BlueScope predicts loss will narrow
Tuesday, 21 February 2012 | 00:00
On the day that BlueScope Steel announced half year net loss after tax of $530 million, its chief executive, Paul O'Malley said he was much more confident about the structure of the business following the decision to exit the export market and associated losses with its export division.
''We now have the ability to make a go of it,'' he told a media briefing following the release of the company's half year results, and predicted the company would return to an underlying profit by the end of the year.
And while the Government's steel transformation plan had delayed the day of reckoning for Bluescope and the impact of the carbon tax, he said the $23 per tonne floor price, compared to an $8 charge in European markets, was a''challenge''.
BlueScope shares were flat in early trading at 37.5 cent, underperforming the overall market.
The loss widened as a result of $260 million in restructuring costs, and due to accountancy regulations on tax, a $184 million impairment of deferred tax assets.
The Federal Government also kicked in $46 million under the steel transformation plan.
The underlying after-tax loss for the first half, which reflects the company’s assessment of financial performance after excluding unusual items, was $129 million. This result compares with an underlying NLAT of $47 million for the prior corresponding period.
O’Malley said the company would deliver a full-year working capital release of $400-500 million and had initiatives for further debt reduction.
‘‘The first-half result demonstrated delivery of our improvement plan and was in line with market guidance. Particularly pleasing is the significant reduction in net debt beyond the impact of the capital raising,’’ he said.
‘‘The operational restructure, with associated plant closures in Australia, significantly reduces our exposure to the loss-making export market. The complex restructure has been implemented by our team very effectively and in a very tight timeframe. This is a positive step in turning around the performance of the Australian business and lays the foundation for a return to profitability.”
Bluescope is entering new enterprise agreement negotiations with its Wollongong steelworkers, as the old agreement expires next month.
As a result of its losses of almost $1 billion in 2011, almost 1000 jobs were axed across the company as facilities were mothballed.
A recent report found that only 170 of the 700 Port Kembla workers made redundant had found new jobs, though the Government has stressed that doesn’t reflect those who took the redundancy in order to retire.
Commenting on the outlook, Mr O’Malley said he expected "a slightly lower underlying net loss after tax" with the steelmaker likely to "return to a profitable underlying run rate by the end of FY2012.”
Market forecasts had estimated the company's net loss before one-offs would come in at $74 million, according to a Reuters survey of five analysts.
Sales ease back
Mr O’Malley flagged a lower underlying net loss for the second half.
Sales revenue was $4.53 billion, compared to $4.6 billion for the prior corresponding period (pcp), hurt by the strong Australian dollar and lower steel volumes.
The company produced 2.66 billion metric tonnes (mt) of raw steel, compared to 3.45 billion mt for the pcp.
At the end of the first half, net debt was $796 million, a reduction of $759 million since October 31, including a working capital reduction of $357 million, Mr O’Malley said.
The current total cost of the Australian restructure, which has included closing one of its two blast furnaces, was still in the range of $430 million to $450 million, of which $350 million-$370 million is expected to be paid in FY2012.
‘‘The operational restructure, with associated plant closures in Australia, significantly reduces our exposure to the loss-making export market,’’ he said.
‘‘This is a positive step in turning around the performance of the Australian business and lays the foundation for a return to profitability.’’
The Australian steel industry was experiencing weak trading conditions, BlueScope said.
BlueScope’s Coated and Industrial Products Australia (C&IPA) division saw a $182 million underlying earnings before interest and tax loss for the half, driven by weaker steel spread compared with last year.
That led to BlueScope’s decision to end its export business.
It is trying to turn itself around after posting a $1 billion full-year loss in the 12 months to June 30, 2011, when it was hit by the high Australian dollar, low steel prices, high raw material costs and softer demand.
The Australian Distribution and Solutions business experienced lower domestic volumes, reduced margins and increased import competition, leading to a $29 million underlying EBIT loss for the first half.
Globally, even though capacity utilisation internationally remained below 80 per cent, there were encouraging signs of supply-side response, Mr O’Malley said.
‘‘Other steel companies around the world are also shutting or mothballing plants,’’ he said.
‘‘Whilst steel spreads remain at historical lows, we are encouraged by the recent step-down in raw material input costs.
‘‘The Asian economies remain strong and we are seeing some signs of recovery in the US economy, albeit off a low base.’’
Shortly before Christmas, BlueScope announced it would receive a $100 million from the federal government under the Steel Transformation Plan (STP).
It also completed a $600 million capital raising share offer.