Monday 21 August 2017 by Mary Anne Low Company updates

BlueScope Steel – robust FY17 results backed by solid performance across all business segments

The following table summarises FY17 results:

Source: BlueScope, FIIG Securities 

Key points:

  • FY17 revenue rose 17% to AUD10.8bn from AUD9.2bn per corresponding period (pcp). Underlying EBITDA increased by 54% pcp to AUD1.5bn, and underlying EBIT also increased by of 89% pcp to AUD1.1bn. The significant increase in underlying EBIT was a result of productivity and cost improvements, sales growth, improved steel spreads and the full benefit of the North Star acquisition
  • All of the group’s business segments reported stronger underlying EBIT results, including the New Zealand & Pacific Steel business’ turnaround by AUD101m to AUD61m, a reversal from the prior period’s negative AUD40m EBIT
  • Bluescope’s FY17 Australian energy costs increased by 25% pcp for both electricity (AUD74m) and gas (AUD30m). However, the company has warned that it expects its FY18 Australian electricity costs to increase by 53% pcp to AUD113m (or 93% compared to FY16). The company also expects its Australian gas costs to increase, although at a much lower level than electricity cost increases, by 7% pcp to AUD32m (or 33% compared to FY16)
  • As a result of the strong free cash flow - which increased by 17% pcp to AUD749m due to the improvement in earnings - Bluescope increased dividends to its shareholders and a AUD150m share buy-back
  • Net debt reduced by 70% pcp to to AUDAUD232.2m at 30 June 2017, resulting in net debt/EBITDA falling to 0.16x at 30 June 2017 (compared to 0.40x at 31 December 2016, compared to 0.80x at 30 June 2016). The group has access to AUD1.9bn of undrawn facilities and cash as at 30 June 2017
  • The company will continue paying consistent dividends, and using share buy-backs (funded from free cash flow) to achieve an appropriate balance between retaining strong credit metrics and returning cash to shareholders

A link to the results is available here.

Outlook

Key highlights from BlueScope’s 1H18 guidance for the group:

  • Underlying EBIT is expected to be 80% of 2H17 (AUD527.3m)
  • US steel margins are lower due to scrap prices increasing ahead of steel prices
  • Lower domestic steel margins due to global trade restrictions, amongst other factors
  • Productivity improvements at Australian Steel Products are not yet fully offsetting the magnitude of energy cost escalation in FY18