As expected, BlueScope Steel, the country’s number one maker of the metal, lurched deeply into the red in the 2009 financial year as the world economic downtown strangled the company’s profit margins, especially in the second half of the year.
The company lost $66 million in the 2008-09 financial year, compared to a profit of $596 million in the pervious year.
That $660 million or so slump into the red from year to year saw the company slash spending, freeze salaries and suspend its final dividend.
A net loss of $473 million in the six months to June 30, from net income of $480 million in the back half of 2008 told the horrible story.
And a loss for the current six months has been forecast, meaning the company will have traded in the red for 12 months.
First-half profit was $407 million, which also illustrates the extend of the second half slump, plus the huge cost of relining the No 5 blast furnace at Port Kembla and revamping the associated sintering plan.
BlueScope said while it had recently seen some demand improvement in its markets it remained cautious and expected to report a further loss in the first half of 2009-10.
"We are encouraged by the improvement in demand in some markets, and by movement in steel prices globally," chief executive Paul O’Malley said in a statement yesterday.
"However, the improvement in demand is coming off a low base and we remain cautious on the outlook and are currently expecting to deliver a small reported net loss after tax in the first half of financial year 2010."
Mr O’Malley said the group was yet to see the full flow-on effect of various government stimulus packages, especially in the US and Australia.
"We are seeing the benefits of China’s economic stimulus package," he said.
"And we have an increasingly positive view of our prime market, Australia."
BlueScope did not declare a final dividend. It paid a final of 27 cents for the last half of 2008.
Revenue for the year was $10.33 billion, down 1.6%, while annual underlying net profit was $56 million, down a huge 93% on the previous year.
"This was the most challenging year that BlueScope Steel has faced,” Mr O’Malley said.
The year had started strongly on the tail-end of very buoyant business conditions, with regional benchmark hot rolled coil (HRC) prices exceeding $US1000 per tonne.
"However, coming into the second quarter, with a marked decline in economic and financial conditions in the developed world, export demand fell heavily, followed by domestic demand,” he said.
"The decline in sales volumes and prices continued until after the first quarter of the 2009 calendar year when both stabilised, but at low levels.”
The regional HRC price had reached a low of $US400 per tonne.
"The company is focused and ready for the recovery,” Mr O’Malley said.
BlueScope had strengthened its balance sheet in the year after raising a net $400 million in equity from an institutional placement and share purchase plan in December.
It also raised $1.36 billion net in equity, and refinanced $1.275 billion of debt.
BlueScope directors had this to say about the company’s operations during the year.
"Coated & Industrial Products Australia – raw steel production was down 33% on FY 2008 due to the No. 5 blast furnace reline and operating BF No. 6 at an annual capacity rate of 73% in 2H FY 2009. The reline project was completed on schedule in June.
"The company announced its intention on July 16 to restart No. 5 towards the end of August.
"The sinter plant upgrade was largely completed in June and the plant will be brought up to a rate consistent with the requirements of our Blast Furnace operations.
"Australian Distribution & Solutions – 90% underlying EBIT reduction was principally due to weaker demand mainly in 2H FY 2009 and higher inventory net realisable value provisions relating to domestic commoditised products.
"New Zealand: small underlying EBIT improvement despite the challenging market conditions. Steel production was 10% down.
"Asia: Another challenging year. Positive signs in China pre-engineered building business and in the Indonesian economy. Significant steps have been taken to restructure and reduce the cost base.
"North America: North Star – Average production capacity utilisation rate was 71% in FY 2009, well above USA steel industry levels. However, lower dispatches (-28%), reduced spread and inventory net realisable value provisions driven by the decline in US steel prices and higher priced pig iron on hand contributed to a 155% EBIT reduction.
"Coated & Building Products North America – inventory net realisable value provisions, weaker demand, lower spread and higher unit costs resulted in a weaker earnings contribution. Integration of IMSA Group continued.
"The second Indonesian metal coating and paint line project was intentionally put on hold in December 2008 due to the decision to reduce capital spend across the BlueScope Group and reflects weaker demand in Indonesia.
"The metallic coating and paint line project in India is now scheduled to start up in 2H CY 2010. Expenditure to be funded by the Joint Venture under a new project financing arrangement finalised in early CY 2009."
The shares fell 7% to $3.07, a drop of 23 cents because of the less than optimistic outlook for the remainder of 2009.
