BlueScope Steel reported an A$192 million profit turnaround from the previous 12 months, delivering an A$126 million net profit after tax for FY2010. Directors have declared a 5 cents-per-share fully franked final ordinary dividend.
Managing Director and CEO Paul O'Malley said: "Given the unprecedented circumstances of FY2009 and the challenging business environment in FY2010, I am pleased with the improvement in our overall business performance.
"We delivered an outstanding improvement in our Asian businesses, including record profits in China, Indonesia, Malaysia, and Vietnam. We also achieved a significant reduction in the company's permanent cost base. Also encouraging was increasing demand in Australia, strong export sales and good earnings results both in New Zealand and at North Star BlueScope Steel, our steelmaking joint venture in the United States.
"We have been successful in maintaining conservative gearing (held at around 11%, net debt over net debt plus equity) and a strong liquidity position (held at $1.6B of undrawn debt and cash). Our target gearing has been reassessed and we believe a range of 25% to 30%, down from the range of 30% to 35%, to be appropriate for a business operating in a cyclical industry whilst seeking to maintain strong investment grade metrics.”
According to O'Malley, highlights for the year included the overall turnaround in profit, the reduction in permanent costs ($340M down on FY2008), and the earnings improvement in Asian businesses ($116M underlying EBIT vs. $21M loss in FY2009).
"Importantly for shareholders, the Board has decided to reinstate dividend payments,” O'Malley said. “This decision reflects our view of the financial performance of the business post the Global Financial Crisis, the medium- to long-term outlook for BlueScope and the global steel industry and improved conditions in economies where we operate."
Future Outlook—"In the first half of FY2011, we expect continued strong performance from our Asian businesses and the benefit of ongoing cost reductions achieved during FY2010,” O'Malley said.
"However, in the first quarter we currently see significant spread contraction (recent fall in export steel prices by more than US$100/tonne, coupled with higher raw material costs); softer demand where customers, particularly distributors, buy less during periods of price pessimism; continued demand weakness in the U.S.; and an ongoing drag due to the strong A$ vs. US$.
"We are seeing a modest real-time increase in export steel prices in our region for Q2 delivery.
"Overall, we are planning for significantly improved market conditions over the medium to long term, despite the short-term concerns. Over the last couple of years we have strengthened the balance sheet and improved the effectiveness of the global BlueScope operations—particularly the reduced cost base and improved productivity.
"The strategic imperative now is to increase market penetration across our footprint, enabling the company to capitalize on improving market conditions and to grow our presence in global building and construction markets.”
Global Steel Industry Conditions—"In the second half of June 2010 global steel prices fell in response to reduced demand and concern about increased exports from China,” O'Malley reported.
“A prompt response from global steel producers to reduce production, and continued supply discipline in China, contributed to steel prices stabilizing in the mid-US$600/tonne as at mid August. Global capacity utilization is currently around 80% (or around 75% ex-China). We need to see a return to mid 80% capacity utilization (including China) to achieve a sustained improvement in the steel pricing environment.
"Other major global steel influences are the continued high cost of raw materials and concern about the Chinese economy slowing due to credit tightening and softer demand. The Chinese Government is taking the appropriate action to move their economy back to a more sustainable growth path. Our businesses in China continue to see robust physical activity through their order books."