While Arrium (ARI) was being bailed out, the shares of its steelmaker rival BlueScope Steel (BSL) rose after it reported a better than expected half year profit.
The shares rose after the company met raised earnings guidance issued in late January, thanks to higher domestic demand and the positive impact of the lower Australian dollar.
The company’s improved profit performance follows job cuts of 500 people, cost cutting and payroll and other assistance measures in an aid package agreed to late last year by unions and local and the NSW governments.
Two weeks ago the company lifted its earnings forecast $50 million to $230 million, thanks to a sharp fall in costs caused by last year’s revamp and the positive impact of the lower dollar.
Excluding one-off charges, BlueScope’s underlying profit rose 47% to $119 million.
The result was impacted by $567.5 million of impairments against BlueScope’s New Zealand and Pacific Steel and Australian Steel businesses, and the positive impact of the sale of the McDonald’s Lime business and the write-up of the North Star steel business in the United States.
Underlying earnings before interest and tax jumped to $230.1 million, up $59.1 million.
The shares ended up 1.6% at $5.57.
BSL 1Y – Better times at Bluescope
Revenue for the six months ended December 31 rose 2% to $4.43 billion from $4.33 billion in the year-earlier period because of stronger sales into China and into the domestic market in Australia which hit a five year high.
"The company has continued its good momentum in earnings growth. It’s a very positive outcome and a credit to our teams around the globe,” chief executive Paul O’Malley said in a statement.
"Equally, our focus on costs and lifting the performance of steelmaking operations in Australia and New Zealand is paying off."
BlueScope will pay an unchanged interim dividend of 3 cents a share.
Stronger sales to the Australian residential housing market, buoyed by booming new home construction and an increase in home alterations and additions, also lifted earnings in the Australian domestic business.
BlueScope said it dispatched 372,000 tonnes of steel to the domestic dwelling segment during the half – the highest level in 5 years. Mr O’Malley also said the lower Australian dollar is making local product more competitive against imports.
He said that the 500 Port Kembla workers who lost their jobs and the remaining workers who agreed to wage freezes, deserved to be thanked.
“It was a tough six months but it is fantastic that plan A [to keep the Port Kembla blast furnace running] is successful…economically it is the right thing for us to do," he said.
Mr O’Malley said in yesterday’s statement that "our focus on costs and lifting the performance of steelmaking operations in Australia and New Zealand is paying off.
“With the support of all our stakeholders we have been able to pursue Plan A at Port Kembla Steelworks. This occurred despite the continuing headwinds of global overproduction causing weaker commodity steel prices and spreads.
“Our relentless focus on cost reductions in Australia must continue and we are now targeting $270 million in FY2017.
“We also continue to target at least NZ$50 million of cost reductions, in New Zealand in FY2017 and we have commenced a sale process of the Taharoa export iron sands business.
“The results today confirm our strategy is working; it has delivered substantial bottom line benefits in the half,” he said.
