BlueScope Steel Limited (BSL) Earnings Call Transcript & Summary

Well, welcome, everyone, to BlueScope's Annual General Meeting for 2020. My name is Michael Reay, BlueScope's Manager for Corporate Affairs, and it is my pleasure to be your host for today's meeting. Whilst we would love to be meeting with you face-to-face, unfortunately, due to COVID-19, we are conducting the AGM entirely online this year. But before I hand you over to our Chairman, Mr. John Bevan, I want to cover some important procedural and technical housekeeping matters. Given this is our first time holding our AGM online, we ask for your patience. If you have any technical issues, please refer to the virtual meeting online guide, which can be accessed from your screen. It contains all the information you need about how to vote and ask questions at today's meeting. If you have any trouble using the online platform during the meeting, please check the guide or call the help number shown on your screen for assistance. Now I'd like to cover off how to vote and how to ask a question. Firstly, to register to vote and get a voting card, click on the get a voting card box at the top or the bottom of your screen and enter your shareholder number or proxy number and your post code, or if you are outside of Australia, your country of residence. The Notice of Meeting contains information on where you can locate these numbers if you do not already have them on hand. Once you have registered to vote, click on the for, against or abstain voting buttons for the relevant items. Once you have completed your card, click on the submit vote button at the bottom of your screen. You may edit your voting card as many times as you like while the voting is open. Secondly, how to ask a question? Shareholders and proxy holders can submit written questions at any time from now on in the meeting by clicking on the Ask a Question box, which is also at the top or bottom of your screen. If you do have questions, I encourage you to submit them as early as possible as there might be a slight delay in them being received on our end. At the appropriate time, I will then read your questions on your behalf to the Chairman. We will answer questions in accordance with the item of business to which they relate. And if you are asking a question today as a representative of a particular organization or group, please include that at the start of your question. We also request that you only include one question at a time in the Ask a Question box but feel free to ask multiple questions, if you like. To avoid duplication in today's meeting, we will -- if we receive a number of questions that are essentially the same, we'll do our best to aggregate these and broadly cover the issues raised by the questions. Of course, we do request that all questions are asked in a respectful manner. Questions that include offensive language or defamatory remarks will not be read out or responded to. In the unlikely event that we experience technology issues during the meeting, we may need to take a short break. If we're able to, we will communicate this to you either verbally or by putting a message up on your screen. If there is a significant technology issue, we may need to adjourn the meeting to another time or date. If this occurs, keep an eye on your e-mail inbox and our AGM website for updates and further details. We'll also lodge details with the ASX. Now with those procedural housekeeping matters out of the way, I'd like to welcome you to the lectern BlueScope's Chairman, Mr. John Bevan. Welcome, John.

Thank you, Michael. Ladies and gentlemen, good morning. My name is John Bevan, and as your Chairman, it's my pleasure to welcome you to BlueScope Steel's Annual General Meeting for 2020, which is the company's first meeting conducted entirely online. We would have preferred to meet in person. But given the current circumstances, like many listed companies, we believe this is the best way to proceed. As a necessary quorum is present, I declare this Annual General Meeting of Shareholders open. In keeping with BlueScope's commitment to reconciliation and respect, I begin by acknowledging the First Nation's people across our lands on which we work and live. We will work together to develop and nurture lasting and respectful relationships that value and celebrate indigenous cultures and communities. Now before we start the formal business of the meeting, let me introduce you to my fellow directors and management. I am coming to you today from Sydney. Joining me in Sydney, beginning on my immediate right is Penny Bingham-Hall, Chair of the Remuneration and Organization Committee; then our newest director, Kathleen Conlon; and on my immediate left is Jennifer Lambert, the Chair of the Audit Committee. Joining us from Melbourne are Mark Vassella, our Managing Director and Chief Executive Officer; and on his immediate right is Rebecca Dee-Bradbury; then Tania Archibald, Chief Financial Officer; and then on Mark's immediate left is Debra Counsell, our general -- our Chief Legal Officer and Company Secretary. Also joining us remotely is Ewen Crouch, who's the Chair of the Risk and Sustainability Committee; Mark Hutchinson, the Chair of the Health, Safety and Environment Committee; and Glenn Carmody and [ Richard Bainbridge ] from our auditors, Ernst & Young. Those of us who are in the same room, whether it be in Sydney or in Melbourne, are practicing appropriate social distancing. You would have had an opportunity to read the Notice of Meeting and accompanying explanatory notes released in October. I propose to take them as read. Thank you. There are a number of items on today's agenda. Voting on items 2 to 6 will be carried out by way of a poll. Mr. Daniel Reid of Link Market Services is the returning officer for today's poll. I now formally open the poll on items 2 to 6. You may note, though, the online portal at any time starting from now. Voting will close 5 minutes after the end of the meeting. The results of the poll will be available later today on the ASX and on our website. We received some questions in the lead up to the AGM. We will address these during the formal items of business to which they relate. If you would like to ask a question, you can do so via the Ask a Question box, which appears at the top or bottom of your screen. You do not need to wait until we get to the formal items of business to submit your questions. As Michael indicated, there may be a slight delay in transmission of your questions. So I encourage you to start submitting your questions now, and we will address them a little later on today. I will address the meeting, followed by our Director and CEO, Mark Vassella, and then Penny Bingham-Hall, the Chair of the Remuneration and Organization Committee. In these addresses, we will give us a summary account of BlueScope's performance for the past year. I will then move on to the formal business of the meeting. Now to my address. It goes without saying that COVID-19 has presented massive challenges for our business, not to mention this effect on the global economy and our very way of life. On behalf of BlueScope's Board of Directors, I convey our hope that you have been able to keep safe and well during this extraordinary time. Throughout the pandemic, BlueScope has proven the resilience of its earnings, the quality of its cash flow and the strength of its balance sheet. This was reinforced when earlier today, we released an update to the market, advising that we now expect underlying earnings before interest and tax of around $475 million for the first half of 2020, an increase of around 80% over the second half of 2020. With demand strength, particularly in the Australian business, continuing to outpace our expectations, this is a further improvement over the update we gave to the market on the 23rd of October. In addition, our major investment project at North Star BlueScope Steel is on track. And as a result, our group cash flow remains robust and the balance sheet continues to be in excellent condition. The directors and I commend all 14,000 BlueScope people for the way they have adapted to this year's disruption, while safely maintaining operations and keeping supply chains open to ensure deliveries to our customers. As the pandemic hit, your company acted promptly and decisively. In April, we had rescheduled the North Star expansion to minimize cash spend. We've reduced all nonessential capital expenditure, ceased nonessential operating spend and canceled the on-market share buyback program. We also took steps to reinforce our strong liquidity position, working with our syndicated banking group to improve core funding lines and put in place a strong liquidity buffer to withstand a range of economic and market scenarios. These were prudent measures, and they were the right thing to do at that time. They have helped BlueScope maintain its strong financial position today despite the challenges posed by the pandemic. Managing Director and Chief Executive Officer, Mark Vassella, will give an update of business performance in his address to you. But the company has responded well, and the Board is pleased with how we are prepared to face 2021. Now turning to capital management. In the financial year 2020, BlueScope paid $71 million in dividends and bought back $229 million of shares on market. A key element of our strategy is to maintain strong financial capacity to weather industry and economic cycles and deliver on value-creating investment opportunities. To this end, our priority is the North Star BlueScope Steel expansion, where we expect to spend in the range of USD 375 million to USD 450 million during the financial year 2021. Given this large capital expenditure program and the uncertain market conditions, the buyback program is not active. Now safety is the core to everyone's role at BlueScope and goes to how we live our bond. Leading safety culture, developing and understanding safety systems and adhering to safety requirements is a nonnegotiable requirement for all BlueScope leaders. Tragically, on the 6th of May 2020, a 60-year-old employee of Southern Commercial Divers was fatally injured while loading a truck at Port Kembla Steelworks Berth 111. Southern Commercial Divers, a long-term contract partner, were engaged to conduct pylon repairs and maintenance on the berth. We have given continued support to Southern Commercial Divers and our employees throughout this time via our Employee Assistance Provider. It was 6 years ago, just after I joined the Board, that we saw the last fatality at a BlueScope site. The tragic incident of May this year reinforces our imperative in maintaining safety across all our operations. It is a consistent and constant focus. We have completed a review of risk control measures relevant to this incident and distributed regulatory advice to our vehicle mounted cranes across our global footprint. SafeWork New South Wales continue to investigate this incident and will provide a report to the coroner once its investigation is complete. Being resilient and building a sustainable future is central to our evolving corporate strategy, which aims to transform and grow BlueScope while continuing to deliver on core expectations for stakeholders. BlueScope's 2020 Sustainability Report was released in September this year, highlighting the company's progress towards its 5 outcomes that reflect the sustainable challenges and opportunities of most importance to our stakeholders and to BlueScope's longer-term success. These are: a strong and sustainable business; safe and inclusive workplaces; climate change action; responsible products and supply chains; and strong communities. We continue to make progress on building diversity in the workplace and seek to build our diversity pipeline through target initiatives and the promotion of careers in science, technology, engineering and mathematics. Women now comprise 21% of BlueScope's total workforce, 37% of new recruits and more than 40% of our executive leadership team and board. Across BlueScope, significant work is underway to review the company's supply chain sustainability, including a focus on identifying and addressing modern slavery risks, which may cause or contribute to labor or other forms of exploitation. We continue to lead ResponsibleSteel, the steel industry's first global multi-stakeholder standard and certification program, focused on the responsible sourcing and production of steel. The company has committed our largest global manufacturing site, the Port Kembla Steelworks, to the ResponsibleSteel Standard and Certification scheme by the end of 2021. At BlueScope, we see a strong future for steel. And in turn, a strong future for our company. Steel's strength, durability, adaptability and recyclability, make it a material of choice for buildings, infrastructure, lightweight transport applications and clean energy infrastructure. This was best illustrated last week when the New South Wales government announced plans to develop renewable energy zones, and to use local manufacturing materials like steel, cement and aluminum to expand the state's renewable energy grid. Taking action on climate change is a key pillar of our corporate strategy and the focus of BlueScope's new Climate Change Council established during the year. BlueScope supports the Paris Agreement on climate change, recognizing that the global economy must transition to net zero by the middle of the century to limit global increase in temperature to well below 2 degrees. For the steel sector to contribute, we recognize that the future of iron and steelmaking will need to be centered around breakthrough technology. BlueScope is exploring technologies to understand the scale of emissions reduction they might deliver, potential costs and time frames and the barriers and enablers to implementation. This is a journey, and we will continue to update shareholders as we go. We will next update shareholders on our progress in the 2020 Sustainability Report -- 2021 Sustainability Report. To conclude, I thank you, our shareholders, who have continued to support the company in a year when we have really seen BlueScope demonstrate its resilience in the face of some unprecedented challenges. I'd like to also thank all 14,000 employees and the 5,000 contractors who have worked tirelessly in these unusual times. Nonetheless, in 2021, there remains uncertainty given the risks of an evolving economic and social impact of COVID-19 and potential broader macroeconomic weaknesses that could dampen demand. I thank my fellow directors for their continued support, and join with all shareholders in looking forward to BlueScope continuing to create strength in financial year 2021 and beyond. Thank you. Ladies and gentlemen, I'd now like to ask BlueScope Steel's Managing Director and CEO, Mark Vassella, to address you in this meeting. Mark?

Thank you, John. Before I start my address, I'd like to share with you a video on our newly launched our purpose statement. I'll talk to you more about this during my address. [Presentation] Good morning, and I join our Chairman in welcoming all shareholders to our meeting today. As the Chairman has noted, BlueScope's financial performance for fiscal year 2020 showed once again the resilience in the company's earnings and the quality of our cash flow, the strength of our balance sheet. Shortly, I'll speak about today's $475 million underlying EBIT guidance update. As always, at BlueScope, I'll start by looking at our safety performance. The Chairman has spoken about the fatality at the Port Kembla Steelworks berth in May. This tragic incident reinforces our imperative in maintaining safety across our operations, which is a consistent and constant focus. Whenever a serious incident occurs, we take the opportunity to learn from it. Teams across our global businesses, particularly Australian Steel Products, have taken time to pause and remember our contract partner and reflect on the tragic circumstances of his death. These sessions have encouraged teams to look for opportunities to continually improve their own work environment. We recognize that we need to do more to improve safety performance across the company. Consistent with our commitment to continuous improvement and building capability, we're working to further evolve our approach to safety to drive improved performance in risk management and in reducing incidents and injury severity. The evolution and approach is outlined in our sustainability report and fundamentally centers on the need to build capability to manage risk under variable conditions and to build greater engagement with employees so that their knowledge and experience more directly contribute to safer work environments. We've also introduced leading indicators focused on building capability through participating in a health, safety and environment transformation program, known as our HSE Evolution, and implementing risk control projects. Since the outbreak of the pandemic, through careful planning, we've succeeded in effectively managing COVID-19, while also ensuring the day-to-day safety of our employees and operations. In most countries where we operate, steelmaking has been viewed as an essential service. We've worked hard to demonstrate the governments and regulators that our company, combining advice from medical experts with comprehensive hygiene measures, strict distancing protocols and regular health checks, can operate in a COVID-safe way. Our sites have low employee density with a high degree of automation, enabling them to operate with a minimum number of employees in attendance. By maintaining this focus on safety, we've continued operations across the portfolio, keeping our team members employed, meeting customer needs and fulfilling our supply chains. Today, BlueScope updated the market about our first half '21 underlying earnings outlook, a terrific result for the company. All operating segments are performing well and momentum has continued to build as we approach the end of the first half of '21. Residential alterations and additions activity, demand for detached new housing and growth in demand for e-commerce warehouse and logistics facilities are all robust. And the U.S. automotive industry demand is recovering strongly. Demand strength, particularly in the Australian market, has continued to outpace our expectations. We now expect that Australian construction and manufacturing activity will remain strong, driving elevated domestic steel dispatches for the balance of the first half of '21. Benchmark steel spreads in East Asia and the Midwest U.S. have also improved and are currently above longer-term averages at the beginning of the second half of '21. Nonetheless, there remains uncertainty around spreads and volumes, given the risks of the evolving impact of COVID-19, which could disrupt demand, supply chains and operations and broader macroeconomic activity. Looking now at the performance across our portfolio of businesses during the current year. Australian Steel Products is expected to deliver a substantially better result than the second half of FY '20. Domestic construction and distribution segment demand is strong, particularly for coated and painted products. The contribution from export coke remains elevated and is expected to be greater than the second half of FY '20. Our confidence is underpinned by recent positive federal and state government initiatives to combat the economic impact of the pandemic and to address the longer-term challenges of climate change. Firstly, the New South Wales and Victorian governments permitted BlueScope to continue to operate in a COVID safe manner throughout the lockdowns. And our dispatches helped secure the building and construction industry. State governments have also boosted infrastructure spending, including the Victorian government's recent announcement that it will spend around $5 billion building social housing. The Federal government has recognized that the national gas and electricity markets are not operating effectively and has announced further measures to ensure domestic manufacturers have guaranteed supply and competitive prices. And last week, the New South Wales government launched its Renewable Energy Zones, a wind and solar power investment plan based on locally manufactured product, plant and equipment. BlueScope welcomed this with news of our own $20 million BlueScope Renewables Manufacturing Zone at the Port Kembla Steelworks to encourage innovation and co-investment for new products and services in this emerging market. With generally robust demand across markets following interruptions from COVID-19 in the last half, the Building Products Asia and North America segment is expected to deliver a considerably better performance than the second half of FY '20. The outlook for ASEAN and India has improved significantly. In ASEAN, we now expect first half '21 underlying EBIT to be at least double that of second half '20. The North America business is on track to deliver a performance similar to the second half of '20, and we expect China to deliver a similar performance to the first half of FY '20 on favorable seasonality. In Buildings North America, the core Engineered Buildings business is on track to deliver a better result than the second half of FY '20. The contribution from BlueScope Properties is expected to be higher than last half, including the $40 million additional contribution from a recent property sale. This magnitude of contribution is not expected to be repeated in the second half of FY '21. In New Zealand and the Pacific Islands, performance is improving substantially on the second half of FY '20, primarily due to a return to normal operations post COVID-19 and very strong domestic demand, particularly for coated and painted products. Steps to implement the business restructuring continue. The loss-making pipe mill has been closed, and the exit of the cold-rolled annealed business is in progress. From the first half of FY '21, depreciation and amortization will be approximately $15 million to $20 million lower per half compared to the second half of FY '20, following recent asset write downs. In the U.S., other than for the major scheduled maintenance outage just completed, North Star BlueScope Steel in Delta, Ohio continues to dispatch at full capacity, with automotive volumes normalizing across the half. Since the end of the second half '20, realized steel spreads have bottomed and are improving, driven by a significant increase in benchmark Midwest hot-rolled coil prices in recent months. Given usual pricing lags, the sales -- in the sales mix, the first half of '21 underlying EBIT is expected to be lower than the second half of FY '20. Progress on our cornerstone USD 700 million project to expand the North Star mini-mill by around 850,000 tonnes per annum is progressing well and remains on budget and schedule, with commissioning expected during the June 2022 half year. Construction, which you can see from the photo on your screen, is progressing well, and the major electric arc furnace and supporting equipment is expected to be on-site by the end of this calendar year. The project team continues to execute efficiently and safely, notwithstanding the evolving COVID-19 situation. We continue to be encouraged by North Star's performance, by the rate of capacity rationalization in North Star's region and the broader United States and improving outlook for its key end use segments. Allied to this, we may well see major economic stimulus programs by a new administration in the White House following the Presidential election. The combination of these favorable trends further reinforces our belief in the investment case. With the project remaining a key capital allocation priority, given the long-term value we expect it will create. That fantastic video at the start of my address featured BlueScope employees across the business speaking about our new purpose, which was created with the help of over 450 employees and launched a couple of months ago. Our purpose is we create and inspire smart solutions in steel to strengthen our communities for the future. Our purpose sets the course for BlueScope and gives us the courage and confidence to deliver what matters to our communities around the world, building a valuable and sustainable business for years to come. Our purpose is also central to our evolving strategy and the key areas of activity we have identified to ensure our enduring success. That strategy commits us to 3 areas of activity. Firstly, to transform BlueScope to deliver a step change in customer experience and business performance, including through digital technology and our approach to climate change and sustainability. With technologies and data becoming more accessible and more affordable, we have an exciting opportunity to find new ways to improve performance and customer experience. An example is capturing data across our operational processes, making it possible to predict quality issues, which can both improve the customer experience and deliver cost savings. Transform also includes our commitment to reduce our carbon footprint and delivering on a range of technology transformation projects which allows sites to undertake local initiatives such as reducing the energy intensity of their operations. Secondly, our strategy will see us grow our portfolio of sustainable steelmaking and world-leading coating, painting and steel product businesses, creating new opportunities, anticipating and responding to local market trends. Steelmaking remains central to our strategy, and we have a strong strategic focus in maximizing the value of these important assets, expanding North Star and optimizing our Australian and New Zealand steel businesses. We have a strong leadership position in the building and construction segment, and we intend to continue this through innovation and finding ways to strengthen our presence in the United States, India and China. We will also explore growth opportunities in areas outside traditional steel products, such as building systems and design software and in new ventures. And we will deliver a safe workplace, an adaptable organization and strong returns, building a business capable of meeting the challenges of the future. In line with our financial framework, maintaining a strong balance sheet and disciplined capital allocation are key ingredients to ensuring the resilience of our business and providing a means to fund our future growth. Today, I'm delighted to also unveil another important signal of change, our new brand identity. This includes a refreshed logo and brand colors and a coherent look and feel across our communication and platforms. Our brand identity is an important signal for our people, our customers and our investors about who we are. And who we are is evolving and continually adapting. The changes you'll see over the next few months reflect this important evolution and the modern and purpose-led organization were becoming. BlueScope remains steadfast in our commitment to play a proactive role in reducing the greenhouse gas emissions associated with the manufacture and use of our steel products. In FY 2020, our climate strategy has been repositioned within our broader corporate strategy, and we've established a Climate Change Council to support the execution of strategic projects and provide oversight of abatement activities. We continue to diligently pursue emission reduction projects in line with our 2030 climate change target. However, FY 2020 saw our performance affected by government-mandated shutdowns and other site outages, resulting in a 1.8% increase in our emissions intensity on the prior year. This means that while emission's performance was comparable to the last year, the 3% drop in raw steel production caused our emissions intensity to creep up as we kept plant and machinery running at the minimum level required during shutdown periods. We'll be working hard to recoup this performance over the coming year. Looking at other areas of sustainability that are important for BlueScope. I'm very proud of the progress we're making on building our resilience and embedding sustainability in all that we do. We continue to forge strong relationships and effect real change throughout our value chain. Our commitment to inclusion and diversity in our workforce has been bolstered by a new 5-year global strategy. And our framework for responsible sourcing and supplier engagement has been recognized by our industry peers. We're strengthening our range of sustainable product solutions to meet the expectations of an increasingly discerning marketplace. And we're forming partnerships for success, working with leading institutions, academia and industry groups to explore and realize a sustainable future for our operations and the products that we bring to market. Our businesses partner with community groups to support local initiatives for inclusion, well-being, education and future opportunities for members of the communities where we operate. Turning to our executive team. Charlie Elias, the Chief Executive of NS BlueScope, left BlueScope in early July to take a career sabbatical. Charlie was a key contributor to the turnaround and transformation of our company in the decade following the global financial crisis, and more recently, to the transformation of our NS BlueScope and China businesses, positioning them for a new phase of growth. Charlie was a valuable member of the executive leadership team, a trusted adviser to the Board, a colleague and a friend. I'd like to thank him for his contribution to BlueScope and wish him well. A succession process for the role of Chief Executive NS BlueScope is underway. So in conclusion, I'd like to thank all BlueScope people for their outstanding response to the challenges thrown at us by the pandemic. Our people have done all they can to keep our sites operating, to keep producing our steel products and to keep serving our customers and all along managing the balance with commitments outside work, which have been magnified by the pandemic. I hope you'll join me in looking forward to BlueScope continuing to create strength for the future. Thank you.

Thank you, Mark. Ladies and gentlemen, I'd now like to ask Penny Bingham-Hall, the Chair of the Remuneration and Organization Committee, to speak to you about some of the key issues addressed by the committee during the past year. Penny?

Thank you, Chairman, and good morning, ladies and gentlemen. Over a number of years, BlueScope has positioned its business portfolio to better withstand the highly cyclical markets in which it operates by reducing loss-making market exposures, increasing cost competitiveness and investing in successful businesses. Very strong returns on invested capital of around 20% were generated in recent years, with the 2019 financial year fueled by the higher steel spreads since the global financial crisis. Steel spreads are cyclical in nature. And by June, spot steel spreads in both Asia, which heavily influenced our Australian profitability, and the U.S. had fallen by between USD 100 to USD 150 a tonne and ultimately reduced 2020 underlying earnings before interest and tax, or EBIT, by $674 million compared to the previous year. Nonetheless, despite the onset of COVID-19 and the progressively weaker spreads, the team still produced underlying EBIT of $564 million and return on invested capital, or ROIC, of 7.6%. And a strong balance sheet was maintained with net cash of $500 million before the new lease accounting impact. This result was well received by the market with analysts commenting on the strength and resilience of the company's performance. This was consistent with the views of your Board, particularly given management's efforts during this challenging period. Following consultation with investors in June, remuneration awards were made without the Board applying upward or downward discretion. The short-term incentive outcomes in the 2020 financial year reflect our performance against the group financial measures and the range of individual performance and business unit results. The ROIC measure of 7.6% was slightly below the target of 8.3% set by the Board. Performance for the group free cash flow measure exceeded both target and stretch levels, a result of $412 million against a target of $310 million and a stretch hurdle of $372 million. The actual short-term incentive awarded to Managing Director and CEO, Mark Vassella, was 75% of the maximum opportunity. And for other executive key management personnel, outcomes range between 50% and 86% of the maximum, slightly lower than the outcomes in the previous year, as expected, based on business performance. Again, this year, no payment was awarded with respect to the safety component of the short term incentive. And as both the Chairman and CEO noted earlier, our Lost Time Injury Frequency Rate fell short of the level required to meet the gateway condition, and we also failed to meet the threshold level of Medically Treated Injury Frequency Rate. The 2018 Long Term Incentive or Alignment Rights vested in full in September. For the 3-year performance period, we achieved average ROIC of 15.7%, exceeding the threshold of 10%. And an average net debt-to-EBITDA ratio of negative 0.6x over the period, again, exceeding the threshold of less than 1x. It should be noted that no increase has been made to the fixed pay of our CEO, Mark Vassella, since his appointment in January 2018. When we present the details of proxy voting to adopt the remuneration report, you will see that this year, a meaningful number of votes have been cast against the resolution. This has been driven by the recommendation of one proxy adviser who commented on the omission from this year's report of some short-term incentive financial target details on the step down in 2020 earnings compared to the previous year and on safety performance. We consider this recommendation to be harsh under the circumstances. The omission of targets was unintentional, and we have since provided additional disclosure of the range of financial hurdles for the 2020 short term incentive. We will ensure financial target information is included in future remuneration reports, consistent with our approach in the 2019 Remuneration Report. In relation to the weighting of safety in the short-term incentive scorecard, we have taken the feedback on board, and we'll give it careful consideration. In 2018, BlueScope introduced a new remuneration framework designed to better align executive remuneration outcomes with value delivered to shareholders across the cycle. The framework drives executives to focus on the financial fundamentals and is intended to deliver more value to executives at less cost to shareholders. It is characterized by fixed remuneration slightly above the market median and relatively conservative variable reward that combines challenging annual targets in the short-term incentive and reward for the delivery of sustainable long-term returns in the Alignment Rights. This framework was specifically designed to deliver outcomes to executives that are aligned with shareholders, regardless of where we are in the cycle. And clearly, 2020 has been a good test of this. While the Board has reviewed the framework to ensure that it remains fit-for-purpose in the current environment, we have determined that no significant changes are required. For 2021, we have temporarily changed our approach to setting the short-term incentive targets, reflecting the current uncertainty. The Board has set financial targets for the first half of the year, with targets for the second half of the year to be agreed in February 2021. Safety and individual strategic objectives have been set for the full year. The overall outcome for the short-term incentive scorecard will still be assessed at the end of the financial year and will continue to be as clear and transparent as possible about our approach, our targets and the application of any discretion. The only other change to the short-term incentive relates to our safety objectives. From 2021, we'll maintain the gateway of no fatalities but replaced the lag indicators of Lost Time Injury Frequency Rate and Medically Treated Injury Frequency Rate with a Total Recordable Injury Frequency Rate. In order to achieve target or above on this measure, additional leading indicators must also be achieved. We believe this approach aligns us to emerging industry standards and will focus our leaders on reducing the severity of incidents while managing controls for material risks. I would now like to refer you to items 4 and 5 in the Notice of Meeting, which deal with the approval for a grant of share rights to the Managing Director for his short-term incentive and Alignment Rights. Item 4 relates to share rights under the '21 short-term incentive plan. Executives can elect to take their short-term incentive in shares or cash or a combination of both. Mark Vassella has again elected to take all of his short-term incentive in shares for 2021. The shares or a proportion of the shares will vest at the end of the financial year based on performance against the objectives set by the Board. These include threshold, target and stretch objectives for financial and safety performance as well as delivery of strategic initiatives. The specific measures and performance against them will be disclosed in next year's remuneration report. The Notice of Meeting outlines the terms and conditions of this award, and together with my fellow nonexecutive directors, I recommend that you approve this item. Item 5 in the Notice of Meeting relates to the approval of Alignment Rights to Mark Vassella for 2021. Consistent with the plan that's been in operation since 2018, the '21 Alignment Rights have a threshold return on capital measure, a maximum debt hurdle and an individual behavior gateway of adherence to our company values. The return on capital measure is set at a level which achieves our weighted average cost of capital, top quartile performance compared to major steel companies and median performance compared with the ASX 100. If each of the performance conditions is met, all the alignment right will vest. And conversely, if they are not achieved, none of the rights will vest. There are no retesting provisions under the plan and as always, the Board retains overarching discretion to protect against unintended outcome. Again, the Notice of Meeting outlines the terms and conditions of this award, and I recommend that you approve this item. I'd like to comment briefly on our progress on inclusion and diversity. It remains important to us that our business reflects the communities in which we operate. We've made good progress this year towards our gender diversity objectives, with 50% of our Board and 40% of our executive leadership team now female, while also working to improve our overall diversity across a range of measures designed to make our workplaces more inclusive. Finally, I'd like to thank you for your support during the period that I've been Chair of the Remuneration and Organization Committee. At the end of this calendar year, I'll hand over the role of Committee Chair to Rebecca Dee-Bradbury, who has been a member of the Board and the Remuneration Committee since 2014. I know Rebecca will do a great job in this role as she has a deep understanding of cultural transformation and people issues, including remuneration. Together with my fellow nonexecutive directors, I thank you for your ongoing support and recommend that shareholders vote in favor of the remuneration report. Thank you.

Thank you, Penny. Penny later today will stand for reelection for the last time. Over the last 9 years, Penny has chaired the Remuneration and Organization Committee. She's done an outstanding job throughout that time. She will stand down from the chair role at the end of the year. And on behalf of the Board, I'd like to thank her for her outstanding contribution. I'll now turn to the formal business of the meeting. Before opening up the discussion on today's items of business, I want to mention quickly a few procedural matters. As mentioned earlier, voting on the relevant items of business is by way of a poll. As shareholders are aware, no formal vote is required on item number one. The poll on the remaining items 2 to 6 is now open, and you can cast your vote at any time by clicking on the get a voting card box at the top or bottom of your screen, entering your shareholder or proxy number and your post code or country of residence if you are outside of Australia. And then clicking on the for, against or abstained voting button for the relevant items and then clicking submit vote. The proxy position on each relevant item will be displayed after the specific discussion on that item. So to facilitate discussion and voting, I formally put the meeting -- to the meeting each item of business in the terms set out in the notice. There will also be plenty of time after discussion to complete and submit your vote. As indicated in the Notice of Meeting, I intend to vote valid undirected proxies given to the Chairman in favor of items 2 to 6, except for Item 3a. For the purposes of 3a, which deals with my reelection as a director, Penny Bingham-Hall will chair the meeting, and Penny intends to vote all valid undirected proxies given to the Chairman on this item, in favor of my reelection. While all of the items are now formally before the meeting, I propose to step through a specific discussion in each item in turn. Now let's turn our attention to item #1, which is to receive and consider the annual report, financial statements and the reports of the directors and the auditor for the financial year ended the 30th of June 2020. Shareholders and proxy holders are entitled to ask our auditor questions relevant to the conduct of the audit. As mentioned earlier, Glenn Carmody, a partner of Ernst & Young, our auditor, is available to answer any such questions. If you have a question about the management of the company and have not already asked your question, please do so now by selecting the ask the boss -- ask a question box at the top or bottom of your screen. Michael, have you received any questions during the meeting?

Yes, Mr. Chairman, we have a number of general business questions that have come through. The first one is from [ Peter Corkage ]. With many organizations appearing to still have problems with harassment, sexual harassment and bullying, how is BlueScope ensuring that this scourge does not arise in the workplace?

Thank you, Peter, for that question, and nice for you to be on the line. I remember talking with you a couple of years ago at the Sydney AGM when you were here. Peter, this is a very important issue, and it's certainly the area of harassment and bullying is just not tolerated within BlueScope. We actually sat down on the Board yesterday and went through a revised code of conduct, a global code of conduct that we're about to relaunch, to emphasize that this sort of behavior is just not acceptable.

And a follow-up question from [ Peter Corkage ]. To the Board, are you okay?

Thanks, Peter. Yes, we are all okay. It's been a disrupted year, like it has been for all shareholders and all of our employees. We've been operating virtually since March. At today's AGM, we have people in Sydney and in Melbourne. We have one of our directors in Paris who can't get back to Australia at this point and another person who's dialing in remotely. So it's been a different year for the Board as it has for everyone. But yes, the Board is in good shape and -- as is management. And I think the organization has been well-managed through the year.

And another follow-up question from Peter. How is BlueScope ensuring that whistleblowers are protected and do not become the victims?

Peter, it's very important that the whistleblower line is, in fact, kept confidential and that we ensure that whoever reports something actually is protected from their own victimization from the process. So I think we've got a good process in place, and I think we will -- you'll see that through the organization's ability to actually ring in without concerns.

And another follow-up question from [ Peter Corkage ]. Is the U.S. political circus of concern?

The U.S. political situation is certainly different from many other parts in the world. But from an operational perspective, the organization continues to operate effectively in the United States, and we're being very successful in what we're doing. So I think the U.S. is -- remains a very strong place for us to invest in and continue to operate in.

And a question from [ Rachel Deans ]. BlueScope's target to reduce steelmaking emissions intensity by 12% by 2030 falls a long way short of the approximate 50% reduction in absolute emissions required across the economy in order to align with the Paris Agreement's goal of limiting global warming to 1.5-degree Celsius. How has the Climate Action 100 Investor Group reacted to BlueScope's lackluster emissions target? Are we likely to see more aggressive action from these investors to meet their demand for emissions reductions across our value chain in line with Paris?

Okay. So I think, [ Rachel ], you asked me a question last year as well about this particular topic because it's a very important one. And you'll see that we've dealt with it in both my speech and in Mark's speech earlier. The 12% emissions reduction by 2030 was set in 2018 and reflects in our energy efficiency projects that we can actually generate ourselves to reduce emissions with our existing technology footprint. We recognize that technology is required -- technological change is required for us to achieve the Paris targets, and we said earlier that we are committed to doing so. That may lead to us revising our longer-term commitments in the coming 12 months or so, and we'll keep you updated in the 2021 Sustainability Report.

And the next question from [ Peter Corkage ]. How will BlueScope judge the success of the BlueScope Renewable Manufacturing Zone, the $20 million announcement this week? Are there quantifiable measures?

Peter, this was only announced this week, and therefore, the details are still reasonably undeveloped. I think over the coming months, we'll develop those along with the government to ensure that we actually drive improvement.

And a follow-up question from [ Peter Corkage ]. What can BlueScope do to keep shareholders appraised of business developments, example, webcast, podcast, by directors and senior staff.

Well, I think the face-to-face meetings with directors and senior staff has actually been very difficult this year with COVID-19. And I've seen the organization internally been much more active in terms of using social media to actually communicate better with our employees. Externally, I think we give a number of updates in terms of performance, including the one we gave this morning in terms of our forecast for the first half of the year.

And a question from [ Angela Armitage ]. The sustainability report outlines a range of emerging low emissions technologies BlueScope is monitoring, which obviously has the potential to significantly improve BlueScope's sustainability given the rapid decarbonization required to avoid the worst impacts of climate change. What is the company doing to expedite the development and take-up of these technologies? Is BlueScope committing any capital expenditure to support their development?

In both of my speech and in Mark's speech, we talked a little bit about the fact that we need to have a technology change for steel to meet our longer-term objectives. And as an industry, there's a lot of work going on in terms of new technologies, including things like hydrogen. So BlueScope is working with its international steel companies to monitor the development of this new technology and ensuring that we're up-to-date on everything that is happening and how that could be applied in our areas. We're also working with government in looking at how the commercialization of green hydrogen could operate because clearly, that's one of the technologies that people are looking at. We are allocating capital and operating expenditure to ensure that this happens. This is a long-term project. And as we've said to you in the earlier speeches, we'll keep you updated in our Sustainability Report on an annual basis.

And another follow-up question from [ Peter Corkage ]. Does BlueScope have a goal in the use of renewable energy?

Peter, not specifically. We have an objective around reducing our CO2 emissions more generally, of which renewable energy will form part of.

And another one from Peter. Does BlueScope have emissions reduction goals, particularly in Port Kembla?

We've got -- we set goals in 2018 for each of our major steelmaking facilities to reduce from their base in 2018. So yes, Port Kembla very much has its own goal.

And next question from [ Rachel Deans ]. The Sustainability Report says BlueScope works to contribute meaningfully to the achievement of emissions targets set by countries in which we operate. How does our 12% emissions intensity target, which could lead to increased absolute emissions with increased production, contribute meaningfully to Australia and the USA's current targets to reduce absolute emissions by 27% by 2030, let alone the far more ambitious targets proposed by the AOP and those anticipated under the Biden administration?

Well, I think we've already answered here that we've got specific targets on intensity measures in each of our major steelmaking areas. And in all of our smaller sites, we have individual objectives to reduce emissions significantly in each of those smaller sites. We will contribute meaningfully by working with the government and working with the other members of the steel industry to look at technology change that enable us to have a sustainable steelmaking facility in each of those geographies as well as contributing to the overall country's reduction plans.

There's no more general business questions at this time, Mr. Chairman.

Okay. So there are no more questions or comments on this item, that concludes the discussion on Item #1. There is no vote undertaken on Item #1. We'll now focus on item #2. This item involves a nonbinding resolution to adopt the company's remuneration report. You've heard from Penny Bingham-Hall, the Chair of the Remuneration and Organization Committee, in relation to this resolution. Each director recommends the shareholders vote in favor of this resolution. We provided the opportunity for shareholders to submit questions in writing prior to the meeting. We had 3 questions in relation to the Managing Director and CEO's remuneration. Specifically, as to whether Mark is getting a pay rise this year; when the Board will abolish the award of rights and Alignment Rights to Mark as they appear very generous; and whether the company may limit executive pay to a multiple of 10x that of the lowest paid worker or contractor. I'll address these 3 questions together. As you know, like many other companies, the Managing Director and CEO's remuneration is broadly structured into 3 parts: a fixed pay; a short-term incentive; and a long term incentive. To attract and retain experienced and capable leaders, BlueScope aims to set fixed pay at slightly above the median of the appropriate listed peer group in the Australian economy. Mark's STI and LTI opportunity are set quite conservatively compared to peers. But in the case of the LTI, there is a slightly higher likelihood of vesting, being deliberate in design, as set out in the Remuneration Report and as spoken about by Penny earlier. As also set out in the Remuneration Report and mentioned in Penny's remarks, Mark will not be receiving a pay increase this year. There will always be refinements in what we can make. However, the Board feels that the remuneration approach, which was introduced in 2018, is serving the company and its shareholders well, with broad positive feedback from shareholder discussions and good AGM voting support in past years. Now Michael, have we received any further questions on the remuneration report?

No questions on this particular item, Mr. Chairman.

Okay. As there appears to be no further questions or comments, that concludes that discussion. There are voting restrictions which apply to this item, which are detailed in the notice of meeting. Before moving on with the meeting, the details of the proxies validly lodged with the company in relation to this item are shown on the screen. We'll now focus our discussion on the next item on the agenda. Penny Bingham-Hall, Rebecca Dee-Bradbury and Jennifer Lambert are all standing for reelection. Kathleen Conlon is standing for election. And I am also standing for reelection. Details of each candidate are set out in the Notice of Meeting. Each of items 3a to 3e will be voted on separately. To assist with the efficient conduct of the meeting, I'll first-hand the chair over to Penny Bingham-Hall to deal with my reelection. I will then deal with the reelection of Penny, Rebecca and Jennifer and the election of Kathleen. Penny, I now hand over the chair to you.

Thank you, John. Item 3a relates to the proposed reelection of John Bevan as a Director of the company. John was appointed to the Board in March 2014 and was last reelected in October 2017. I'd like to confirm that the rest of the Board unanimously recommends to shareholders John's reelection. I'd now like to ask John to briefly address shareholders on his candidacy. John?