OneSteel increases earnings outlook

ONESTEEL has lodged a first-half profit increase of 27% to $57.9 million and predicted full-year profit could reach $125 million, provided strong international steel and currency markets maintain their elevated status quo.

Ben Oliver

OneSteel's previous earnings range estimate was $45-55 million made in December last year.

Sales revenue for the six months to December 31 2004 rose 20.7% to $1.89 billion, buoyed by a 3.2% growth in activity levels across OneSteel's sundry divisions. The construction arm was OneSteel's strongest contributor, generating 62% of total group revenue. Construction activity levels rose 4.1%.

Domestic sales increased 19.7% to $1.82 billion, while OneSteel's export division led organic growth, with a 52% higher return than the previous corresponding half's $70.4 million.

The result came a day after competitor BlueScope Steel confirmed it was on target to record historically high net profit after tax (NPAT) for the 2004-05 financial year. BlueScope Steel managing director Kirby Adams said second-half NPAT was expected to be similar to the first half, a record $485 million, a rise of 114% on the previous year's first half.

OneSteel said more than $90 million in increased outlays, due to higher scrap, sheet, coil and labour prices, were offset during the half by $30 million in restructuring costs, and "revenue enhancements" of $114 million.

Shutdowns at the Whyalla steelworks in October and November last year resulted in the loss of 140,000 tonnes of steel production, and wiped $38 million from earnings before interest tax, depreciation and amortisation (EBITDA).

Disruptions to the plant, back on-line in December, would cost OneSteel a further $15 million in EBITDA in the second half of the year, chief executive officer Bob Every said.

"Market conditions continue to be strong, underpinning the growth in OneSteel's sales," Every said.

"The profit result was supported by price increases that came into effect at various times during the 2004 calendar year to recover significantly higher input costs associated with scrap and hot rolled coil.

"The outcome was also assisted by recovery of market share from imports in some product lines and further benefits from OneSteel's restructuring program.

"We expect market conditions to remain robust for the remainder of the year."

Every, who retires at the end of June, said a number of forthcoming projects would boost the company's profitability in the short and long term.

These included the $30 million Project Magnet – now due to come on-line towards the end of fiscal 2007 after rising commodity prices and higher equipment and skilled labour costs pushed back the project's timetable. Other projects included a new eight-stand ropery plant and the consolidation of mesh manufacturing facilities on the east coast.

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