BlueScope profit soars on cost-cutting, higher steel prices

BlueScope Steel is streaking ahead after restructuring its Port Kembla steelworks, as it enjoys a recovery in prices.

BlueScope Steel CEO Paul O'Malley.

BlueScope Steel continues to streak ahead after a tough restructuring of its Port Kembla steelworks, as it rides the tailwind of a recent recovery in steel prices in North America.

BlueScope (BSL) today booked a net profit of $353.8 million for the year through June, an increase of 160 per cent on the prior year.

Underlying profit for Australia’s biggest steelmaker by market value surged 119 per cent to $293m, in line with expectations.

Revenue for the group was up 8 per cent to $9.2 billion, despite steel prices in Asia falling to ultra-low levels during the last half-year.

The strong results, coupled with above-expectation guidance for this half, sent shares up as much as 8 per cent, or 70c, to as $8.95 to a new five-year high. At 10.30am (AEST), shares were up 25c, or 3 per cent, at $8.50.

BlueScope has recovered strongly from a near-death experience at its Port Kembla steelworks over the last year, recently issuing its fourth profit upgrade for last 12 months, which has spurred a jump in its shares to a fresh six-year high.

“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 which drove regional commodity steel spreads in the six months to 30 June 2016 to their lowest levels since BlueScope listed in 2002,” chief executive Paul O’Malley said.

“We have had our best result since the global financial crisis, delivered in the worst macro-economic environment in 14 years (since BlueScope was spun out of BHP),” he said.

Unexpectedly strong steel margins in North America have buoyed BlueScope. The company in ­October spent a well-timed $US720m increasing its stake in the North Star steel mill in Ohio to 100 per cent.

The company has also driven $320m of annual cost improvements, mainly at Port Kembla.

It’s also a sharp turnaround in BlueScope’s fortune since the start of the financial year, when steel prices were under severe pressure and it said the Port Kembla steelworks was facing closure if $200m of savings could not be obtained with the help of union and state government support. At the time around 5000 jobs were at risk.

Shares for the group are up 86 per cent for the year to date.

So bullish is the outlook that BlueScope has forecast a continued rise in earnings in the months ahead, projecting underlying earnings before interest and tax in the first half of its 2017 fiscal year to be roughly 50 per cent higher than the $340.4 million it reported for the second half of the last financial year.

“Guidance for the first half of 2017-17 is strong and in line with our forecast, but seemingly well above what is implied by consensus,” Credit Suisse analyst Michael Slifirski said.

“BlueScope has delivered a strong result ... but a flat dividend has been maintained, delivering the message that further deleveraging is targeted.”

BlueScope will pay a final 3c dividend, fully-franked and bringing the full-year dividend to 3c, in line with the previous year.

“Moving forward, we must not be complacent in our pursuit of continued productivity improvements,” Mr O’Malley said. “We need to deliver returns necessary to support a decision in 10 to 15 years to reline the blast furnace at Port Kembla. What we have achieved in the last year is essential to being the competitive and profitable producer needed to support this future reinvestment opportunity. All stakeholders have a role to play in securing our steelmaking future,” he said.

With the company’s signature Colorbond coated steel brand having its 50th birthday this week, BlueScope flagged growth in its Asian operations, specifically in Thailand, where a new coated steel plant is likely to be approved this quarter, and India, where a joint venture with Tata Steel is finally generating free cash flow after 10 years of plugging away.

In Thailand, the plant investment being planned is $US125m, including the share of BlueScope’s joint venture partner Nippon Steel, to deliver an extra 140,000 tonnes of annual capacity in 2018-19.

BlueScope is also looking at another coated steel plant in India.

“We have a fantastic footprint on largest and fastest growing middle class in the world,” Mr O’Malley said.