasing savings
• IT benefits are re-phasedbeyond 2006
• Key investments to enrich product mix nearing completion
£350m p.a. improvement by H2 2006 remains on track
Restoring SuccessNew initiatives
29
12,000
71%74%79%%On time in full deliveries
10.27.53.8Per million hours worked
Lost time injuries
18,00016,000No.No of suppliers
376372361Kg/thmAverage coke consumption rate (Group)
479532582TonnesLiquid steel per employee(Strip & Long divisions only)
51,60050,30048,600‘000Average number of employees
19.4MtsLiquid steel production 19.5 17.1
20032004 2002
Operational improvements fromRestoring Success
60% of new initiative benefits to date secured from manufacturing & supplies
30
Restoring SuccessProgress on Disposals/Alliances
Achieved to date• North American Distribution – completed H1 2004 • Piling – completed April 2004• Tuscaloosa – completed July 2004• Surplus assets/land – ongoing• Teesside – completed December 2004
Work in progress• Aluminium
31
0
200
400
600
800
Trend CapitalExpenditure
TaxationInterest
Free cash flow
EBITDA after
Restoring Success benefits
2003EBITDA
£m
Cash positive under 2003 market conditions
Structural improvement in cash generationRestoring Success
32
Beyond Restoring SuccessThe Corus Way
Best supplier tothe best customers
The Corus Way
ExistingInitiatives
UKRestructuring
NewInitiatives
World Classprocesses
Selective growth
Passionate people
The Corus Way
Restoring Success
Restoring Success
33
The Corus WayBest supplier to best customers
Best supplier to best customersSharper commercial focus
• ‘One Corus’ pricing policy
• Improved delivery performance
• Better customer, product & market selection
Turnover £m
Construction 30%
Engineering 20%
Automotive 16%
Metal Goods 13%
Packaging 15%
Other 6%
34
The Corus WayBest supplier to best customers
PRODUCTS – increase steel penetration in UK High rise market
SYSTEMS – target residential construction
SOLUTIONS – align offer to further up the value chain
‘Living Solutions’ Modular buildings
Heathrow Terminal 5
35
The Corus WayWorld Class processes
• Strip products at IJmuiden– achieved
• Strip products at Port Talbot– being achieved for UK deliveries
• Engineering steels at Rotherham– being achieved
• Long products at Scunthorpe– being achieved
Structurally competitive cost position: 1st quartile*
• Benchmarking
• ‘Lean Thinking’ principles
• 250 specialist coaches being trained
* CRU & Corus - 2003 European cash cost on a delivered basis into core markets
Continuous improvement
36
Structural improvement
The Corus WaySelective growth
£m
Selective growth
• Internal & external profitable growth
• Financial discipline
• Robust balance sheet
0
200
400
600
800
Trend CapitalExpenditure
Taxation
Interest
Free cash flow
EBITDA after
RestoringSuccessbenefits
2003EBITDA
37
Market outlook and trading update
• Steel industry supply/demand
• Steel raw materials and selling prices
• Trading update
38
Global steel demand
Worldwide growth continues in 2005 albeit at lower levels
Estimate2005
Actual 2004
8%
6%
3%
5%
9%
13%
4%100950World
3%26248Rest of World
2%17164Europe (EU25)
2% 15145Developing Asia
3%14130N. America
8%28263China
Growth rates
2004mt
% oftotal
Source: IISI
39
Supply/demand balanceGlobal steel supply/demand balance (million tonnes)
Source: IISI / Corus
Surplus capacity (RHS)ProductionCapacity
500
600
700
800
900
1000
1100
1200
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 200560
80
100
120
140
160
180
200
220
240
260
Global steel supply/demand balance forecast to remain tight in 2005
40
Raw materials and selling prices
100
200
300
400
500
2000 2001 2002 2003 2004 2005
($/t Index)
Note: Market pricesSource: Corus
Scrap
Iron Ore
Coal
Coke
Raw materials
YTD
Note: Hot rolled coil prices Source: Corus
($ per tonne)Steel
USA
EUPacific Rim
YTD
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005
41
Trading updateOutlook
• Global growth remains relatively strong
• Stock build has softened H1 2005 demand
• H1 2005 trading environment expected to be broadly in line with H2 2004
• Conditions more uncertain as year progresses
• Look to recover significant raw material cost increases
• Further benefits from ‘Restoring Success’
42
Jim Leng
Conclusions