Australian Steel Company Sees Jump in Earnings

Australia's Smorgon Steel Group Ltd. posted a doubling of net profit in the year ended June 30, 2003, to around $66 million from around $32.3 million the same time last year. The jump in earnings was boosted by a $26 million gain from recognizing a future tax benefit.

The company attributed the boost to higher selling prices, reduced costs and asset sales. The improvement came despite higher input costs from scrap metal and hot rolled coil steel prices, as well as reduced rural demand from drought.

Ray Horsburgh, Smorgon’s chief executive, was upbeat about the outlook, expecting strength in the nonresidential construction market and mining sector to more than offset an expected slowdown in the housing sector.

"The cycle continues to look healthy for us," Horsburgh said, adding that orders are strong with about five months of work already on the books.

Horsburgh also said the company is looking at further acquisition opportunities to expand Smorgon's offshore scrap and recycling operations in a bid to reduce the company's negative exposure to stronger scrap prices. In the year just gone, higher scrap prices cost the company about $7 million in earnings before EBITDA.

"Apart from the earnings that a larger offshore scrap business would give us, the natural hedge it gives us against what we have to pay our competitors here for scrap is significant," he said.