OneSteel Reports EBITDA of $767 Million for Fiscal 2008
08/20/2008 - OneSteel Limited reports $767 million EBITDA, excluding restructuring costs of $77 million and synergy benefits of $41 million associated with the integration of the Smorgon Steel businesses.
OneSteel Limited reported net operating profit after tax, excluding restructuring and other non-recurring items of $315 million for the 12 months ended June 30, 2008, a 59% increase from the $197.5 million reported for the previous financial year.
Statutory net profit after tax, including the impact of restructuring and other nonrecurring costs of $70.1 million was $244.9 million, up 18% from the $207 million reported last financial year.
The company also reported $767 million earnings before interest, tax, depreciation and amortization (EBITDA), excluding restructuring costs of $77 million and synergy benefits of $41 million associated with the integration of the Smorgon Steel businesses.
Management Comments—“The strong performance at the EBITDA line is at the upper end of our market guidance of $710 million to $780 million, and is particularly pleasing given difficult market conditions during the year, particularly in the first half, while in the second half we experienced unprecedented increases in input costs,” commented Managing Director and CEO Geoff Plummer.
“The result highlights the strength of OneSteel’s integrated business model, with our major businesses demonstrating their ability to manage well in a volatile cost environment for raw materials, ferrous and non ferrous scrap and steel,” said Plummer.
Fiscal 2008 Highlights—The company achieved significant progress on two major growth initiatives: Project Magnet and the merger of the Smorgon Steel businesses.
The company has invested approximately $400 million in Project Magnet. Approved in May 2005, this project focused on the commercialization of OneSteel’s magnetite ore reserves and increased sales of hematite ore. “The conversion to magnetite feed has allowed the company to significantly increase its iron ore sales and deliver real benefits to shareholders,” Plummer said.
Project Magnet will help to extend the life of the steelworks, with the transition of both the pellet plant to magnetite ore feed and the blast furnace to magnetite pellets. The project will also result in increased iron ore sales.
The ramp-up of iron ore sales under the project increased to 4.4 million tonnes for the year, greater than the initial target of 4.0 million tonnes per annum. OneSteel announced in February that work was underway to further increase iron ore sales above 4 million tonnes per annum and to identify and prove up increased iron ore reserves.
The first stream of this new work is aimed at lifting sales of iron ore by improving OneSteel’s operational and supply-chain capability. This includes reviewing all aspects, from mining, handling, crushing and screening, through rail, warehousing and barging. Work to date has resulted in significant progress, with the addition of plant capacity and equipment including rolling stock and crushing and mining equipment. This is expected to result in an increase in iron ore sales to 6 million tonnes per annum from the start of the 2010 financial year.
The second stream of the new work aims to increase ore reserves and resources via a two-year program, divided into three separate phases. In the first phase, mine plans will be updated using appropriate assumptions. The company has already made significant progress on this phase, which has resulted in a further 13 million tonnes of hematite being added to the reserves. The next two phases include actively pursuing mine extension and exploration work. Work has commenced and will further ramp up in coming months on these phases with the initial focus being on the extension drilling work.
“Project Magnet has delivered significant benefits through increased iron ore sales and improved operational capability,” said Plummer. “This has given us a solid base to pursue further opportunities to increase our iron ore sales. We are encouraged that the next phase of Project Magnet is delivering early benefits, and we are
continuing to work on extending these benefits,” he said.
“We recorded $41 million of synergy benefits for the year from the Smorgon Steel transaction,” added Plummer. “This was well above the initial target of $25 million for the first full year. We estimate that cost synergies will increase to $80 million gross in the 2009 financial year and that we will reach a run rate of $100 million by the start of the 2010 financial year.”
Restructuring costs associated with the integration of the Smorgon businesses during the 2008 year were $77 million and are expected to be $20 million in the 2009 financial year.
“International prices for steel and steelmaking inputs have increased to unprecedented levels in 2008 due to very strong demand,” noted Plummer. “The inflationary impact of this has led to a significant increase in working capital at year-end. Despite a buildup in our working capital position, we are confident that this represents an appropriate investment to support our customer service objectives.”
Outlook—The company said its outlook for the balance of 2009 remains positive, with OneSteel’s key segments of resources and domestic construction, particularly engineering and infrastructure expected to remain strong. No improvement is expected to the domestic manufacturing, residential construction and rural segments, which the company believes will remain relatively weak.
The company also said that it expects international prices for steel and steelmaking inputs to continue to be volatile, but to generally remain at high levels by historical standards underpinned by continued strong international demand for steel and steelmaking inputs.
The company also said that it expects international prices for steel and steelmaking inputs to continue to be volatile, but to generally remain at high levels by historical standards underpinned by continued strong international demand for steel and steelmaking inputs.
