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The New Zealand operations of Australian steel products maker Bluescope [ASX: BSL] provided a substantial boost to earnings through a sharp increase in ironsand exports, better margins on steel thanks to lower coal costs, and increased steel sales as the domestic construction market became more buoyant.
Underlying earnings before interest and tax clocked in at A$74.7 million in the year to June 30, more than twice the previous year's A$36.1 million, a figure restated to reflect changes to Australian accounting standards, having previously been reported as A$40.5 million. The result was also assisted by favourable conversion of New Zealand dollar earnings to Australian currency, reflecting the relative strength of the kiwi dollar against its trans-Tasman counterpart.
The New Zealand result was a bright spot in an otherwise lacklustre earnings result, which saw Bluescope narrow its statutory net loss to A$82.4 million from A$107.1 million and an underlying ebit of A$249.7 million, at the bottom end of analysts' expectations, prompting an immediate sell-off in trading on the ASX on Monday.
Total New Zealand segment sales for the year were A$870.9 million, up 28 percent on the 2013 financial year, driven by an 11 percent increase in domestic steel tonnage shipped, at 282.9 thousand tonnes, and a 36 percent increase in ironsand exports, to 2.313 million tonnes, reflecting an extra shipment from the Taharoa open-cast mine and additional despatches from Waikato North Head, which is used mainly as the feedstock for the NZ Steel mill at Glenbrook.
However, ironsand revenues were lower thanks to reduced global prices and the strength of the New Zealand dollar. Lower coal, scrap and coating metal prices helped earn a better "steel spread" margin during the year, despite lower global steel prices. The company renegotiated its contract for coal from nearby mines owned by troubled state-owned coal miner Solid Energy.
Two new, leased ironsands ships are under construction and due to come into operation in 2015 and 2016, with exports forecast to increase to 3.9 million tonnes annually once all three ships are in operation. That compares with 927,000 tonnes of ironsands exported in the 2010 financial year, before upgrades in 2012 which lifted the total to 1.1 million tonnes. A further A$50 million is being spent between the 2016 and 2018 financial years on mining, processing and ship loading equipment.
During the year, Bluescope also paid A$60 million for the Pacific Steel operation, which it bought from Fletcher Building, and is committing $50 million of capital expenditure to instal a new billet caster and associated plant at Glenbrook, with a start date late in the first half of the 2016 financial year. The company expects payback on an earnings before interest and tax basis within three years of transferring billet production to Glenbrook.