Australian steel producer Bluescope has reported a net profit after tax (NPAT) of AU$1,015.8 million ($688.4 million) and an underlying NPAT of $966.3 million for its 2019 fiscal year, an increase of 17 percent from its previous fiscal year.
Bluescope Managing Director and CEO Mark Vassella says, “Underlying EBIT (earnings before interest and taxes) for the year was AU$1,348.3 million ($913.7 million), up 6 percent or AU$79 million ($53.5 million) over FY2018. This was our third successive full-year underlying EBIT above $1.1 billion.
“Despite some softening in commodity steel spreads and domestic volumes in the second half, in FY2019 Bluescope delivered another very good result,” Vasella adds.
He says the company is focused on generating returns above its cost of capital to create value for shareholders, having delivered pretax return on invested capital (ROIC) of 19.5 percent in the 2019 fiscal year, which was down slightly from the 20 percent ROIC Bluescope achieved in fiscal 2018.
“Operating cash flow, after capital and investment expenditure, was very strong at AU$1.3 billion ($880 million). The successful combination of underlying earnings growth and our on-market share buy-back saw underlying earnings per share lift by 22 percent,” Vassella says.
Bluescope ended its 2019 fiscal year with net cash of AU$692.7 million ($469.4 million) and has reassessed its optimal capital structure, with Vasella adding, “We will now target a revised capital structure of group net debt around zero in contrast to our previously stated target of net cash in the range of $200 million to $400 million.”
He says the company will continue its previously announced buy-back of up to AU$250 million ($169.4 million) in stock during the first half of its 2020 fiscal year, with the Bluescope board approving a final unfranked dividend of AU 8 cents (5 cents) per share.
On the company’s key strategic focus area of investing for long-term profitable growth, Vassella says, “After careful due diligence, today we advise that the board has approved the expansion of our successful North Star business at Delta, Ohio, subject to anticipated receipt of necessary air permits and local and state incentives. Bluescope will add around an additional 850,000 metric tons (937,000 short tons) per annum of domestic steelmaking capacity in the U.S. With an estimated cost of US$700 million, commissioning of the expansion is targeted for mid FY2022, with full ramp-up approximately 18 months later.”
He adds that the electric arc furnace (EAF) steel mill expansion project is expected to deliver ROIC of 15 percent or more once fully ramped-up. “Moreover, the project has future potential growth, through possible debottlenecking to add a further 500,000 metric tons (551,000 short tons) per annum of steelmaking capacity.”
Vassella says Bluescope has made changes to its executive leadership team related to the North Star expansion. Chief Executive of Civil Engineering for Bluescope Pat Finan has been named chief executive of hot rolled products North America, responsible for the North Star operations and the expansion project. He says Finan “is well-placed to oversee this important investment, having held executive responsibility for the North Star operations in his current role and been closely involved in the due diligence phase.”
Alec Highnam, president of Bluescope North America, will take on the expanded role of chief executive of Bluescope Buildings, leading the company’s engineered steel building business in North America and taking on executive responsibility for Bluescope’s other corporate interests there, including Innovation and the Bluescope Properties Group, Vassella says.
Bluescope says its North Star division delivered underlying EBIT of AU$654.7 million ($443.7 million), up 52 percent on FY2018, driven by strong steel spreads combined with favorable foreign exchange rates, while its Australian Steel Products business delivered underlying EBIT of AU$535.4 million ($362.8 million), down 9 percent on FY2018. Realized steel spreads were stronger, particularly because of pricing lags, however domestic volumes weakened because of some slowing in construction activity and distribution channel destocking. Costs were also higher because of short-term operational instability (within normal operating range) and higher depreciation following the write-back of previously impaired assets in June 2018.
The company’s Building Products Asia and North America division saw EBIT of AU$134.2 million ($90.9 million), a decline of 27 percent from the 2018 fiscal year. In ASEAN and North America, margins were lower because of higher steel feed costs combined with weaker dispatch volumes, Bluescope says. The businesses are focused on “getting fit” through a cost reduction and manufacturing improvement program that delivered improvements of around AU$20 million ($13.6 million) in FY2019 and are targeted to deliver a full-year run-rate of AU$40 million ($27.1 million) during the company’s 2020 fiscal year. Notwithstanding turnaround plans and a recent improvement in business performance, the group recognized an AU$64 million ($43.4 million) noncurrent asset impairment in its Thailand operations.
Its New Zealand and Pacific Steel division delivered underlying EBIT of AU$80.6 million ($54.6 million) down 28 percent on the previous fiscal year, primarily because of higher raw material and electricity costs. Overall, domestic demand remained robust, Bluescope reports.
Following a strong first half to the fiscal year 2019, Bluescope says the second half was affected “significantly” by a softening of steel and export vanadium selling prices.
The company’s Buildings North America business delivered underlying EBIT of AU$53.4 million ($36.2 million), down 28 percent compared to the previous year related to lower dispatch volumes and an unusually high contribution from Bluescope Properties Group in the 2018 fiscal year, according to the company. More positively, sales of buildings for end-use applications in the industrial, manufacturing, aviation and energy sectors remain strong.