Like its rival, BlueScope on Monday, Australia’s other steel producer, One Steel has revealed a sharp second half profit drop as the global slump hit hard.
The company yesterday revealed a second-half profit plunge of 99% because of lower demand, reduced margins and falling iron ore prices.
OneSteel (OSL) saw its second half profits drop to almost nothing: just $2 million, from $170.3 million a year ago.
That was better than BlueScope’s net second half loss of $473 million,which was due to the slump in demand and the costs of relining the Number 5 blast furnace at Port Kembla and associated upgrading work.
BlueScope reported its first loss since beginning trading in July 2002 after being floated off from BHP Billion, along with OST.
“After delivering a solid first-half result overall, we were break-even at the net profit after tax line for the second half reflecting weaker demand, lower prices and higher unit costs,” OST Chief Executive Officer Geoff Plummer said in yesterday’s statement.
“Tight credit markets and economic uncertainty led to much weaker domestic market conditions.”
OneSteel shares fell Monday to $2.98 yesterday, then bounced 4% or 12 cents yesterday to $3.10.
The company said its statutory profit was down 6% to $230 million.
"Underlying net profit after tax at $215 million was slightly better than market guidance provided by the company in April of around $200 million, but represents a decrease of 32% from $315 million underlying net profit after tax reported for the year ended 30 June 2008.
"Underlying net profit after tax for the 2009 financial year is before restructuring activities of $46 million net of tax, and tax benefits of $61 million.
"Underlying earnings before interest and tax (EBIT) was $461 million, down 25% compared to underlying EBIT for the previous year of $613 million."
Mr Plummer said in a statement that the financial year had begun strongly, but demand fell away.
"The last three quarters were affected by a substantial deterioration in both domestic and international market conditions due to the effects of the global financial crisis,” Mr Plummer said.
The company said it was encouraged by recent improvements to outlook but domestic conditions remained challenging.
"We are seeing a small but steady increase in domestic demand from increased activity, but this is off a low base.
"De-stocking through the channel now appears to be complete and stocks seem now to be generally at relatively low levels.”
OneSteel said it would not provide earnings guidance for the current financial year due to a "high level of uncertainty” concerning foreign exchange rates, prices and the rate of economic recovery.
"International prices for steel and steelmaking inputs are expected to remain volatile,” the company said.
"However, while not reaching their 2008 highs, prices are expected to improve over the longer term.
“In our Manufacturing and Australian Distribution business segments, sales were strong in the July to October period, but fell away sharply from November and remained weak over the balance of the financial year.
"Significant channel de-stocking as well as reduced underlying demand from the manufacturing market segments, the construction segments and the resources market segments, severely impacted domestic sales”, Mr Plummer said.
In the company’s Manufacturing business segment, sales revenue was up slightly for the year but EBIT was 18% lower at $161 million due to higher unit costs resulting from a 24% decrease in sales volumes compared to the prior year.
Australian Distribution segment sales volumes declined sharply in the second half resulting in lower volumes for the year, down 18% compared to the previous year. Despite lower volumes, sales revenue was up 6% and EBIT was 26% higher due to cost reductions and a strong market early in the year.
Mr Plummer said the materials side of the business felt the repercussion of the changing environment earlier than the Manufacturing and Australian Distribution businesses.
“Both the Iron Ore and Recycling business segments felt the impact of the GFC earlier in the first half of the year due to their exposure to international markets, but international demand showed some signs of recovery in the fourth quarter, particularly as steel production in China ramped back up.
“Our Iron Ore business successfully achieved its volume target of 5.0 million tonnes for the year despite challenging market conditions in China from the second quarter."
"Revenue was affected by lower prices for spot iron ore sales compared to the record highs at the end of the 2008 financial year, little to no price premium received for lump sales over most of the year, and a higher number of iron ore sales at lower spot prices due to the deferral of contract shipments during the last three quarters of the financial year.
“The increase in sales volumes helped sales revenue for the Iron Ore business segment to be flat compared with the prior year, but lower prices were a significant contributor to EBIT decreasing 24% to $162 million for the year.”
The company is increasing production of iron ore to a rate of 6 million tonnes a year in the current fiscal year.
“The Recycling business was break even for the second half, but recorded an EBIT loss for the full year, largely reflecting a $30 million inventory write-down in the first half due to a steep declin
