UPDATE: OneSteel 1st Half Profit Down 49% To A$117 Million
16 Februar 2010 - 1:04AM
Dow Jones News
OneSteel Ltd. (OST.AU) posted a first half net profit Tuesday of
A$117 million for the period ended Dec. 31, down 49% from A$228
million a year earlier but ahead of analysts' expectations.
Chief Executive Geoff Plummer said while the result was down on
the prior period, it was still encouraging given the tough market
conditions.
Plummer said steel prices had lagged behind higher input costs
but that in the coming quarter steelmakers would have to start
seeking recognition of higher prices for iron ore and coking
coal.
"That will have to flow through and I would be surprised if that
doesn't lead to step up in the international prices," he told
reporters.
OneSteel gave guidance for its net profit in the second half to
be broadly in line with the first half.
The Sydney-based company is in a better position than many of
its steelmaking peers as it has its own iron ore mine in South
Australia state that not only feeds its steel production but is
forecast to produce an extra 6 million metric tons of hematite ore
for sale this financial year.
OneSteel's iron ore sales of 3 million tons during the half saw
earnings before interest and tax, or EBIT, for that segment soar
70% on year for to A$126 million.
This was in contrast to the company's manufacturing segment,
which saw EBIT tumble 73% to A$59 million, while its Australian
distribution business saw EBIT fall 68% to A$51 million and its
recycling segment posted a A$4 million EBIT loss.
Iron ore sales look set to continue to help offset the impact of
weaker steel prices, with analysts forecasting increases of 30%-50%
in contract iron ore prices in this year's round of
negotiations.
In the past week, iron ore miners BHP Billiton Ltd. (BHP.AU) and
Vale SA (VALE) have fueled expectations of an even bigger hike by
pointing to soaring spot iron ore prices--currently trading at 90%
above the benchmark price--as the best indicator of the state of
the market.
Plummer endorsed this view, saying the spot price was the best
reflection of the current strong demand, although he declined to
comment on how high contract prices may go this year.
"Over the next 12 months, iron ore prices on average, be it spot
or contract, are going to be materially above where they have been
for the last 12 months," he said.
OneSteel said its labor cost reduction program had resulted in
annualized savings of A$160 million, of which A$100 million is
expected to be permanent.
Operating cashflow of A$324 million for the half helped the
company pay down more of its debt, with net debt now standing at
A$970 million at the end of the half compared with A$2.27 billion a
year earlier, taking gearing to 18%.
Underlying profit for the period fell 45% to A$119 million from
A$215 million in the previous corresponding period.
Sales revenue for the half fell 28% to A$2.97 billion from
A$4.13 billion in the prior year and OneSteel declared an interim
dividend of 5 cents compared with 6 cents a year earlier.
Analysts said forecasts for headline first half net profit had
been running between A$50 million and A$100 million.
The better-than-expected result boosted OneSteel's shares, which
were up 5.9% at A$3.41 at 2330 GMT in a broader Australian market
up 1.0%.
-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094;
alex.wilson@dowjones.com
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