A last minute profit surge for BlueScope Steel?
First quarter earnings have soared, but there are sufficient reasons to justify saying that this will be a highpoints for the 2009 financial year, especially with a major rebuild of the huge Number 5 Blast Furnace at the Port Kembla steelworks in NSW
But the company, which is our largest steelmaker, said yesterday in an update that first-quarter profit this year exceeded earnings for the entire first-half of last year, because of higher prices, acquisitions and stronger sales in the local market.
First-quarter un-audited underlying net profit after tax was about $430 million for the September quarter, against the $305 million earned in the December half of the 2008 year.
The company’s shares jumped more than 8%, or 34c, to $4.39, a solid rise, but still way under the boom time high (late last year) of more than $12.
CEO Paul O’Malley said in the statement: “BlueScope Steel has had a very good start to FY09 due to strong global steel demand and prices. In this opening quarter, the business outperformed the first half result of last year, despite increases in iron ore, coal and scrap prices.
"However, current economic conditions suggest a challenging second half.
“Our focus at BlueScope is to maximise value and preserve financial flexibility. Our priorities are a continuing strong balance sheet, preserving gearing in our target range and improving our strong cash position.
"We are also taking further action to cut costs, tightly manage working capital, optimise our manufacturing assets and work closely with our customers.
“BlueScope is also driving synergies from its recent US and Australian acquisitions.
"Our confidence in our business means that in the second half of FY09, we will embark on the Blast Furnace No 5 reline and sinter plant upgrade projects at Port Kembla Steelworks.
"These investments will position our company to take best advantage of the eventual improvement in economic conditions.
"While these two major engineering projects will see a planned reduction in production in the second half, they will deliver cost and volume benefits upon completion.”
Mr O’Malley said that while BlueScope expects the significant pressures in the world economy to impact second half results, investors should look beyond the short term for underlying drivers of steel growth.
“A range of independent data points to the ongoing urbanisation and industrialisation in China. These will be the principal drivers of growth and they still have a long way to run.
"In addition, the global steel industry is responding to the current environment with production cuts.
"Combined, these factors are likely to produce beneficial knock-on effects for the global steel sector and Australia,” Mr O’Malley said.
The work at Port Kembla would cost over $300 million and take just over three months.
It will come as world steel demand and prices continue easing; there are already reports of significant production cuts in China and Europe, while the world leader, ArcelorMittal has said it is reviewing its huge $US35 billion expansion plan around the world.
Steel prices are falling in China, South Korea, Japan and in the US where reports say 19 of the country’s 25 blast furnaces will close or run slower in coming months if possible because of slumping demand from cars, whitegoods and construction.
The slumping car and whitegoods market here will have more of an impact on BlueScope next year, despite an expected continuation of solid demand from the construction sector, especially in resources.
But that will likely start to slow as investment plans are wound back because of a shortage of finance.
The slump in the value of the Australian dollar though is good news for the company as it allows room to cut prices and maintain exports, and lifts protection in the domestic market against imports whose prices will be forced higher. OneSteel, the other steel producer, is in a similar position.
Finally, the cost of steel making materials and energy will fall next year because of expected price cuts for exports of iron ore and coking coal.
Meanwhile it was also a good report from Australian Pharmaceutical Industries (API) which is now firmly back in profit after two years of losses and very indifferent performances.
In fact shareholders will see the first dividend for more than two years.
The company reported a 236% rise in annual profit (from a very low base, so next to meaningless), and expects further earnings improvement in fiscal 2009 despite the challenging economy.
API said net profit hit $15.213 million for the 2008 financial year.
In the last full year reported prior to 2008, API reported a loss of $11.3 million in the 12 months to April 30, 2007 and then a loss of $2.598 million in the four months to the end of August, 2007.
The result for the year to April 30 last year included the now infamous period when millions of dollars of sales went missing when two computer systems were merged and the integration failed.
It led to senior management changes, including the CEO and changes on the board.
The 32.2% rise in earnings before interest and tax (EBIT) for 2008 to $49.7 million, was a better guide of API’s improvement.
Its long time rival, Sigma Pharmaceuticals, which tried twice to ta
