Arrium flags more job cuts in steel
At the same time, it has flagged further job cuts at its steel division as it works to lift efficiencies amid the tough headwinds of a strong currency and weak demand.
In the December half, Arrium lost $447 million, which was significantly worse than the $74 million loss posted a year earlier, as a result of $474 million of asset write-downs. Stripping this out, Arrium said it posted a net underlying profit of $51 million for the half. Revenue fell to $3.32 billion from $3.55 billion.
Despite solid cash flow, it cut the interim dividend to 2¢ a share from 3¢. Underlying earnings fell to 4¢ from 5.8¢ a share.
Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $230 million from $196 million a year earlier, benefiting from a strong contribution from the mining products unit. At this level, the result was well ahead of some analyst expectations of an EBITDA profit of the order of $170 million.
Arrium managing director Geoff Plummer was downbeat on the prospects for a revival in domestic steel demand, while admitting the group had adapted to the strong Australian dollar.
The domestic market "continues to be pretty weak", he said, with residential sector demand still at cyclical lows.
"We are starting to adapt to [the strong dollar]," he said, pointing to the fact that the steel division was now at cash break even and not far off earning a profit.
"I don't see a near-term upside in the domestic market. I think it will be tough for the balance of the financial year. We've got to gear the business for things to continue [to be] tough."
"The result was a little ahead of expectations," one research analyst said. "Steel was cash positive, which was notable given the high currency and soft demand.
"Earnings will be heavily skewed to the second half," he said, with iron ore the significant swing factor as it builds exports towards 12 million tonnes a year by midyear.
Lower iron ore prices had a $75 million to $85 million impact on net profit in the mining business, compared with the previous corresponding period, Mr Plummer said.
"While further volatility is possible, we anticipate iron ore prices for the balance of this financial year to continue to be above the average level for the first half," the company said in a statement.
Mr Plummer flagged further job cuts at the group's steel division as it struggles to stem red ink and improve operating efficiencies.
"We've taken [out] more than 2000 people over four years," Mr Plummer told analysts. "We have to keep making [the steel division] sharper and more efficient . . . Labour reductions will continue."
Arrium shares closed down 2.5¢ at $1.235.
Frequently Asked Questions about this Article…
Arrium's $447 million loss in the December half was driven largely by $474 million of asset write-downs. Stripping out those write-downs, the group reported a net underlying profit of $51 million for the half, although revenue fell to $3.32 billion from $3.55 billion.
Yes. Arrium has flagged further job cuts in its steel division as management looks to lift efficiencies amid weak domestic steel demand and the headwind of a strong Australian dollar. The company says labour reductions will continue after taking out more than 2,000 roles over four years.
Arrium's EBITDA rose to $230 million from $196 million a year earlier, helped by a strong contribution from the mining products unit and beating some analyst expectations (around $170 million). Underlying earnings per share fell to 4¢ from 5.8¢.
Yes. Despite solid cash flow, Arrium cut the interim dividend to 2¢ per share from 3¢ per share following the December half results.
The mining products unit made a strong contribution to EBITDA, helping overall profitability. Arrium is building iron ore exports toward 12 million tonnes a year by midyear, but lower iron ore prices dented net profit by an estimated $75–$85 million compared with the prior period.
Managing director Geoff Plummer said the domestic market 'continues to be pretty weak', with residential demand at cyclical lows. He also said the group is adapting to the strong Australian dollar and that the steel division is now at cash break-even and not far off earning a profit.
Analysts and management expect Arrium's earnings to be heavily skewed to the second half, with iron ore exports and prices the significant swing factors as the company builds exports toward 12 million tonnes by midyear.
Arrium shares closed down 2.5¢ at $1.235 after the announcement. One research analyst said the result was a little ahead of expectations and noted that it was notable the steel division was cash positive given the high currency and soft demand.
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