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Q. What were the highlights for 2006/07

A. We performed very well in a number of key areas. The first was safety, where we achieved a 66 percent improvement in LTIFR (Lost Time Injury Frequency Rate). Our rate was 0.7 lost time injuries per million hours worked compared to 2.1 last year. We also recorded a 15 per cent improvement in MTIFR (Medically Treated Injury Frequency Rate).

In addition, a number of businesses set production and quality records and our efforts in these areas helped offset increased raw materials costs. So our operational performance was a vital factor during 2006/07, and our employees did this while achieving significant improvements in safety performance.

Record sales to the building market segment were also a highlight, with our branded products continuing to be in strong demand in that sector.

Q. WHAT WERE THE MAJOR CHALLENGES FOR THE BUSINESS?

A. We faced a number of challenges - market conditions were difficult, and our raw material costs were higher.

Imports from Asian countries, particularly China, together with the strong Australian dollar, created a challenging market for us and our customers, especially in the second half of the year. The regional availability of imports increased during 2006/07 and this led to some intense competition.

We also faced increased zinc and aluminium costs. These are key materials in our metal coating processes and the negative impact of these increases was almost $100 million.

With prices for our feedstock - hot rolled coil and slab - remaining high, and tough market conditions requiring some keen pricing strategies, our manufacturing businesses experienced significant margin squeeze.

This is why our strong operational performance was so important - it gave us the volumes we needed to reduce conversion costs.

Q. Could you discuss some other achievements and initiatives that took place during the year?

A. We set a new record for COLORBOND® steel sales, underpinned by high painting and coating volumes from a number of facilities. Production records were set at Illawarra Coated Products, Acacia Ridge in Brisbane and Western Port.

We also saw solid growth - around 30 per cent - in TRUECORE® steel sales volumes. This product continues to gain recognition as the preferred material for residential building frames and trusses.

Our $150 million Western Sydney Service Centre is now operational and the location of this facility will allow us to better service the Greater Sydney area with COLORBOND® steel. Our new Western Australia Service Centre at Forrestfield continued its strong operational improvement in the second half, with growing volumes and improved service levels for our Western Australian customers.

We successfully closed our loss making tinplate business, as announced in June 2006.

During the lead up to closure, we were particularly proud that our employees achieved significant safety, quality and operational milestones.

In the environmental area, we announced a $21 million water recycling project to supply our Western Port plant. This will reduce Western Port's fresh water use by over 60 per cent, or 660 million litres per year. Our partners in this project are South East Water and the Victorian Government, with BlueScope Steel contributing $8 million.

Q. What does the coming year hold for our Australian Manufacturing Markets businesses?

A. Our goal will be to continue improving our operational performance and at the same time, taking action to address the margin squeeze issues that affected us in FY2006/07.

We will be examining ways of increasing sales into the Australian domestic market. For example, we'll be working even more closely with our customers, developing unique solutions that will help them find greater success. We will continue to grow the use of steel in the building and construction market, while the acquisition of the Smorgon Steel Distribution business will allow us to compete more effectively against imports in the distribution market segment.

We are also aiming to improve the profitability of our export sales. By working more closely with BlueScope Steel's extensive network of offshore sales offices, we can provide a more consistent supply of product to our core export customers. This reliability of supply should enable us to reduce the costs of supply, as well as achieving improved pricing.

On the costs side, I am encouraged by the array of cost reduction opportunities we have identified. Our challenge will be to implement these opportunities as quickly as possible.

Of course, we'll be aiming to do all of this while we strive to make our business an ever-safer place to work, as we continue our journey toward Zero Harm.

Australia Coated and Building Products also includes BlueScope Lysaght Australia and BlueScope Water. Highlights for the year for these two businesses are outlined below.

BLUESCOPE LYSAGHT Australia

BlueScope Lysaght designs, manufactures and distributes an extensive range of steel building products for residential, commercial, industrial and agricultural applications. The LYSAGHT® brand appears on wall cladding, rainwater products, steel house framing, fencing and structural products such as roof trusses.

LYSAGHT® is recognised throughout Australia as the premium name in its field and the business has built a reputation for quality, reliability and customer service. In recent years, BlueScope Lysaght has focused on delivering building products tailored to the needs of individual customers.

In 2006/07, market conditions remained buoyant in Queensland and Western Australia, but were difficult in NSW and Victoria, particularly in the residential building sector. Drought conditions and water restrictions also had a softening effect on building activity.

In addition to continuing to develop our customer base, we have successfully grown the Lysaght business through acquisitions and product innovation.

In November, BlueScope Lysaght acquired Kiteley's Roofing World, based on the south coast of New South Wales. In June, we acquired the Perth-based Highline Limited. Both businesses are part of the Building Solutions activities of Lysaght.

This group offers customers tailored services in Design and Construction, Facades and Mobile Rollforming.

BlueScope Lysaght also introduced several new products during the year. Azure® and L'Attitude® are a range of durable facade systems that offer enormous flexibility in materials, from copper and zinc to weathering steel, and a wide range of highly durable colours. Professional design, supply and installation are included as part of the Facades® product offering.

Quikform® is a structural walling system in which two pre-engineered steel skins are filled with concrete to create load-bearing walls that have superior acoustic properties and fire ratings. The Quikform® system also makes concrete pouring more efficient.

BLUESCOPE WATER

In 2006/07 water scarcity remained a major issue in Australia, with concern over water consumption resulting in usage restrictions in many parts of the country. The drought affecting much of Australia is the longest on record.

BlueScope Water was established in 2004 in anticipation of increased water scarcity. The business has developed and released a range of products designed to help ease the pressure on Australia's water resources. This product range has consolidated BlueScope Water's position as the premium brand for rainwater harvesting products, culvert and irrigation infrastructure.

Our water tanks are becoming a feature of new urban housing developments, enabling Australians to reduce their dependency on mains water, while new products such as our WATERPOINT® in-ground system and AGRIRIB® irrigation pipes are positioned to grow BlueScope Water's agricultural and commercial markets.

BlueScope Water has also developed the THINKTANK® rainwater harvesting system, exemplifying our 'total solutions' approach to maximising water savings. THINKTANK® incorporates a WATERPOINT® rainwater tank, diversions, filters, mains water back up and a pressure pump to capture and use rainwater.

In 2006/07, demand for water storage and rainwater harvesting solutions grew strongly. To support this growth, we have expanded capacity in Queensland and Victoria and expect to open new factories in Brisbane and Melbourne in late CY2007.

Pioneer Water Tanks, which we acquired in 2005, is expanding production capacity to meet strong growth in demand in Australian rural, commercial and export markets. An expanded Pioneer Water Tanks production facility is due to be commissioned in late 2007. In addition, the opening of a new warehouse and sales office in Austin, Texas in late CY2007, will further support the US market entry for BlueScope Water. Given the political and social prominence of water management issues in Australia and in other regions, we anticipate continued strong growth for BlueScope Water in the coming year.