Profits: Weak Bluescope’s Big Loss/Amcor’s Solid Gains Wins Applause

Australia's largest steelmaker, Bluescope Steel, reckons it is laying the foundations for a return to profits after revealing a total loss of more than half a billion dollars for the six months to December 31.

The loss of $530 million was driven mostly by the impact of last year's restructuring and plant closures and sackings at Port Kembla and Westernport in Victoria.

The company had a loss of $55 million for the first half of the 2010-11 financial year.

The loss included significant one-off restructuring costs of $260 million, impairment of deferred tax assets ($184 million) and income advanced under the federal government's Steel Transformation Plan ($46 million), the company said.

BlueScope Steel managing director Paul O'Malley said the company was on track to deliver a full-year working capital release of $400 million to $500 million and had initiatives for further debt reduction.

"For 2H FY2012, we expect a slightly lower underlying Net Loss After Tax (excluding period end NRVs and/or impairments), subject to spread, FX and market conditions, compared with the 1H FY2012 result, including our expectation of a return to a profitable underlying run rate by the end of FY2012," he said in yesterday's statement.

But the market didn't believe him and the shares closed at 36.5c, after touching an all time low in afternoon trading of 34.5c. The wider market was up strongly with a gain of more than 1%.

"The first-half result demonstrated delivery of our improvement plan and was in line with market guidance. Particularly pleasing is the significant reduction in net debt beyond the impact of the capital raising," he said.

"The operational restructure, with associated plant closures in Australia, significantly reduces our exposure to the loss-making export market. The complex restructure has been implemented by our team very effectively and in a very tight timeframe. This is a positive step in turning around the performance of the Australian business and lays the foundation for a return to profitability."

BlueScope cut 1,000 workers late last year when it closed some of its Australian operations due to difficult trading conditions caused by weak demand, falling exports and the strength of the Australian dollar.

Bluescope said that when the costs of the restructuring and other one offs are eliminated, the group had an underlying profit of $129 million for the half year "which includes year end net realisable value (NRV) adjustments of $53 million.

"Excluding NRVs, the result was $76 million. This compares to an underlying NLAT of $47 million for the prior corresponding period (1H FY2011).

The company has deferred the recognition of a tax asset totalling $184 million in respect of tax losses generated during the half year, largely due to export losses and restructuring costs.

Mr O'Malley said "the first half result demonstrated delivery of our improvement plan and was in line with market guidance. Particularly pleasing is the significant reduction in net debt beyond the impact of the capital raising.

"Since the onset of the GFC, BlueScope has acted to overcome the effects of poor global economic conditions and steel industry overcapacity and set the foundation for future business improvement. These include:

"A cost reduction program that achieved $696 million of cumulative cost savings (relative to our FY2008 cost base) through to June 2011

Restructuring the Asian business, which has since delivered consistent profits and lays the foundation for further growth

"Restructuring our North American business, by consolidating the Buildings business and implementing a targeted profit improvement program, resulting in a step improvement in profitability in the first half FY2012

"Safely restructuring the Australian business, which is well advanced, by closing No.6 Blast Furnace and associated assets, materially reducing our export exposure

"Launched the global Building Solutions business with a strong growth focus Initiating a major performance improvement program for the Australian Distribution and Solutions business Secured advance payment of $100 million STP funding in January 2012.

"At 31 December 2011 net debt was $796 million, a reduction of $759 million since October 31 2011 including a working capital reduction of $357 million.

"We expect an additional reduction in working capital in the second half, noting in Q3 there will be a seasonal increase in working capital and further payments associated with the restructure of the Australian business.

"The current total cost of the Australian restructure is still in the range of $430-450 million, of which $350-370 million is expected to be paid in FY2012," Mr O'Malley said."

No interim dividend will be paid to shareholders.

Packaging maker Amcor's first-half profit has fallen by 9% due to the strong Australian dollar and the cost of acquisitions.

But on an underlying basis, Amcor CEO, Ken MacKenzie said yesterday that the "first half result represented a record underlying profit, record returns and a record interim dividend for the company."

And the company said in yesterday's profit announcement that it was maintaining its full-year guidance for all three of its main business divisions.

And, more importantly, it has increased interim dividend by a cent to 18 cents a share, which is a further sign of the company's confidence about the rest of the year. (The dividend is unfranked).

The market ignored the headline fall, focused on the underlying result, the solid guidance and the higher dividend and boosted the shares nearly 4% or 27c to $7.15.

Amcor reported a net profit of $204.9 million for the six months to December 31, down 9.4% from $226.1 million.

But on a profit before one off items, Mr McKenzie said the company did very well.

"Profit before significant items increased 14% to $304.7 million, returns increased from 13.1% to 15.1% and the dividend increased 6% to 18 cents per share.

"During the half, the company also completed a $150 million share buy-back.

"These results are particularly pleasing given the backdrop of subdued economic conditions globally and a $16 million adverse impact on reported earnings due to the appreciation of the Australian dollar," he said.

Amcor's flexibles business (up 24%) and rigid plastics (up 15%) business each posted improved first-half profit before interest and tax.

"Notwithstanding subdued economic conditions, sales in the first half were in line with the previous period," directors said yesterday.

"It was particularly pleasing that in Europe, underlying volumes were stable. This outcome is reflective of the defensiveness of the food, healthcare and tobacco packaging end markets.

"The flexible businesses in Asia had a strong half with good growth in all the key markets. This region is particularly attractive due to rising per capita income, increasing populations and introduction by our customers of new product categories.

"The Rigid Plastics business also had a strong half with earnings up 15%.

"This was achieved against a backdrop of a much cooler summer period which negatively impacted beverage sales during the peak summer months.

"During the half, the business benefited from cost synergies and operating improvements.

"The Australasian and Packaging Distribution business delivered a solid result with underlying earnings in line with the same period last year.

"This was a pleasing result as economic conditions during the first half in the US and Australia remained difficult."

The company said full-year earnings in the Australasia and packaging distribution division are expected to be in line with the previous year.

"Given the uncertain outlook for the Australian economy for the balance of the year and the ongoing adverse impact of the high Australian dollar, this expectation remains unchanged," Amcor said yesterday's release

In the flexibles business, volumes were expected to be stable in mature markets, while growth was expected to continue in growing markets, Amcor said.

In rigids, substantial earnings growth was expected to be generated over the full year, the company added.