Under normal circumstances, the announcement of a $1 billion plus net loss by a steel manufacturing company in Australia would hardly be seen as a reason to celebrate.
To be sure, there are plenty of negatives in BlueScope’s latest $1.054 billion net loss after tax for the year ending June 30, 2012. It is the company’s second year in a row of losses and domestically, there is little hope of any near-term recovery in construction or manufacturing. Manufacturing profits generally are being hit by low sales volumes, falling selling prices and rising costs. Making matters worse, with near-zero production volume growth globally, consumption running at only eight-tenths of production capacity and prices in free-fall, steel market conditions are awful.
Amidst the doom and gloom, however, there are reasons for hope.
For starters, the poor profit result – which was broadly in line with expectations – was not as bad as it sounds; the company’s underlying net loss after tax (which excludes once off accounting adjustments) was only $238 million. That figure is still bad, but it is not quite as drastic sounding as the $1 billion plus net loss after tax if accounting adjustments are included.
Next, there are tentative signs of recovery in some of the company’s markets. In the US, for instance, manufacturing conditions are awful but there are tentative signs of recovery in building. Construction activity in New Zealand is getting back toward normal levels amid the Christchurch rebuild and a recovering building market in Auckland. There are also opportunities in the developing parts of Asia, where the IMF expects economic growth next year of 8.1 per cent in China, 6.5 per cent in India and 6.1 per cent in ASEAN nations.
Third, painful though it was, restructuring in BlueScope’s Australian business seems to be paying off. The company says it expects a $327 million underlying loss before interest and tax in its Australian coated and industrial products business to return to the profit side of the ledger in 2012/13.
Finally, and most importantly, there is a new joint venture with Nippon Steel. Apart from helping to boost BlueScope’s operations in Asian growth markets, this venture will effectively wipe out all net debt from the company’s balance sheet – an enormous relief as the company ploughs through the tough years.
Because of all this, the company says it expects to roughly break even on an after tax basis in the first half of 2012/13. That may not exactly sound like reason to celebrate, but it certainly sounds better than the losses of the past two years.
Times are tough for BlueScope, make no mistake about it, but there is light at the end of the tunnel.
