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BlueScope earnings growth undented by softer steel market

Glenn Freeman  |  22 Aug 2016Text size  Decrease  Increase  |  

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BlueScope reports $293 million in underlying profit, 6 cents a share dividend and $595.4 million in debt reduction for fiscal 2016.

 

BlueScope Steel (ASX: BSL) on Monday reported $293.1 million in underlying net profit after tax, up 119 per cent on fiscal 2015 and its best earnings result since fiscal 2008.

This can be attributed to a number of structural and internal factors--including a surprisingly resilient iron ore price; improving steel prices; cost-cutting measures; sales growth and a successful North American acquisition.

BlueScope has also reported a final dividend of 3 cents a share, fully franked, which will be paid in October. This bring its total dividend for fiscal 2016 to 6 cents a share.

The latest result is ahead of its most recent guidance, which in May tipped earnings before interest and tax (EBIT) of between $209 million and $270 million.

"Our direct interventions in reducing costs have significantly lifted performance of our steelmaking operations in Australia and New Zealand, despite continuing global overcapacity and production," said Paul O'Malley, BlueScope's managing director and chief executive officer.

Net debt was $778 million at the end of June 2016, down $595.4 million from $1.37 billion as at December 2015. This program of cost reduction included cutting 500 jobs and the implementation of wage freezes and various other changes to workplace practices.

Earnings improved across each of BlueScope's business segments, except New Zealand, over the second half of fiscal 2016. Earnings from Australian Steel Products was up 140 per cent to $361.4 million; Building Products increased to $149.3 million (52 per cent); Hot Rolled Products North America jumped to $146.5 million (37 per cent); and BlueScope Buildings increased to $49.2 million (13 per cent).

In Australia, these results added to its best result since the GFC, led by stronger domestic volume across all products on the back of building and distribution customer segment demand.

They were also helped by improved residential construction sales, particularly in New South Wales, Queensland and Victoria.

EBIT increased 52 per cent within BlueScope's Building Products business across the Association of South East Asia Nations (ASEAN), North America and India.

This saw total EBIT of $149.3 million for fiscal 2016, up from $98.3 million in 2015.

More modest growth occurred in BlueScope Buildings, with underlying EBIT climbing to $49.2 million in fiscal 2016, from $43.7 million in 2015--largely driven by reduced losses in China and growth in North America.

In the US, the company's acquisition of the North Star Steel Mill in Ohio saw underlying earnings top $146.5 million in fiscal 2016, up from $107.3 million in fiscal 2015.

North Star is a direct beneficiary of North America's regulatory environment, which features particularly stringent anti-dumping measures that limit the downward pricing pressure by restricting imports.

"We made very good progress in maximising the value of this structurally advantaged steelmaking business to BlueScope shareholders," said O'Malley.

In terms of outlook, the company's program of cost improvements is set to continue, targeting a further $280 million of cuts in Australian Steel Products in fiscal 2017.

BlueScope also plans $198 million and between $200 million and $240 million in capital expenditure in the first and second halves of fiscal 2017, respectively.

The largest growth projects include boosting painting and coating capacity in Thailand and India, North Star capacity expansion and continued investment in the Building division.

O'Malley expects underlying EBIT for the first half of fiscal 2017 to be around 50 per cent higher than the prior corresponding period.

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Glenn Freeman is Morningstar's senior editor.

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