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Bluescope set for further earnings growth

AAP logoAAP 21/08/2016 Prashant Mehra

BlueScope Steel expects its upward earnings trajectory to continue after the resurgent steelmaker more than doubled full-year profit, helped by sharp cost reductions and high sales growth.

Australia's largest steelmaking business posted a net profit for the year ended June 30 up 160 per cent to $353.8 million.

Underlying earnings for the year rose 89 per cent to $570.5 million, in line with the company's forecast for a steep improvement in the second half of the year.

"Our direct interventions in reducing costs have significantly lifted performance of our steelmaking operations in Australia and New Zealand, despite continuing global overcapacity and production," managing director Paul O'Malley said.

He now expects underlying earnings for the first half of fiscal 2017 to be around $510 million, or about 50 per cent higher compared to the FY16 second half earnings of $340 million.

Growth prospects will be helped by an increased stake in its North American business, improvement in prices and lower finance costs, BlueScope said.

The result is a sharp turnaround for the company which in 2015 was poised to shut down operations at its flagship Port Kembla steelworks in NSW as steel prices slumped amid weaker demand and a supply glut in Asian export markets.

Since then, the company has cut jobs, frozen pay for remaining workers and secured a three-year tax break from the NSW government to keep the steelworks running.

"The difference between today and a year ago is that we have taken out nearly $300 million in costs from the Australian operations," Mr O'Malley said.

"But we have to be internationally competitive and we have to continue productivity improvements."

Net debt was $778 million at the end of 2015/16, down $595 million from the end of 2015.

Bluescope has also benefited from a jump in margins at its US-based North Star Steel business since acquiring the remaining 50 per cent stake from partner Cargill in October 2015.

The company is now focusing on growing its coated and painted products business in Asia. On Monday, its board approved a $US120 million spend by its NS BlueScope joint venture in Thailand to set up a third metal coating line.

BlueScope's joint venture in India is also considering spending about $US30 million on capex, the company said.

On Monday, Mr O'Malley said the global steel oversupply is likely to persist for some time, despite efforts to shut down inefficient steel plants in China.

The company has kept its final dividend flat at 3.0 cents per share, fully franked.

BlueScope shares, which have nearly doubled this year, rose further on the strong results, ending the day up 47 cents, or 5.7 per cent, at $8.72.

BLUESCOPE FY PROFIT JUMPS

* Net profit of $353.8 mln, up 160 pct

* Underlying earnings of $570.5 mln, up 89 pct

* Revenue of $9.2 bln, up 7pct

* Final dividend of 3.0 cents per share, unchanged.

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