OneSteel is looking more like a steel business being subsidised by a booming iron ore export operation.
If it hadn’t been for the iron ore export business from South Australia which has been developed in the past few years, and the booming world price as demand from China took off in the year to June, OneSteel would have had a truly miserable year.
The iron ore business made well over 70% of the company’s earnings before interest and tax (a measure of operating profit) and had a profit margin of 42%.
The steel business barely exceeded break even.
Without that huge contribution, it would have been a very thin profit for the company as steel demand recovered fitfully from the GFC induced-slump here and offshore.
The company, which is the country’s number two producer after BlueScope, revealed a 12% rise in statutory and underlying profit in the June 30 year, with a second half surge in iron ore earnings playing a major part.
Statutory net profit rose to $258 million for the 12 months to June 30 compared with $230 million in the prior corresponding period, while the underlying profit (which excludes one-off items) was $241 million, up from $215 million in 2009, according to the profit statement yesterday.
The company declared an unfranked final dividend of 6c, taking the full year distribution to 11c, compared with 10c last year.
Company chief executive Geoff Plummer said the profit was affected by relatively weak markets due to the impact of the global financial crisis.
"Overall, the result was acceptable given the challenging external environment," Mr Plummer said.
The second half of the year had been challenging, with the slow recovery seen in the first half continuing, but stalling through May and June.
"The recovery through most of the year has been off a very low base, and activity levels in many of our steel markets are still weak and well below pre-GFC levels," Mr Plummer said.
Unlike other steel companies that have been hit by rising prices for iron ore, OneSteel is a producer and seller of iron ore.
"Chinese demand for iron ore continued to increase and was fundamentally very strong throughout most of the year,’’ the company said.
The importance of the iron ore business to the company can be seen from the divisional break up at the earnings before interest and tax (EBIT) level.
Statutory group EBIT was $423 million, up 7% on the $395 million in 2009.
But underlying EBIT fell 10% to $414 million, from $461 million.
OneSteel said group revenue fell 14% to $6.21 billion, but that was softened by a 31% jump in iron ore revenues to $782 million, thanks to higher export volumes and a higher average price than in 2009.
EBIT for the Iron Ore segment was up 195% to $333 million, due to an increase in both sales volumes and the average sales price.
In the Recycling segment, sales revenue was flat at $1.124 billion due to the impact of the stronger Australian dollar, a 13% reduction in the average sales price in US dollars, but offset by a 4% increase in sales volumes to 1.9 million tonnes.
EBIT for the year increased to $8 million compared to a loss of $39 million for the prior year. "This reflects a stronger second half performance of $12 million EBIT compared to a $4 million EBIT loss for the first half," OneSteel said yesterday.
In the Manufacturing and Australian Distribution segments, the company said demand improved steadily through most of the year but off a very low base that reflected the impact of the GFC in 2009.
In the Manufacturing segment, sales revenue was down 19% to $2,966 million due to the impact of lower prices, partly offset by a 7% increase in external sales volumes to 1.45 million tonnes. EBIT for the year was $58 million, significantly lower than EBIT for the prior year of $210 million. The decrease was due mainly to the impact of lower prices.
In the Australian Distribution segment, sales revenue decreased 24% to $2,521 million due to an 8% reduction in external sales volumes to 1.3 million tonnes and a lower average selling price. EBIT decreased to $60 million from $185 million for the prior year due mainly to lower sales volumes and lower prices, partly offset by cost savings.
At best OneSteel’s non-iron ore export businesses contributed just $90 million on sales of around $5.4 billion.
OneSteel shares eased 7c, or 2.2%, to $3.11 yesterday.
