A cost reduction drive, higher global steel prices, and synergies between recently acquired Pacific Steel and the New Zealand Steel plant at Glenbrook have seen a strong return to operating profit for Australian steelmaker Bluescope's New Zealand operations.
In the half-year to December 31, Bluescope's New Zealand operations showed earnings before interest, tax, depreciation and amortisation of A$59.4 million, a turnaround of A$74.9m from the A$15.5m ebitda loss in the same period a year earlier.
The company said in statements released with the accounts that while the New Zealand steel-making business had achieved cost savings targets of A$45m in the last financial year and A$33m in the first-half of the current year, it was targeting A$70m in annual savings compared with the 2015 financial year cost base in this financial year. There was "further work to be done to determine whether the Glenbrook operations can be internationally competitive and profitable through the cycle".
The result was achieved on lower revenue, at A$425.4m, than for the same half a year earlier, at A$451.1m, when the company also wrote down the value of its New Zealand assets by about half, reflecting the weakness in the global steel market and doubts about the Glenbrook plant's long-term future. During the last year, the company has pushed the Ministry of Business, Innovation and Employment to conduct an investigation into the alleged dumping of Chinese steel in the New Zealand market and campaigned against changes to national grid charges, which it fears could add millions to its annual electricity costs.
The result was also achieved in spite of a 32.3 per cent fall in total steel despatches, at 276,400 tonnes, and a substantial fall in steel exports, mainly caused by Pacific Steel sourcing its flat steel products from NZ Steel and strong sales into the buoyant domestic construction sector.
Total NZ Steel flat steel exports fell from 112,200 tonnes in the first half of the 2015/16 financial year to 48,100 tonnes in the latest period, while Pacific Steel long products fell from 42,000 tonnes to 6,200 tonnes on the same basis.
"Exports (are) reducing as Pacific Steel moves to billet supply from NZ Steel and (the) full economics of (the) Pacific Steel acquisition start to flow," slides accompanying the profit announcement say.
Ironsands exports rose in the first half, to 1.689 million tonnes from 1.395 million tonnes in the same half a year earlier.
Progress is being made with two potential buyers of the ironsands resource, the company said, although a maintenance outage on the buoy used by ironsands tankers for anchorage while loading the sands at sea will cost the company between A$10m and A$20m in second-half revenue.
The New Zealand segment is a relatively small part of the total Bluescope business, which has been pushing into North American and Asian markets in the last decade to reduce reliance on its Australasian base.
Total revenues for the group for the half year were A$5.2 billion, to produce ebitda of A$793m, compared with A$417.8m in the same half the previous year, reflecting a lift in global steel prices.
Net profit after tax for the group, including losses attributable to non-controlling interests, was some three times up on the previous half, from A$119m to A$360m and underlying earnings per share rose from 20.9 Australian cents to 62.8 Australian cents, prompting directors to lift the interim dividend from 3 Australian cents per share last year to 4 Australian cents per share.