Arrium has outshone rival BlueScope Steel and made steelmaking profitable again but faces a difficult year of weak demand and falling iron ore prices.
The global resources and steel company, which changed its name from OneSteel in April, posted a 75 per cent slump in net profit to $58 million.
Its OneSteel Manufacturing business was earnings before interest, taxes, depreciation, and amortisation (EBITDA) positive in the second half – a $57 million turnaround.
BlueScope Steel revealed on Monday its steel manufacturing business made a $327 million loss for 2011-12.
Unlike BlueScope, Arrium paid a dividend, declaring a final unfranked distribution of three cents per share.
The company’s shares shot up by 10 cents, or 12.4 per cent, to 91 cents by 1400 AEST.
Arrium’s steel and recycling segment still posted a full-year EBITDA loss of $19 million amid a weak construction market.
Arrium chief executive Geoff Plummer would not commit to the future of its steel mills or say whether or not jobs would be cut.
The improved steel result is partly due to the company cutting 815 full-time jobs during the year, reducing labour costs by $85 million.
“In the near term we expect to see the external environment for the steel and recycling businesses continue to be dominated by generally weak domestic demand and volatility in the exchange rate and international prices,” Mr Plummer told reporters.
“There will be changes to jobs across the business, in some instances some jobs will go, in other instances some jobs will be added as we move product and facilities around … the jobs in Whyalla are no less certain or no more certain than most other parts of the company.”
Underlying net profit for the year was $195 million, with Arrium writing down the value of its LiteSteel beam technology by $125 million.
The company’s iron ore mines and mining consumables divisions drove the profit, due to the resources boom.
Earnings before interest and tax (EBIT) out of the mining division was down 42 per cent to $303 million due partly to lower iron ore prices.
EBIT for the mining consumables division, which includes grinding operations, leapt up by 107 per cent to $135 million.
The results showed the logic of its strategy of changing the business to be more resources-focussed, said Mr Plummer.
However Morningstar analyst Matthew Hodge said there was a growing consensus that iron ore prices would fall amid high inventories in a slowing China, hurting Arrium.
“Conditions have been very favourable but we tend to think iron ore prices are going to fall over time … it’s helping them out big time now but it might be a source of weakness in the future,” he told AAP.
“I would feel a lot more comfortable if they had less debt.”
An increase in iron ore production to 11 million tonnes a year next year compared to the current six million tonnes would help cashflow to pay debt, if prices did not fall too much, he said.
Net debt was reduced from $2.24 million to $2.14 million from a year ago, and gearing from 33.8 per cent to 32.3 per cent at year end compared to the previous half.
