Monday 20 February 2017 11:12 AM
NZ Steel returns to profit in first half, export competitiveness still unclear
By Pattrick Smellie
Feb. 20 (BusinessDesk) - A cost reduction drive, higher global steel prices, and synergies between recently acquired
Pacific Steel and the New Zealand Steel plant at Glenbrook have seen a strong return to operating profit for Australian
steelmaker Bluescope's New Zealand operations.
In the half-year to Dec. 31, Bluescope's New Zealand operations showed earnings before interest, tax, depreciation and
amortisation of A$59.4 million, a turnaround of A$74.9 million from the A$15.5 million ebitda loss in the same period a
year earlier.
The company said in statements released with the accounts that while the New Zealand steel-making business had achieved
cost savings targets of A$45 million in the last financial year and A$33 million in the first-half of the current year,
it was targeting A$70 million in annual savings compared with the 2015 financial year cost base in this financial year.
There was "further work to be done to determine whether the Glenbrook operations can be internationally competitive and
profitable through the cycle".
The result was achieved on lower revenue, at A$425.4 million, than for the same half a year earlier, at A$451.1 million,
when the company also wrote down the value of its New Zealand assets by about half, reflecting the weakness in the
global steel market and doubts about the Glenbrook plant's long-term future. During the last year, the company has
pushed the Ministry of Business, Innovation and Employment to conduct an investigation into the alleged dumping of
Chinese steel in the New Zealand market and campaigned against changes to national grid charges, which it fears could
add millions to its annual electricity costs.
The result was also achieved in spite of a 32.3 percent fall in total steel despatches, at 276,400 tonnes, and a
substantial fall in steel exports, mainly caused by Pacific Steel sourcing its flat steel products from NZ Steel and
strong sales into the buoyant domestic construction sector.
Total NZ Steel flat steel exports fell from 112,200 tonnes in the first half of the 2015/16 financial year to 48,100
tonnes in the latest period, while Pacific Steel long products fell from 42,000 tonnes to 6,200 tonnes on the same
basis.
"Exports (are) reducing as Pacific Steel moves to billet supply from NZ Steel and (the) full economics of (the) Pacific
Steel acquisition start to flow," slides accompanying the profit announcement say.
Ironsands exports rose in the first half, to 1.689 million tonnes from 1.395 million tonnes in the same half a year
earlier.
Progress is being made with two potential buyers of the ironsands resource, the company said, although a maintenance
outage on the buoy used by ironsands tankers for anchorage while loading the sands at sea will cost the company between
A$10 million and A$20 million in second-half revenue.
The New Zealand segment is a relatively small part of the total Bluescope business, which has been pushing into North
American and Asian markets in the last decade to reduce reliance on its Australasian base.
Total revenues for the group for the half year were A$5.2 billion, to produce ebitda of A$793 million, compared with
A$417.8 million in the same half the previous year, reflecting a lift in global steel prices.
Net profit after tax for the group, including losses attributable to non-controlling interests, was some three times up
on the previous half, from A$119 million to A$360 million and underlying earnings per share rose from 20.9 Australian
cents to 62.8 Australian cents, prompting directors to lift the interim dividend from 3 Australian cents per share last
year to 4 Australian cents per share.
(BusinessDesk)
ends