Arrium weighed down by steel division

THE pressure on Arrium's steel division shows no signs of abating. The group is relying on iron ore exports and its mining products unit as it struggles with weak domestic steel demand.

THE pressure on Arrium's steel division shows no signs of abating. The group is relying on iron ore exports and its mining products unit as it struggles with weak domestic steel demand.

It has also signalled further job cuts at its steel division as it works to improve efficiency amid the tough headwinds of a strong currency and poor demand.

For the December half, Arrium reported a loss $447 million, 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, the group cut the interim dividend to 2¢ a share from 3¢. Underlying earnings per share fell to 4¢ from 5.8¢.

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 far exceeded some analysts expectations of an EBITDA profit of $170 million.

The managing director and chief executive of Arrium, Geoff Plummer, was downbeat on the prospects for a revival in domestic steel demand, while admitting the group was adapting to the strong Australian dollar.

The domestic market "continues to be pretty weak", he said, with demand from the residential sector 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 a cash break-even point and not far from earning a profit.

"I don't see a near-term upside in the domestic market," he said. "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."

Mr Plummer said Arrium was "investigating prospects" for the sale of its pipe and tube unit.

"The result was a little ahead of expectations," a 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, adding that iron ore would be the significant swing factor as the company aimed at annual exports of 12 million tonnes by midyear.

The drop in iron ore prices had an impact of between $75 million and $85 million on net profit in the mining business, compared with the previous corresponding period, Mr Plummer said.

He said there would be more job cuts at the steel division.

"We've taken [out] more than 2000 people over four years," he said. 'We have to keep making [the division] sharper and more efficient ... labour reductions will continue."

Arrium's shares finished 2.5¢ lower at $1.235.

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