BlueScope Steel Limited (BlueScope) posted strong results for its first half 2017, with solid performance across all its business segments
The following table summarises 1H17 results:
| $m | 1H FY17 | 1H FY16 | Var $ | % |
| Revenue | 5,195.2 | 4,438.8 | 756.4 | 17%
|
| Underlying EBITDA | 793.0 | 417.8 | 375.2 | 90% |
| Underlying EBITDA margin | 15% | 9% | 5.9 |
|
| Underlying EBIT | 603.6 | 230.1 | 373.5 | 162% |
| Underlying net profit after tax | 360.0 | 119.0 | 241.0 | 203% |
| Net debt | 531.3 | 1,373.4 | (842.1) | (61%) |
| Financial leverage | 0.4x | 1.6x | -1.2x | |
Source: BlueScope, FIIG Securities
Key points:
- 1H17 revenue rose 17% to $5.2bn from $4.4bn per corresponding period (pcp), primarily due to the full ownership of the North Star business from the end of October 2015, higher despatch volumes from certain segments, higher domestic and export prices, and stronger domestic demand. These improvements were partly offset by unfavourable translation impacts from a stronger Australian dollar exchange rate and planned lower export volumes from New Zealand
- 1H17 underlying EBITDA was up 90% pcp at $793.0m, resulting in an increase of 162% in underlying EBIT to $603.6m pcp. The strong underlying EBIT was due to the recognition of 100% ownership of North Star after 20 October 2015, higher spreads and margins with steel prices higher than raw material cost increases, cost reductions, higher manufacturing production rates and sales volume increases. As a result, net profit after tax improved significantly by 203% to $360.0m in 1H17, partly offset by higher income tax expense and finance costs compared to $119.0m in 1H16
While Australia remains as the top contributor to BlueScope’s underlying EBITDA (43% in CY16), compared to 70% in FY07, the company now enjoys the benefits derived from its diversified geographical mix. The change in sales mix and increased contribution from value added products, in addition to geographical diversity, should provide support for BlueScope’s underlying EBITDA from its exposure to the steel industry as shown in Figure 1.
Figure 1
Source: BlueScope
Note: total underlying EBITDA figures include corporate costs & eliminations of $40m in FY2007 and $94m in CY2016 respectively, excluded from pie charts
- All business segments reported materially stronger underlying EBIT for 1H17. Australian Steel Products improved by 40% to $242.5m due to stronger spread on higher steel prices, and lower costs from improved productivity and higher domestic sales volume. The North Star business was up 398% to $211.3m which benefitted from BlueScope’s full ownership after 30 October 2015, higher spreads and lower conversion costs. Building Products’ underlying EBIT increased by 70% to $111.3m on the back of higher margins and increased sales volumes, but was partly offset by unfavourable translation of earnings from a stronger Australian dollar. BlueScope Buildings’ 45% improvement in underlying EBIT to $49.5m was driven by lost costs and higher sales volume in North America, offset by lower margins in Asia and an unfavourable translation of earnings from a stronger Australian dollar. The New Zealand and Pacific Steel segment turned around and achieved an underlying EBIT of $39.5m, from a loss of $47.1m pcp due to higher steel and iron sands prices, full run rate of the Pacific Steel acquisition, and lower cost and improved productivity
- Free cashflow increased by $262.4m to $286.3m in 1H17, following the improvement in earnings and lower capital expenditure (capex) of $175.2m (down 24%) in the period. However, BlueScope has highlighted that capex for 2H17 is expected to increase to within the range of $270m to $320m, citing capacity increases in Thailand, India and North Star, and the acquisition of Port Kembla PCI plant in the same period
- According to BlueScope, it is one of the lowest geared companies in the global steel industry. Net debt reduced to $531.3m at 31 December 2016 compared to $1,373.4m at 31 December 2015 due to strong operating cashflow, resulting in net debt/EBITDA falling to 0.4x at 31 December 2016, compared to 0.8x at 30 June 2016 and 1.6x at 31 December 2015. The group maintained its strong liquidity profile, with cash at $1.8bn at 31 December 2016 ($1.8bn at 30 June 2016) and around $1.2bn of undrawn committed debt facilities, of which $850m comes from its multi year bank facilities
- The company announced four cents per share interim dividend and a $150m share buyback program, which will be funded from free cashflow
Outlook
- Underlying EBIT is expected to be 50% higher than 2H16 ($340.3m)
- Underlying net finance costs are expected to be lower than 1H17 due to lower average net debt
- Slightly higher underlying tax rate due to regional earnings mix
- Similar profit attributable to non controlling interests to 1H17
- Targets returns to shareholders, including capital management, of 30-50% of free cashflow
Conclusion
Overall, BlueScope’s 1HFY17 result was in line with the estimates provided by the company in January 2017.