BlueScope Steel took a pounding yesterday on the news of a bit hit to 2017-18 earnings from higher energy costs, a slightly weaker result and dividend than forecast for the year to June, and news of a cartel investment by the competition regulator, the ACCC.
The company’s CEO, Paul O’Malley (who is set to retire from the end of December) said yesterday he didn’t want to go into specifics (he was speaking afer announcing the 2016-17 profit), but said BlueScope was “fully co-operating”.
News of the investigation, plus a profit warning for 2017-18 and a smaller profit than greedy analysts had forecast saw BlueScope shares hit hard in the market on Monday – they were down 23% at one stage ad closed at $11.03, down a massive 21.5%
Bluescope Steel warned shareholder on Monday that earnings are set to fall in the current half, hit by import competition and soaring power and gas prices locally as well as weaker margins in the United States, its profit powerhouse in the year to June. But the blow will be softened for shareholders somewhat by news of another $150 million share buyback, for the second year in a row.
Bluescope said underlying earnings were set to drop 20% in the current half from the second half of the 2017 financial year to around $422 million, implying a 30% fall from 2016-17.
“Productivity improvements … are not yet fully offsetting the scale of energy cost escalation in FY2018,” the company said in the results release for 2016-17.
"We are very concerned about the tightening of supply in the gas and electricity markets, and have highlighted our concerns to government and regulators, including our views about the need for greater supply of gas to domestic customers and incentives to ensure baseload generation is maintained at existing levels," he said.
The company is forecasting that energy prices – combining gas and electricity – will increase 75 per cent between the 2016 and 2018 financial years to an estimated $145 million.
Underlying profit rose 112% to $650.8 million, based mainly on cost-cutting. However, the result was below market forecasts around $682 million. The company revealed a $715.9 million net profit after tax for the year to June 30, up 102% on 2015-16. Underlying Earnings Before interest and Tax was $1.105 billion.
“The 89% growth in underlying EBIT over FY2016 was generated through delivery of productivity and cost improvements, sales growth, improved steel spreads and the full year benefit of the North Star acquisition. Underlying EBIT in 2H FY2017 was $527.3 million,” the company reported yesterday.
After a 4 cents a share interim dividend and the $150 million buyback during the year, directors said there would be a five cents a share final dividend and a further $150 million buyback in early 2018.
“The Board believes that, together with paying consistent dividends, share buy-backs achieve an appropriate balance between retaining strong credit metrics, continuing to fund our growth opportunities and returning cash to shareholders.
Share buy-backs will be funded from free cash flow and the Board is targeting returns to shareholders, including capital management, of 30-50 per cent of free cash flow,” BlueScope told the ASX.
Mr O’Malley retires at the end of December. He will be replaced by the head of the company’s Australian and NZ arm, Mark Vassella.
