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Category: Business, Economics and Finance / Company News / Mining Industry

BlueScope Steel profit jumps 160pc on cost cutting, surging sales

Monday, 22 Aug 2016 08:35:21 | Stephen Letts

Port Kembla steel works (ABC: Billy Cooper)

BlueScope Steel's turnaround has gained further traction, with the company reporting a full year profit of $354 million — a 160 per cent improvement on last year.

On an underlying basis — with one off gains and losses excluded — profit was up 119 per cent to $293 million, exactly in line with market expectations, which was not surprising given the company has been continually revising its guidance higher this year.

The result was driven by a very strong second half underlying profit of $174 million.

It is also a stark contrast to the cumulative $2.2 billion worth of losses racked up between 2011 and 2014 when the company was facing a very unsure future as cheap Chinese steel was swamping global markets and prices of key commodity imports such as iron ore and metallurgical coal were spiralling upwards.

BlueScope chief executive Paul O'Malley said the improved result could be put down to combination of sales growth, lower costs and the benefits of the North Star acquisition.

BlueScope bought out the remaining 50 per cent of its joint venture in the Ohio based North Star — reputedly the most profitable steel mill in the US — last year for $US720 million.

"Our direct interventions in reducing costs have significantly lifted performance of our steelmaking operations in Australia and New Zealand," Mr O'Malley said.

He said this was despite continuing overcapacity and productions which drove regional commodity steel spreads (or margins — the key measure of industry profitability) in the six months to June 30 to their lowest levels since BlueScope listed in 2002.

'Pushing ahead' with efficiency drive

Mr O'Malley said the company would push ahead with its efficiency drive.

"We need to deliver returns necessary to support a decision in 10 or 15 years to reline the blast furnace in Port Kembla," he stated.

Last October, BlueScope tabled a restructuring plan aimed at cutting costs by $200 million which included the loss of around 500 jobs, or about 15 per cent of the 3,000 strong workforce at Port Kembla.

The cuts came on top the 1,500 jobs lost back in 2012 as massive losses were mounting up.

Mr O'Malley said Australian and New Zealand steelmaking cut costs by $253 million, which saved another 4,500 jobs and prevented additional costs of $750 million which would have been incurred mothballing plant and equipment.

BlueScope reported a far stronger performance across all its key divisions.

Sales revenue rose 7 per cent to $9.2 billion as the impact of the 100 per cent ownership of North Star and the benefits of a weaker Australian dollar kicked in, which were offset by lower domestic and export steel prices.

Australian steel product earnings before interest and tax (EBIT) jumped more than 70 per cent to $361 million.

BlueScope said it was in line to increase underlying EBIT by another 50 per cent in 2017 as the lagged benefits of increasing regional prices and spreads start to flow through.

BlueScope paid a full year dividend of 6 cents per share in line with last year's payout.

Bluescope jumped 4 per cent on the result to $8.61 at 11am (AEST), its highest level in more than 5 years.

AustraliaPlus


 

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