Higher energy costs, dollar knock NZ Steel full-year earnings

BUSINESSDESK: The strength of the New Zealand dollar against the greenback and higher utility costs are the primary reasons given for a 21% fall in reported earnings before interest and tax at the local unit of the Australian steel maker Bluescope, despite a 12% increase in total revenue.

New Zealand Steel and Pacific Steel Products reported ebit of $A65 million in the year to June 30, compared to $A82 million the previous year, according to segment accounts released by the parent company to the ASX.

Total sales for the year were A$755 million, compared to $A672 million the year before, in spite of sluggish domestic demand and a one-week outage caused by a gas main disruption that affected the output of rolled steel products.

The sales increase was "primarily due to higher export volumes and higher international selling prices, combined with a favourable foreign exchange translation impact from the New Zealand dollar to the Australian dollar, partly offset by an adverse movement in the US dollar relative to the New Zealand dollar," the company says in explanatory notes.

However, the net pretax return on assets at 19% was still close to the 21% return of the previous financial year, and was stronger in the second half of the financial year at 22%.

The cross-rate between the US and kiwi dollars rose from an average of US76 cents to $NZ1 in the previous year to average US80 cents in the year under review.

The $A13 million fall in underlying ebit was largely caused by higher utility costs, of which electricity and gas are the two largest facing the Glenbrook steel mill south of Auckland.

A employee-led cost reduction programme is under way at the plant, and the company spent $A4 million on restructuring and redundancy costs last year.

Total steel production at 606,000 tonnes was down from 615,000 tonnes a year earlier, total export sales were up 16,000 tonnes and domestic sales down 6000 tonnes in a sluggish local market where the Christchurch rebuild has yet to kick in.

During the year, NZ Steel installed a new buoy for export of ironsands from Taharoa, leading to total exports of 978,000 tonnes in the year to June 30, compared to 819,000 tonnes in the previous year.

A new vessel in operation since May is capable of raising annual exports to 1.2 million tonnes annually, up 300,000 tonnes on previous capacity.

Some 163,000 tonnes of ironsands were exported from Waikato North Head, the first time it has been despatched from that site.

While vanadium extraction improvements saw sales volumes up 6 percent, prices for the metal were down 17% for the year.