BlueScope Steel Limited (BSL) Earnings Call Transcript & Summary

Good morning, and welcome to the BlueScope FY '22 financial results presentation. My name is Mark Vassella, and with me today is Tania Archibald, our CFO. This morning, I'll take you through the highlights of the last year, and then Tania will address segment and balance sheet performance. Before we wrap up, we'll have plenty of time for your questions. We're joining you today from Melbourne, part of the Eastern Kulin Nation, and I'd like to acknowledge the traditional custodians of this land, the Boonwurrung and Wurundjeri peoples. We pay our respects to elders, past, present and emerging and to all First Nations people with us today on the call. Our FY '22 results are a record performance with the highest profit in our 20-year history as a listed company. And whilst this has been an extraordinary period for the steel industry in terms of demand and pricing, this result also reflects many years of investment and transformation, which has allowed us to reap the benefit of those conditions and demonstrate the incredible leverage within the BlueScope portfolio. The record result is a credit to our entire 15,000 strong team, and I want to thank them for their tireless efforts. As I mentioned in February, the sheer level of demand in many of our regions has meant that we've not always been able to live up to our own high expectations of timely delivery and customer service. I'm aware that supply chain disruptions, including from major flooding events on the East Coast of Australia and the impact of labor and logistics constraints are common areas of concern across the economy. I'd like to reiterate that we remain extremely focused on meeting the needs of our customers and improving our performance. On climate action, we've continued to take significant strides as we seek to reposition the business for a low-carbon world. We're working hard to deliver on our 2030 targets and the 2050 net zero goal and are progressing a range of abatement projects and collaborations to get there. We're proud to have been recognized as a worldsteel Sustainability Champion and also to achieve ResponsibleSteel certification for our Port Kembla site, being the first steelmaker in Asia Pacific and the fourth site to be certified globally. It's been a major year of achievement and progress for us in the U.S. with the expansion of North Star and the acquisitions of both the MetalX ferrous scrap and Coil Coatings businesses, and just last week, a third recycling site. Our total investment in the U.S. is now around $5 billion with nearly 4,000 employees. The network that we've assembled forms the backbone of our U.S. value chain and positions us very well for future growth. In addition to the investment in growth we've made across the U.S., we're continuing to progress our broader growth and transformation initiatives with the continued rollout of our digital program and further progression of key projects, such as the addition of metal coating capacity and a new pipe and tube mill in Australia. The feasibility assessment phase of the Port Kembla reline project is also well progressed, and we anticipate moving to execution phase early next calendar year. In parallel with this investment for future growth, we've been able to reward shareholders with returns of nearly $1 billion. And still, we finished the year with a healthy net cash balance sheet. As always, safety comes first at BlueScope. Over the last year, we've continued the evolution of our overall approach and organization-wide safety culture as we seek to take our performance to the next level. This is about supporting our leaders and empowering our people to increase our capacity in how we manage risk. As we previously shared with you, this includes the formal introduction of lead indicators, which help us better understand our capacity to manage risk going forward. These lead indicators provide critical information to assist us in reducing the future frequency and severity of incidents. As you can see from our results, FY '22 saw a strong performance on our lead indicators with over 243 team-based health, safety and environment risk control improvement projects. This metric represents the implementation of innovative and practical risk control improvements across the business, which enhance our safety resilience whilst empowering our people to identify opportunities and be part of the solution. In addition to these projects, over 1,300 of our leaders have now participated in the safety HSE risk management program. We've also had more than 100 of our supply chain and industry partners participating in this program. During the year, we were proud to have this program recognized by the World Steel Association, being awarded the winner of World Steel's Safety and Health Excellence Recognition in 2021 for leadership and culture. On our lag indicator, TRIFR at 7.1, this remains slightly above the long-term average of 5 to 7, with the FY '22 injury profile continuing to be lower severity injuries, such as sprains and lacerations. 2.5% or 7 of these injuries had the potential to be a fatal incident and 1 of these resulted in a permanent incapacity. This performance should be viewed in the context of sustained pandemic impacts, including substantially higher numbers of new employees, record activity levels, a significant impact from absenteeism due to COVID and the successful execution of major capital projects. In particular, I would like to call out the North Star expansion team for their incredible safety performance, which was achieved under very challenging conditions. We continue to see a supportive long-term outlook for steel and favorable industry end-use trends. And our portfolio of businesses is well positioned to benefit from these. The focus on climate change continues to accelerate. We're working hard to pursue the decarbonization of our operations, and we're excited by the role our products play as a vital input for a clean energy future. Adding to this, the robust pipeline of public infrastructure and nonresidential investment is supporting demand in the steel-intensive building and construction segments across our key markets. The now established trend to remote and hybrid working environments is supporting the shift towards lower density and regional residential housing. This is a sweet spot for BlueScope's products such as COLORBOND and TRUECORE. And despite recent increases in interest rates, we continue to see a solid pipeline of demand for our products in residential construction applications. The transition to the digital economy is driving demand for steel-intensive e-commerce infrastructure, including warehouses, distribution centers and data centers, creating a supportive backdrop for all of our businesses. And recent macroeconomic and geopolitical volatility has continued to reinforce the importance of domestic supply chains and sovereign manufacturing capability, which aligns perfectly to BlueScope's strategy of focusing on our domestic markets. On the supply side, capacity consolidation and rationalization has transformed the U.S. steel industry, which is clearly exhibiting enhanced supply side discipline and China's efforts to reduce exports and limit overproduction and emissions are also major structural positives. To our financial highlights. Underlying EBIT in FY '22 was a record $3.79 billion, more than double that of FY '21. The second half of FY '22 delivered an underlying EBIT of $1.58 billion, the second highest in our history, only to the first half of FY '22. Return on invested capital also hit record levels at 42%, up from 25% last year. And reported NPAT substantially increased to $2.81 billion. Free cash flow after CapEx of $1.7 billion reflected our strong earnings performance and continued investment in the business, such as the North Star expansion project. We also saw elevated net working capital due to higher steel prices and activity levels, and this will be a key focus for us over the next 12 months. And the balance sheet remains very strong with net cash of $367 million at 30 June, down from 6 months ago, reflecting the acquisition of the Coil Coatings business for approximately USD 500 million. Now whilst these record results reflect the hard work and diligence of the entire BlueScope team, they're also the result of many years of hard work to get the business model to its current state of resilience and strength. Our business is placed at all points in the cycle to generate quality earnings, capitalize on growth opportunities and deliver returns to shareholders. It's on the back of this ongoing confidence in the business that the Board has approved a final unfranked dividend of $0.25 per share. Additionally, with $353 million bought since February this year, our buyback program is being increased to up to a further $500 million over the next 12 months. Again, these results are a credit to the entire BlueScope team who continue to make a remarkable contribution against the backdrop of challenging operating conditions. Looking across our businesses. All of our operating segments delivered record underlying EBIT contributions in FY '22. Tania will take you through the segment detail in just a moment. However, the common thread across the business was the robust demand and higher steel spread environment that drove these strong performances, despite supply chain and pandemic-related disruptions. We saw a strong performance from our North American businesses. North Star delivered an underlying EBIT of $1.9 billion, and the team have done a spectacular job of operating the facility to maximize output whilst delivering on the expansion project. Buildings North America, which is now being combined with the new coated products business to form a single reporting segment, also had a very strong second half with healthy demand and margins. The Building Products Asia and North American segment was led by an extraordinary contribution from the Coated North American business with strong market conditions and margins. In Australia, we saw domestic sales volumes of over 2.5 million tonnes, with strong demand across all end-use segments, particularly from building and construction applications. Strong steel prices and spreads also contributed to the performance. And we saw similar conditions in New Zealand and the Pacific Islands. As we look to the start of the first half of '23, we're noticing some level of customer hesitancy impacting on demand across a number of our businesses caused by the combination of the falling price environment and temporarily high channel inventories. Our purpose and strategy continue to focus and guide us. Our purpose continues to resonate throughout the BlueScope team as we work to support each other, our customers and our communities. Whilst FY '22 saw us benefit from a number of macroeconomic industry tailwinds, our strategy has guided us in deploying our financial strength. Recapping the pillars of our strategy. The transformation element speaks to how we're striving for a digital future in manufacturing and seeking to delight our customers. As a large-scale manufacturer striving to meet the needs of our customers, investments in robotics, automation and digital technologies more broadly need to be core to our customer experience and manufacturing excellence programs. Transformation also speaks to our approach on climate change and sustainability, where we need to continue to embed sustainability at the heart of what we do. This was a core principle in the recently announced program of work to develop an urban master plan for the 200 hectares of excess land we hold at Port Kembla. On growth, we have an incredible footprint across Asia with tremendous upside potential. We're striving to deliver on the promise of our earlier investments with an equal focus on growth and sustainable returns. In the U.S., we'll continue to build out the North American value chain with a focus on integrating our recycling assets, the coil coaters business and building out our customer offers. And in Australia and New Zealand, our intermaterial growth strategies will continue to be driven by our comprehensive sales and marketing programs, backed up by ongoing product and service innovation and differentiation. As always, being a capital-intensive and cyclical organization, we remain acutely focused on the need to deliver strong returns and robust cash flows and above all, keeping our people safe. As I mentioned earlier, it's been a year of major achievement and progress in the U.S. Firstly, the construction phase of the expansion of our best-in-class North Star mini-mill is substantially complete, with the team now commencing ramp-up of the project. Next up is the debottlenecking opportunity, which we'll begin to assess during that ramp-up period. Following its establishment through acquisition earlier in the year, BlueScope Recycling has continued to grow through a range of low capital capacity projects and the acquisition of a new site. Late in FY '22, we completed the acquisition of the Coil Coatings business, and it's great to welcome 570 new colleagues to BlueScope. This business provides us a range of near-term synergies and medium- to longer-term growth potential through process and technology upgrades, product development and the introduction of branded and packaged products. All up with these investments, we've built an exciting platform for future earnings and growth. To be clear, this growth potential is not just from the individual initiatives I just mentioned, but also through the opportunity of future vertical integration across our U.S. value chain, particularly through the potential addition of cold rolling and metal coating. We continue to see the U.S. as a great place to make and sell flat steel products. And at full capacity, North Star will represent approximately 5% of total annual U.S. flat steelmaking production. Our confidence is supported by recent consolidation and rationalization of capacity in the U.S. steel industry that continues to underpin supply-side discipline, the U.S. remaining a net importer of steel and the expectation that steel demand will continue to grow over the coming decade in line with large-scale infrastructure requirements, development of steel-intensive renewable energy systems and the buildout of e-commerce infrastructure. Touching on the North Star expansion in a bit more detail. Construction is substantially complete with the new equipment running well. We've also welcomed the complement of new employees into the business. The first coil was produced back in June, and we're commencing the 18-month ramp up to full run rate. The capital cost estimate remains at approximately 10% above the USD 700 million initial estimate we outlined some 3 years ago. Considering the environment of pandemic-related disruptions and inflation over the last few years, this is an excellent outcome. We'll now begin to assess the hot strip mill debottlenecking project, which has a high-level pre-concept estimate of about $100 million, with implementation expected to come after the ramp-up of the current expansion projects. Finally, I'm pleased to advise that North Star has recently entered into a multiyear contract with Cliffs for the supply of HBI from their Toledo plant as part of North Star's diversified metallic supply arrangements. The photos on Slide 2 show the second caster in operation. It's an impressive facility. BlueScope Recycling is performing well. The business provides North Star with important supply surety on scrap and brings us a crucial presence and expertise in scrap processing. This expertise will enable North Star to improve the quality and quantity of obsolete scrap it uses and reduce the reliance on prime scrap. We're now in the process of expanding and improving the processing capacity through capital-light investments. We're also delighted to announce the acquisition of a third site in Mansfield, Ohio, expanding direct access to the regional scrap pool. Following these investments, we expect BlueScope Recycling will be able to supply over 40% of North Star's post expansion requirements. We're excited about the establishment of a significant national painting footprint in the U.S. with the acquisition of the Coil Coatings business. This is a major strategic opportunity for BlueScope. I had the opportunity to visit all of the 7 sites last month. It was terrific to meet the team and welcome them to BlueScope. We're all enthusiastic about integrating the business into our portfolio and getting after the opportunities that we see. The business has been renamed BlueScope Coated Products and is the second largest metal coil painter in the U.S. with around 900,000 metric tonnes of capacity, painting a range of finishes on steel and aluminum substrates for a wide range of applications, including building products and manufactured goods as well as offering a range of value-added services. The business has a history of robust financial performance with the sales mix focused on U.S. end-use segments that are attractive to BlueScope. This acquisition provides a rare opportunity to fulfill a key strategic growth initiative with immediate access to the large and growing Eastern U.S. region, along with a longer-term opportunity to further integrate our U.S. flat steel value chain. Along with the near-term synergies, we see significant potential for medium to longer-term growth through product development and branded products, consistent with our customer service and value proposition around the globe. Moving from the U.S. to Australia where the Port Kembla Steelworks is approaching its 100 anniversary in 2028. Many of you have visited the Port Kembla site and will appreciate that it's a major manufacturing precinct of strategic importance to the region and Australia's sovereign steelmaking capability. Several years ago, we began to ramp up the focus on how we can better leverage technologies to optimize our operations, supply chains and customer interactions. And today, we have a broad range of initiatives in robotics, automation and other digital technologies, which are delivering the next wave of customer growth and productivity improvements. These digital technologies will also support a range of carbon intensity reduction initiatives, such as the now operational blast furnace digital twin model. When we hold our Investor Day at Port Kembla next month, I hope that many of you have the opportunity to see firsthand these promising advances in modern manufacturing capabilities. We continue to make good strides to reduce energy use and greenhouse gas emissions intensity of our existing process assets, including increasing scrap utilization, trials of biomass injection into the blast furnace and a range of off-gas heat and energy reuse opportunities. We're also playing our part in pursuing breakthrough technology with continued progression of the assessment of a pilot hydrogen-based direct reduction iron melter and a hydrogen electrolyzer. For a hard-to-abate industry, these are important developments. And during FY '22, we established BlueScopeX, our vehicle for direct investment in start-ups in the decarbonization and energy efficient building space. The feasibility study of the comprehensive reline and upgrade of the mothballed #6 blast furnace is progressing well, and we expect to move into execution phase early next calendar year. As a reminder, this project includes a range of improved environmental controls, along with technology options that will enable greenhouse gas reductions over the medium to longer term. Importantly, the reline provides a bridge to our adoption of breakthrough lower emission steelmaking once they're technically and commercially viable. And BlueScope has also commenced the development of a master plan for the approximately 200 hectares of excess landholdings adjacent to the Port Kembla Steelworks. The 18-month program, which will be led by world-leading architects and urban designers, the BIG Group from Denmark, will create a vision for the reimagination and transformation of land surplus to our steelmaking needs with the potential to unlock a wide range of new uses and enable significant long-term economic and social value for the region. Before I continue, I'd like to take a moment to address a key issue facing the future of our major industrial assets and the nation, and that's energy. We're very concerned about the state of energy markets in Australia. Although we have contracts in place for the next couple of years, which insulate us from near-term extreme spikes that we've seen recently in gas and electricity prices, in the medium term, sustained high prices and supply shortages risk undermining the international competitiveness of the steel industry and its broader ecosystem of channel partners, end customers and suppliers. High energy costs undermine the transition to low emissions iron and steelmaking, which require significantly more electricity. Regardless of the technology pathway eventually adopted at Port Kembla, transition can only occur if we have firmed affordable renewable energy. And in the interim, continuing supplies of competitively-priced natural gas supplemented with renewables will be essential until green steel technologies are commercialized. For too long, domestic industry has suffered from broken energy markets and neglect by big energy. Any future design of energy markets must, therefore, strike the right balance between affordability, reliability and sustainability. In short, Australia needs an orderly energy transition that will ensure the sustainability of key national assets such as the Port Kembla Steelworks and crucially, the thousands of downstream companies in the building and construction industry and our broader customer base. With BlueScope's unique perspective and direct experiences from our businesses overseas, we know how beneficial to the economy these interventions can be. In the U.S., for example, we operate in a highly competitive energy market with a mix of energy sources ranging from coal, gas, renewables and nuclear. We have certainty of supply and of affordability. And with this market structure, we've had the confidence to invest more than $2 billion, expanding our U.S. portfolio over the last 2 years. At Home here in Australia, however, we're far less confident about the investment environment because of the ongoing dysfunctionality of the domestic energy market. I believe this is a fixable problem, and I'm hopeful that we might see some real progress following the comments and signals by both the ACCC and the new federal government. In FY '22, we continued our progress in addressing climate change. Our steelmaking emissions intensity reduction through the year has kept us tracking well towards our 12% reduction by FY '30. Midstream emissions intensity increased in FY '22 on lower dispatch volumes due to near-term supply chain constraints and disruptions. We anticipate this performance will improve as conditions normalize. We're working hard across our businesses to achieve our 2030 targets whilst continuing to accelerate our action on emerging and breakthrough technologies, particularly for our Port Kembla and Glenbrook steelmaking sites. At our Glenbrook site in New Zealand, we further developed our decarbonization plan for our iron making facility. We're actively evaluating plans for alternative technologies and are working with the University of Victoria in New Zealand on hydrogen ironmaking, with the potential to convert ironmaking in the future if the technology is viable. Outside of the topic of climate change, we continue to embed sustainability in all that we do. On diversity, we continued our efforts in better reflecting the communities in which we operate through the year, with female representation continuing to grow across all segments of the workforce with overall female representation now reaching 24%. We're also seeing tailored beyond gender strategies emerging across our businesses, which are designed to suit local community needs. One such example is a focus on ethnicity in the U.S. where ethnically diverse candidates comprised 42% of all new hires into the Buildings business. On sustainable supply chain, we've substantially ramped up our supplier assessment process in the second half as pandemic conditions have continued to improve. As at 30 June, '22, we have completed our Engage and Assess process with over 300 of our suppliers and 139 of them were completed during FY '22. These are a mix of assessments of new suppliers and reassessments of previously assessed suppliers with over 80% of these being completed via the independent EcoVadis process. For FY '23, we're gearing up for a return to third-party on-site audits. I'll now hand over to Tania, who will take you through the more detailed financial data.

Thanks, Mark. The Australian business delivered a record underlying EBIT of just under $1.3 billion and a return on invested capital of 37% in FY '22. The second half result of $610 million was marginally below the first half, reflecting broadly strong performance across the year. Domestic volumes hit record levels in FY '22 exceeding 2.5 million tonnes. Despite strong customer demand, second half dispatches were moderately lower than the first half due to a range of supply chain disruptions, including multiple East Coast flood events and rail outages. The premium branded suite of products continued to perform well with the likes of COLORBOND, TRUECORE and TRU-SPEC, all seeing record sales volumes through the year. Specifically, TRUECORE continued its growth trajectory in FY '22, up 22% on FY '21, representing continued share growth in the detached residential light [ gauge ] steel framing segment. Realized spreads in the second half were broadly flat to the first half, as strong demand conditions alleviated rising raw materials costs. The second half result included a one-off unusually large noncash benefit of $53 million from the revaluation of the Finley Solar Farm power purchase agreement, which is treated as a financial derivative under AASB 9. This was driven by unprecedented conditions in energy markets in the second half, which has resulted in an increase in projected future electricity prices. Looking at the specific segments, for ASP, across the board, we saw lower dispatches in 2 half '22 relative to the first half, primarily due to supply chain disruptions on both pandemic and weather-related impacts. Underlying demand remained strong through the period, which is helping to maintain a solid pipeline of future activity. Sales into building and construction segments remained at historically robust levels, driven by a combination of supportive macro factors and our own focused sales initiatives. In the residential sector, we continue to see strong detached housing starts with a solid pipeline of work, including from the HomeBuilder program and demand from the continued shift in consumer preference to detached housing and regional living. Home improvement activities were also strong, supported by rising house prices, redirected discretionary spend and the pipeline of projects from the HomeBuilder program. In terms of nonresidential construction, the commercial and industrial subsegment remained strong with a solid pipeline of work combined with rebounding confidence to support strong demand, including in e-commerce infrastructure. The social and institutional subsegment also remained strong, particularly driven by ongoing government investment in health, education and defense projects. Underlying demand in the engineering, manufacturing, agriculture, mining and transport end-use segments remained solid, although dispatches were impacted by supply chain challenges and weather events. Looking at the macro conditions of the Australian building and construction industry, we continue to see a strong pipeline of activity. Whilst detached house approvals have pulled back from recent record highs, they've continued to show resilience at the top end of the historical band of 90,000 to 100,000 approvals, demonstrating that underlying demand for detached housing remains strong while following the end of the HomeBuilder program. Whilst rising rates have seen some curtailment of demand, ongoing labor and supply chain constraints may provide a buffer as they elongate the pipeline of work. In addition, we see a continued trend towards regional areas and lower density living, which are traditionally areas where our flat steel products are popular. Alterations and additions approvals have pulled back from recent highs, but remain around double pre-pandemic levels with consumers continuing to direct discretionary funds towards renovation activity. In the nonresidential space, approvals remain at very good levels. The government's focus on fiscal support in health, education and defense projects, along with a good pipeline of projects and solid confidence levels in the commercial and industrial sector is likely to underpin demand in the medium term. Overall, our view remains that underlying demand is strong. However, looking at volumes at the start of one half '23, the channel is somewhat congested from delayed arrivals of imports, and we have the sense that particularly distribution customers are well stocked. Nonetheless, the overall picture for volumes across the half is positive. The North Star business produced an outstanding result with full year underlying EBIT of $1.9 billion and a return on invested capital of 67%. Following record spreads in the first half of FY '22, realized spreads moderated in the second half, however, remained at levels 2 to 3x that of the long-term average. Steel demand remained supportive during the second half despite ongoing supply chain challenges and the historically weak level of new vehicle sales driven by supply disruptions to automotive producers. North Star dispatch still at full capacity through the year other than during scheduled maintenance outages in November '21 and March and April '22. And this was an excellent achievement, given the magnitude of the expansion and integration works that continued throughout the year. Conversion costs decreased in 2 half '22, mainly due to reduced employee profit share plans, which naturally wind up and down in direct correlation to business performance. Outside of the profit share, we did see some modest increases in labor, refractories and consumables costs. BlueScope Recycling was brought into the North Star segment upon acquisition of the MetalX ferrous business, and we're making good progress on integrating the business into the broader group. Taking a quick look at activity levels across North Star's end-use segments. In auto, despite continued strong underlying demand for vehicles, the automotive segment remains impacted by low vehicle inventories stemming from the semiconductor shortage and other supply chain disruptions. Encouragingly, the continued trend to more steel-intensive SUVs and pickups has continued. Nonresidential construction has recovered to pre-pandemic levels, supported by consumer confidence in government stimulus programs. The Architecture Billing Index remained in expansionary territory throughout the year, supportive of future demand, although has moderated more recently. The manufacturing sector continued to run at historically robust levels in FY '22 despite challenges from disruptions to supply chains and labor availability. Robust household demand and a solid pipeline of work have supported activity levels. However, in recent months, activity has pulled back somewhat as the economy adjusts to higher interest rates. Turning to the new Buildings and Coated Products North America segment, which combines the Buildings North America and BlueScope Coated Products businesses. This segment delivered an EBIT of $97 million and return on invested capital of over 16% for FY '22. The second half EBIT of $79 million saw a significant improvement in the performance of the Buildings North America Engineered Buildings business. Strong margins were achieved through better realized prices and lower steel input costs. The business also benefited from substantially fewer pandemic-related impacts to labor, materials and supply chains. Underlying demand and order intake are at healthy levels on solid activity in the logistics and warehousing end-use segments, and good progress has been made in delivering sustainable engineering and manufacturing capacity increases across the business. The Properties Group delivered a negligible contribution in 2 half '22 due to project timing, and that is that no projects were realized in the half. More broadly, the buildout of the Properties Group pipeline of projects is on track as we seek to generate a more consistent earnings profile from this business. And lastly, the newly established BlueScope Coated Products business acquisition became effective on 28 June, 2022, which resulted in no earnings contributions in FY '22. This business will be included in this segment going forward. Building Products Asia and North America delivered a strong full year result of $419 million EBIT and a return of invested capital of just over 26%. The second half result of $153 million was predominantly driven by the North American business, which again delivered robust margins, albeit lower than the first half on falling prices. Performance in the Southeast Asian businesses was reasonable, albeit impacted by higher cost inventories, particularly in Thailand and Vietnam. China delivered a softer result in the second half on typical seasonality. Although broader Chinese economic activity slowed on COVID lockdowns, our China business remains focused on relatively high-growth segments, including auto, electronics, logistics and food and beverage, which have generally outperformed the broader economy. And in India, performance remained relatively stable on robust demand despite continued pandemic impacts across operations and supply chains. As previously announced, BlueScope has reached an in-principle agreement with Tata for the supply of coated and painted products to the Tata BlueScope joint venture and initial seeding product volumes have commenced. The New Zealand and Pacific Islands business delivered an outstanding result in FY '22 with an underlying EBIT of $229 million and return on invested capital of over 54%. In the second half, the business delivered $142 million of underlying EBIT. Domestic demand remained strong in the second half, driven by ongoing strength in construction and infrastructure activity, including robust residential demand. Dispatch volumes improved in the second half, given reduced pandemic-related disruptions to operations and supply chains relative to the first half. Margins benefited from strong demand conditions and favorable realized pricing. Coal, freight and energy costs were higher during the half. However, these were broadly offset by an increase in vanadium byproduct contribution and the net ETS impact from the escalation of NZU prices. Turning to the underlying EBIT group walk forward. I'll focus my comments on the left-hand chart with FY '22 performance compared to FY '21. The standout driver of the earnings increase were the significantly higher realized steel spreads with rises in selling prices, doubling the increase in raw material costs. And you'll recall that U.S. Midwest hot-rolled coil prices exceeded USD 2,000 per metric tonne in one half '22. Conversion costs were also higher. However, as I mentioned in February, around half of the cost escalation relates to employee profit share arrangements, which naturally wind up and down in direct correlation to business performance. The balance of the conversion cost increase was largely general cost escalation, predominantly in freight, and then to a lesser extent, labor, consumables and services costs. These were partially offset by an unusually high noncash contribution of $56 million from the revaluation of the Finley Solar Farm power purchase agreement, as I mentioned earlier. On the right-hand side of the page, the key driver of the softer 2 half '22 performance was higher raw materials costs, predominantly in coal, but also scrap and external steel feed in our coating businesses. The volume and mix impacts were predominantly driven by lower dispatch volumes in ASP on supply chain disruptions. Turning now to the financial framework and key financial indicators and settings. The financial framework remains unchanged and is integral to our success in managing the business through the peaks and troughs of the cycle. By way of recap, we have 3 key focus areas, firstly, in delivering returns greater than our cost of capital and maximizing free cash flow generation through the cycle. Secondly, we seek to maintain a strong balance sheet and credit metrics, given the ability to weather cycles and providing the capacity to deliver on value-accretive opportunities. And finally, we remain disciplined in our capital allocation, balancing shareholder returns with investing for long-term sustainable growth. As I mentioned at the first half '22 results, we'll be operating outside of our target capital structure for a period of time with the intent of retaining a stronger balance sheet to prioritize key investment priorities for the purposes of delivering long-term sustainable earnings and growth. On ROIC, the group delivered a record return on invested capital of just under 42%, up significantly on FY '21. This is an excellent outcome with very strong contributions from North Star, New Zealand Steel and ASP. More importantly, it highlights the operating leverage that can be delivered from the high-quality assets within the portfolio. On cash flow, in line with our growth strategy, we saw a significant investment during the year on asset expansions and acquisitions in the U.S. as well as strong returns to shareholders. Thanks to the strength of the balance sheet and nearly $1.4 billion in cash flows in 2 half '22, BlueScope remains in a net cash position. As foreshadowed in our May update, with the relative strength in raw material and product prices, combined with continued supply chain disruptions, net working capital remained elevated during 2 half '22. Our debtor book remains in a healthy state, albeit elevated with rate or price impacts and continued high levels of domestic activity. Focusing specifically on inventory, the ASP and Buildings and Coated Products North America segment saw the largest increases. The rate increases are all essentially in line with higher prices for steel and raw materials and will naturally fall as prices fall and make their way through the value chain. While the volume variance is showing as net 0 change, they are offsetting movements within this. ASPs inventory volume increased, reflecting continued high levels of domestic demand, which naturally necessitates higher levels of activity, together with ongoing supply chain disruptions. In Buildings and Coated Products North America, volume increased due to the acquisition of the coil coatings business and ongoing investment in the Properties Group. Offsetting these 2 is the Building Products segment, where volumes eased during the half as supply chain activity improved. We do expect the build observed in working capital to progressively release in line with declines in steel and raw material prices and as efficiency in supply chains recover. We're working hard to optimize our inventory positions whilst meeting the needs of our customers. Turning to our capital structure. The balance sheet remains strong with $367 million net cash at 30 June. We have ample liquidity of over $3 billion and have maintained our investment-grade credit ratings from Moody's and S&P. As we flagged for over 12 months now, we have focused on using our financial strength to invest for long-term sustainable growth and to reposition the business for a low carbon future. So in the short to medium term, we'll be retaining balance sheet capacity to fund these priority investments. But in the longer term, we'll continue to target around $400 million net to debt. On capital expenditure, for FY '22, sustaining asset spend was broadly in line with our normal range with growth capital focused on the North Star expansion project. In the current half, there remains a tail of approximately $80 million of capital on the North Star expansion project. Other projected gross spend of approximately $120 million relates to a range of activities across the group, including the new Australian metal coating line, a new heavy structural pipe and tube mill and continued investment in process automation. On the #6 reline project, we're making very good progress and an update will be provided at the November AGM. We've also just closed on the acquisition of the second ferrous scrap business, as Mark mentioned, for approximately USD 80 million. In terms of future investment priorities, as I mentioned earlier, we have a solid pipeline of projects that we're working on. With the expansion of North Star and the acquisitions of the MetalX ferrous and coil coatings businesses, we spent around $2 billion on major strategic priorities over the last few years, which strongly complement our current operations, markets and expertise. We have a further $1.9 billion of investment projects under evaluation, all of which we've previously flagged. It's an exciting pipeline of work with the 6 identified projects in various stages of progression. Turning to shareholder returns. In alignment with our financial framework, our approach is to seek to distribute at least 50% of free cash flow to shareholders in the form of consistent dividends and on-market buybacks. The strength of the financial performance and balance sheet is highlighted by the record level of shareholder returns in FY '22, especially considering the significant investments in growth undertaken during the year and the retention of a net cash balance sheet. A reminder that in August '21, the Board approved a new target of $0.50 per share per annum of ordinary dividends, which we expect can be sustained through the cycle under most scenarios, although naturally, the Board reserves the right to change this approach. In alignment with this approach, the Board today approved a $0.25 unfranked final dividend. We've now fully consumed our previously accrued Australian tax losses and expect to shortly resume cash tax payments. Going forward, we expect to be able to apply a level of franking to dividend, beginning with the interim dividend in FY '23. Buybacks will continue to be an important component of our capital management approach, given their flexibility in managing capital and the EPS enhancement they deliver. With $353 million spent in 2 half '22, the Board has today again approved lifting the available buyback capacity to up to $500 million. This buyback is intended to be conducted over the next 12 months, and we'll be continuing to take a nuanced approach to execution. And finally, I'll run through the outlook across the individual segments before handing back to Mark. For Australian Steel Products, we expect a lower result compared to 2 half '22. While domestic volumes are expected to be similar to the last half, we're expecting softer realized spreads driven by weaker lagged benchmark spreads. We're also expecting an unfavorable impact from higher-priced raw materials in inventory. Coke earnings are expected to be lower and of course, the 2 half FY '22 $56 million noncash contribution from the revaluation of the Finley Solar Farm PPA derivative is not expected to repeat in one half '23. For North Star, we expect a result around 1/4 of the 2 half '22 performance due to benchmark Midwest hot-rolled coil steel spreads continuing to contract back from record highs, partially offset by favorable realized pricing. The expansion will progressively ramp up during the half but is not likely to make a meaningful contribution to volumes in the early stages. For the Building Products Asia and North America segment, we expect a result around 2/3 of the second half performance. For North America, we expect a lower result due to cyclical margin compression from falling U.S. steel prices. In ASEAN, we expect softer results on weaker demand driven by congested channel inventories and at the falling price environment. India will also see a softer result with weaker demand in the falling price environment. In China, we expect to see a stronger result on typical favorable seasonality. For the Buildings and Coated Products North America segment, we expect a result around twice that of 2 half '22. We expect a strong contribution from the Engineered Building Solutions business, which is benefiting from expanded margins on lower steel feed costs. A negligible contribution is expected from BlueScope Properties Group due to project timing and a small contribution from BlueScope Coated Products is expected as we integrate the business. For New Zealand and Pacific Islands, we expect a moderately lower result than 2 half '22, mainly due to higher coal costs. And with that, I'll hand back to Mark.

Thanks, Tania. Turning to the group outlook. Underlying EBIT in the first half of FY '23 is expected to be in the range of $800 million to $900 million, driven by significantly lower Midwest U.S. hot-rolled coil steel spreads and weaker Asian hot-rolled coil steel spreads. Of course, our expectations are subject to spread, foreign exchange and market conditions. In summary, BlueScope is a very different type of steel company, one that's uniquely positioned to grow and deliver across our major markets. We're optimistic about the future. The benefits we're seeing today with a record result and an average ROIC exceeding 20% over the past 5 years have been underpinned by the decisions that have been made over the last decade. We're now seeking to lay the foundations for future growth and returns for decades to come. With the ongoing dedication of our 15,000 strong BlueScope team and our robust balance sheet and financial disciplines, we're focused on investing for long-term sustainable earnings and growth, carbon proofing our business and delivering solid returns to our shareholders. We have a high-quality asset portfolio positioned to capitalize on favorable industry and end-use trends such as structural changes in the U.S. and China, trends toward lower density and regional housing and the need for e-commerce, logistics and green energy infrastructure. We're particularly excited by our growth platform in the U.S. with the expanded North Star facility ramping up, the debottlenecking project and buildout of the value chain ahead of us, the new BRM and BCP businesses as well as the medium-term expansion of the Properties Group. And we're highly focused on the task of transitioning our business to a low-carbon future as demonstrated by the plans and commitments we laid out during the last half and the collaboration and concept studies we're progressing on. Before I hand over to Q&A, I'd like to acknowledge the significant loss to Australian manufacturing and to steelmaking in particular, with the tragic passing of Ray Horsburgh. I worked for Ray for 9 years. He was one of a kind, a passionate manufacturer, a devoted family man and a terrific bloke. I pass on my deepest sympathies to his wife, Pam and the Horsburgh family. He will be missed. So thanks for your time this morning. And with that, I'll turn it over to Q&A.

[Operator Instructions] Your first question comes from Simon Thackray with Jefferies.

Just on cash, the cash flow outlook, taking your comments, Tania, about the working capital impacts in the second half. Can you just give us a sense of your expectation for first half '23, noting your comments about falling steel prices and the channel in particular, how operating cash flow is tracking year-to-date on the basis that steel prices have fallen quite significantly?

Look, it's actually tracking pretty well, but the reality is that we've done pretty well on pricing. And that obviously does take some time to work its way through, I guess, the value chain eventually through the P&L, through the balance sheet. So they will -- it will naturally fall as prices fall. But remember, domestically, we're doing quite well on pricing. So that obviously has a little bit of an impact. It increases the lag, in effect.

That makes sense. And then on that point about domestic dispatches, you made a comment in your prepared commentary that the first half '23 dispatches will be, I believe, similar to the second half '22. So do I read this right that, that's a function of the fairly full channel inventories that the impact of that on dispatch volume will be an equivalent impact as seen in the second half '22 from the weather and supply chain disruptions? Is that the way to think about it?

I think the way -- yes. So what we're actually seeing at the moment in the channel is that there was obviously quite a number of imports that customers look to bring in over an extended period of time. A lot of those imports were quite late in arrival. I think they will finally turn up at the same point. And so our sense is that whilst the underlying demand is still quite strong, the channel is quite full, and it's just going to take a little bit of time for that to work its way through. So whilst we would have perhaps might have otherwise anticipated an increase or an improvement in dispatches, given all of the supply chain constraints that we had in the second half, that's not likely to happen.

Okay. That's helpful. And then finally, Mark, just on the CapEx update. I noted the $70 million for pipe and tube in Port Kembla -- I'm sorry if you've mentioned this before, I must have missed it, but first half '22 that was absent -- the slides, just the rationale for that. And then as an addendum to that, with cold-rolled and painting capacity in the U.S. into the future, just how do we think about that from a quantum of investment -- potential quantum of investment and timing?

Yes. No, you didn't miss the pipe and tube. We hadn't told you before. So it's okay, you haven't dropped the ball. We've been looking for a little while at pipe and tube and trying to get our head around just where the market's at and what the capacity expansion is into ranges that we don't currently make, so heavier wall thicknesses, bigger sizes. So it's effectively, again, another move, a bit like we did with our plate processes moving into an import space to try and improve the supply chain. So you didn't miss it. And then in terms of cold rolling and metal coating, our quantum is probably $500 million, but I'll qualify that by saying really early days. We're just a pre-concept, but if you think about a combination of a cold mill and a metal coating line, we're probably looking at about $500 million would be an early estimate.

USD 500 million.

Yes, sorry, USD 500 million is an early estimate.

Your next question comes from Paul Young with Goldman Sachs.

Continuing on the theme on demand, reasonably robust backdrop, particularly regionally across all the assets. A question on -- specifically on Southeast Asia, Mark, and what demand trends you're seeing there. I think you said that, again, there's channel inventories and falling prices, but actually are you seeing any slowdown in real demand across Southeast Asia? And second to that, kind of just move to China, and I guess your guidance, which implies -- which you are using $590 a tonne for HRC, spot is $605, yet you're calling it somewhat a recovery in China. Just wondering what you're seeing in China because that $590 does seem a little conservative.

Yes. Yes. Okay. So let me start with the ASEAN business. We were actually in Thailand last week. We had our Board there for the first time in 4 years. So we got a little bit of up close and personal experience last week in Thailand. Rather than it's falling, I guess, the way I'd describe it is it's still softer than we'd like. There's some pressure from imports coming out of China. And it is not -- it's certainly not -- it's not as fantastic as we'd like it to be. So we spent quite a bit of time with the team last week. We've got some new leadership up there. They're putting together a strategy that's thinking very carefully about the market where we can make inroads where we think we can make some money. So as we called out, probably not yet delivering on the promise out of those Southeast Asian assets, and we're going to double down our efforts there and think about how we can continue to improve on that business. The China issue specifically, I mean, we give you an estimate of hot rolled coil, they do bounce around, it's really hard for us to, obviously, forecast it but we give you a point in time estimate. It probably looks a little bit conservative on those numbers today, but they move around. All we can really do is give you our best guess of it. And then as those hot rolled coil prices move around, I mean, you guys are in a good position to be able to think about the differences in relation to that.

But Paul, maybe if I can just add, I wondered if you're also just looking specifically at the outlook on our China business. It's probably worth just calling out that the China business is actually a little bit different to the ASEAN businesses, which are really coating and painting businesses. The China business is much more a pre-engineered buildings business. Yes, it has coating and painting, but the economics of that business are, by and large, driven by the pre-engineered buildings business, which plays in very select parts of the economy, which are performing well. So it's probably a little bit disconnected to what's going on more broadly in China and what's going on in ASEAN.

Okay. Mark, maybe just moving to the U.S. and digging into the scrap strategy a little bit here. You made a small acquisition in -- late in the year or late in June. You're targeting a 40% self-sufficiency. If I do the math, is that around 1 million tonnes or thereabouts when I think that you get to 2.9 million tonnes per annum on North Star. And where does this acquisition take you to as far as your scrap output?

Yes. Your numbers are pretty good, sort of 900 million to 1 million. We -- the acquisition of the new facility, it's about 100 miles from North Star. So it's in our relative backyard from a scrap perspective, a long-established business. We were happy to get the opportunity to pick it up. So it adds to the mix of the MetalX acquisition and now part of the BRM unit. And as we called out, that gives us about a 40% coverage at that elevated level of production. At this stage, we think that's a reasonable level of coverage. I wouldn't signal that we've got any other great intentions to race out and buy a whole bunch more. But from our perspective, that gives us a nice level of backward integration into scrap and allows us to apply the same sorts of processes we're thinking about with MetalX/BRM in terms of further processing obsolete, improving the quality, reducing our reliance on prime and giving us some surety of supply. So yes, it was an opportunistic but, we think, quite valuable outcome for us.

Your next question comes from Peter Steyn with Macquarie.

Just wanted to dig in to your North Star guidance for the second half very briefly. You've obviously guided spread outcomes. You've spoken to the prospect of doing a little bit better relative to benchmark. But curious whether there's anything on the cost side of the business that we need to think about, just calibrating that outlook for 1/4 of the EBIT in the first half?

Not overly so, Peter. No, it's really -- we're coming down in line with the spreads. We will do a little bit better in a falling price environment. Conversion costs broadly look okay. There is, of course, a little bit of a carryover. We do have some level of escalation in our conversion cost around labor, although that's more to do with more people that we actually have on board as we've taken on as part of the expansion project. There's a little bit of an increase in consumables and, moderately so, around refractories, but not overly. Probably what we might be calling out is a little bit of a higher cost around some of the raw materials. There's some lagged pig iron that might be flowing through into the first half '23, that might pull it back a little bit. But, by and large, there's not too much that you need to focus in on there.

Perfect. And embedded in that spread projection, given the averages to date, it does suggest that you're expecting, in your outlook commentary, further price weakness beyond spot?

Well, we've seen the prices obviously come down. You guys would have seen there was a couple of price increase announcements this week. So the current market is about [ 800, 810 ]. We've seen Nucor and ArcelorMittal come out with $50 increases. So -- and the futures outlook is a little more positive as well. So I'm not -- I don't know that we're calling or suggesting that we're going to have any sort of significant reductions -- further reductions in pricing. I think we're starting to see the bottom pit of where the pricing is going to go to under the current circumstances.

I think the spread is actually broadly in line with pricing and scrap in terms of current levels.

Mark, I won't belabor it. Then just wanted to go into the inventory conversation very briefly with a keen focus on the risk. I'm just trying to work out whether you believe that you've adequately covered the risks in the short run of those inventory positions, particularly in Australia and maybe [ it's early ] import you've outlined in ASEAN just in the context of what we're seeing from a demand perspective and confidence levels and the like that are likely to flow with higher interest rates.

Yes. We've got very careful processes around inventory management and NRV risk, in particular. There's an extensive review that's undertaken. We would anticipate that part of the relief built here will actually be exports. So there will be a level of export activity that's underway at the moment just to make sure that those inventory levels come back across the next 6 to 12 months.

Your next question comes from Lyndon Fagan with JPMorgan.

So my first question was just to try and pick up again on that cold rolling capacity that you need another USD 500 or call it, AUD 700. I'm just wondering when we think with regards to your vision for the U.S., what -- how many more pieces of the jig puzzle are potentially missing that might sort of be this type of order of magnitude? And I guess I'm looking at Slide 35 with $1.9 billion future investment. I guess we need to up that by another $700 million at least. But yes, if you wouldn't mind sharing some thoughts about your U.S. vision and how we, I guess, satisfy that?

Lyndon, thank you for the question. So I don't know that we've got a predetermined number of jigsaw pieces that we need to fill out. The coil coaters acquisition was really quite opportunistic for us if you think about our ability to buy those 7 sites. If we were trying to construct that, I mean it would take us 10 or 15 years to construct a portfolio of assets like that and would cost us, in terms of replacement value and construction costs, more than we paid for the assets, certainly. So we saw that as quite an opportunistic acquisition and an ability for us to accelerate our growth into that market. As we think about the value chain, Lyndon, it's different from Australia. We don't need to be completely vertically-integrated. We're demonstrating that with scrap. I don't know that we need, at all, to be 100% vertically integrated into scrap. That's why we're sort of looking at the level we're at now and thinking that's a reasonable level of coverage for us to have. Of course, the U.S. being such a vast country and our sites spread across the country, the vertical integration that you see in Australia and New Zealand, that's not required in the U.S. There's lots of options, lots of steelmakers, lots of rollers that we can get our material from. But we think cold rolling and metal coating, particularly, given the expansion out of North Star, the additional hot-rolled coil may provide us -- may, so it's early days, but may provide us with an opportunity to take advantage of certainly some cold rolling and some metal coating and thinking about that now with our expanded footprint of the coil coaters business. So we have quite a presence in Ohio now. Pat Finan and I spent 2 days in a car and covered about 600 miles. I've seen more of Ohio than most people in the last month. So we've got quite a presence in Ohio and a couple of our coating lines are not too far in terms of location from the North Star facility at Delta. So that's the way we're thinking about it, Lyndon. I wouldn't say there's a predetermined view. I do think you probably need to add $700 million to the $1.9 billion that we've got laid out as projects for the future. And they're the sorts of considerations we take into account as we think about the market, as we think about the outlook, our capital commitments when we're making recommendations to the Board about what we think the buyback should be. So getting that balance right, mate, between returns to shareholders, the investment profile that we have is very much the consideration that we take to the Board.

So the deployment time frame for that $700 million, I'm assuming that doesn't fit within that FY '23 to '27 chart there? Or is it that...

No, I would think it would, mate, but towards the back end. We've just really kicked this work off. These are big complex pieces of analysis that we need to go through. There's probably at least a year of analysis to go into it before we get to a point where we'd even have to start and think about spending any sort of money. So yes, you would see some of the capital in that '23 to '27 time frame, but it would be at the back end of it.

Your next question comes from Daniel Kang with CLSA.

Just interested in your comments on congested channel inventories across most of your businesses, actually. Are you seeing any evidence? Or do you expect customers destocking to emerge? And should this happen, what are the levers you'd be looking to prioritize to soften the impact?

Yes. Look, I mean, destocking, as you know, mate, you've been -- you've seen this -- you've seen nearly as many cycles as me. I mean when prices fall customers destock, that's what they do. They don't want to be caught with high cost inventory. It's why we've seen a bit of a pullback, particularly in that service center distribution segment where people watch prices fall so they don't want to make large commitments in that falling price environment. As Tania highlighted, I think we're seeing a bit of an unusual bump here, the constraints we had, specifically in Australia around our supply chain, trying to satisfy the requirements of our customers in that unprecedented demand period and then the issues we had in terms of just getting steel that we had out of our facilities, manifested itself in people placing some import orders and that stuff has arrived as a lump. So there's already a bit of an overhang in the inventory profile of some of our customers and in some of our markets. So that's really what we're calling out, Dan, that we think it might result in some slowing of volumes. But I think that's a temporary measure. I don't see it as a structural change. We're still really quite optimistic about the underlying demand outlook. So I think that will be absorbed into the market, and we're very mindful of that in terms of how we think about our inventory levels to ensure that we're in the best position to meet the backlog that we currently have in the demands of our customers and our backlog is improving. The team are doing a great job in terms of eating into that backlog. So that's how we're thinking about it, mate. I think it's the typical cycle that you see, particularly with the distribution service center guys. When prices are falling, they tend to take a step back from the market.

I appreciate that, Mark. And just to delve a little bit further on your U.S. MetalX supply. You mentioned the potential to upgrade obsolete to reduce reliance on prime. Just wondering what the realistic level of reduction on prime that we should expect and over what time frame. And then just on pig iron, if you can just talk us through the company's supply sources following the Russia-Ukraine situation?

Yes, sure. So I mean, scrap first. I don't have a number I can give you, but what I can tell you is we're being we're being really surprised and impressed by the improvement in quality that we're getting out of the MetalX acquisition. That was work that we were doing with MetalX pre the acquisition on additional sorting to ensure that the obsolete scrap we get from those processes has particularly a much lower copper content, which is what's required for the automotive industry. So that means we can move away from prime and use more of the higher quality, better spec obsolete scrap. So that's the intent. The time frame of that is, right now, we have capacity in BRM with that sorting and processing, and we're looking at some quite low CapEx additions, $4 million, $5 million, $6 million, for us to expand that capacity and allow us to sort more of the obsolete and sort it in a more forensic way to actually make the quality better. So that's real time in terms of the opportunity, and we'll expand that into the mill iron facility that we've bought as well. So they're not big capital numbers, and they're not long time line projects. So that's the obsolete scrap story. In terms of pig iron, we were a purchaser of pig iron from the Ukraine. That's clearly stopped, given the awful circumstances that the Ukraine finds itself in. We were also a purchaser of pig iron from Brazil. We found other sources of pig iron that we've been able to source. Pig iron is a product that we manage quite carefully, particularly from a sustainable supply chain perspective to make sure we understand the risks, and we've done a lot of work in Brazil in that space. And as we called out today, we're thrilled to have signed a multiyear deal with Cliffs, where we're taking HBI from their facility, just very close to us in Toledo, 30 or 40 miles up the road, let's say, a multiyear deal where we'll take a chunk of their HBI. So that MetalX mix that we have for North Star moves all the time. We've got control over some of it now with the scrap investments, and that makes us feel better about surety of supply, but we're forever looking from a value and use perspective, what's the right MetalX solution and mix for us at North Star.

Your next question comes from Megan Kirby-Lewis with Barrenjoey.

Just wondering if I could get some additional commentary on pricing in the domestic environment. And in particular, what we should be thinking about for COLORBOND for FY '23? And just if there's anything, I guess, of note in terms of price realization on some of those other value-added products, that would be great.

Sure, and welcome, nice to have you guys covering us. So nice to have you on board. Pricing, specifically, for COLORBOND over the period we're reporting, we've talked about price increases in the range of 6% to 8%. And of course, as you know, COLORBOND is priced relative to its intermaterial competition. It's not an import parity pricing model. So a different model from the other parts of our portfolio. Of course, what we've seen with pricing ramp up over the last year has been price increases in that commodity space as we apply the import parity price model and then apply the premiums that we do for domestic supply. But sure enough, as it's coming down, the same situation is reflecting in the market with prices coming off and our forward prices are reflecting the drops that we've seen in hot rolled coil pricing both in Asia and in North America. So that's the split. I wouldn't expect or I don't think we have budgeted, certainly not in the first half, any further price increases from a COLORBOND -- in relation to COLORBOND. And our more commoditized products -- the import parity pricing model products will obviously reflect those movements in hot-rolled coil and import prices.

Your next question comes from Peter Wilson with Credit Suisse.

Can I ask a question on North Star, just to follow up? So North Star, the raw material situation as it relates to realized spreads versus benchmark spreads, Tania, could you just explain your comment on pig iron and the lag there? Why it might be different to a benchmark? And then with this Cleveland-Cliffs' supply -- HBI supply, what kind of volumes and are these volumes indexed in terms of that pricing?

Pete, all I'm basically referring to there is that when the whole Russia-Ukraine situation obviously occurred in the second half, we looked to preserve pig iron. We've been a little bit skinny and also made sure that we secured supply. We're very happy with our supply arrangements. But what it means is that there is some -- probably some slightly higher cost pig in the value chain, which will work its way through. And that's what you'll see reflected in the first half '23. And I'll hand over to you, Mark, on the second part of the question.

I'm sorry, Pete, can you give me the second part of that question again?

It was the supply agreement with Cleveland-Cliffs, what kind of volumes and what kind of pricing structure is there? Are they indexed...

Yes. Look, we haven't committed to talk publicly about a volume number, but it's a material amount of HBI and it is an index-based price. So we've struck a pricing formula. And again, we won't talk about that in great specifics as you'd understand. But it's an index-based pricing model around scrap.