The market didn't take too kindly to less than gripping forecasts and commentary from chairman Peter Smedley and CEO, Geoff Plummer at the AGM of steel group, OneSteel yesterday.
In the upbeat market conditions of yesterday the shares fell 28c, or around 4% to $6.35 as investors digested the commentary on the outlook for the company now it has parts of Smorgon Steel tucked into its balance sheet
It seems there wasn't much enthusiasm for shareholders being told that the 2008 result will be 'weighted' towards the second half thanks to the impact of a number of factors.
Chairman Smedley told the meeting that the range of analysts' forecasts for OneSteel earnings for the 2008 financial year at the EBITDA level was between approximately $700 million and $850 million.
"Management's priorities in the financial year now underway remain to further improve returns from current businesses, to complete and realise the benefits of Project Magnet, and to effectively integrate the acquired businesses of Smorgon Steel and to deliver the expected level of benefits and synergies," he told the meeting.
"Based on initial forecasts for the merged company, the internal OneSteel range is $710 to $780 million. This compares with comparable proforma earnings in 2007 of $650 million at the EBITDA level if OneSteel and Smorgon were operating as a business in that year," he said in his speech.
That would indicate a rise of around 9% to 20% or a bit more for the Smorgon contribution to OST's bottom line.
"OneSteel is in the process of determining asset uplift values for the Smorgon Steel assets for the purpose of depreciation adjustments.
"For this reason, at this stage we can only provide guidance at the EBITDA level. The opening debt position of the combined business at the time of completion of the merger was $2.1 billion dollars."
The depreciation figure will affect the EBIT and after tax results and will give analysts a clue as to what the management thinks of the quality of the Smorgon assets bought in the deal with BlueScope.
For that reason the company won't be able to say anything more definite, probably until next February when the interim profit is released.
"Earnings for the year will be strongly skewed towards the second half of the year, and Geoff Plummer will provide some details as to the reasons why in his address. Cash generation for the first quarter of the year was strong and we expect this to continue throughout the year," Mr Smedley told the meeting.
Mr Plummer told the meeting in his speech the second half bias would result from a number of factors.
He listed these as being:
* "There will be a full six month contribution from the Smorgon Steel business in the second half.
* "Pricing environment will be more favourable. The trading and underlying market environment is becoming more aligned
* "There will be a higher proportion of iron ore exports in the second half
* "Project Magnet is due to be fully operational entering the second half with greater benefits accruing to that half
* "Smorgon Steel merger benefits will begin to flow in the second half
"Despite margin pressure in the first half, cash generation in the first half remains strong."
Project Magnet is the company changing plan to move from hematite-based ore feed for Whyalla to magnetite. The hematite ore would be exported because of its higher value in the Chinese steel market. Exports started in 2007 and will continue this year. The switchover at Whyalla to magnetite-based feed will start somewhere around the end of this month, according to both speeches yesterday.
Investors also noticed comments about the impact of the high Australian dollar on the cost of imported steel products which seemingly flooded into the country mid year (which will cut returns on steel and the iron ore shipments) and the pressure it has put on OneSteel's profit margins.
Mr Smedley said "The domestic market drivers of OneSteel's business continue to be mixed with strength in the non-residential and engineering construction segments contrasting with softness in the residential market and weakness in the manufacturing and automotive sectors.
"The rural sector continues to be impacted by the drought. International prices for inputs such as coking coal, hot rolled coil and scrap steel are expected to remain volatile.
"In terms of trading conditions, there was an increase in imports in to Australia during 2007, and the price of those imports has not kept pace with increases in input costs and international long product prices traded in Asia.
"This has been compounded by the rapid increase in the Australian dollar.
"This has placed some margin pressure on OneSteel's domestic business," the chairman said.
As part of getting the deal over the Smorgon takeover and carve up through the ACCC, both OneSteel and BlueScope had to agree not to try and restrict imports of steel products through anti-dumping actions.
OneSteel says the import flood has stopped but the overhang of unsold stocks is pressing its margins because the importers are discounting to clear the backlog.
It will have to grin and bear that: Smorgon was the big prize.
