Arrium: That's not a turnaround

This company still faces significant headwinds

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Arrium Limited (ASX: ARI) (formerly OneSteel) has declared its intent to pay a 3 cent dividend, despite reporting a 75% fall in full year net profit to $57.7m, on $7.5 billion of revenue.

The company also managed to reduce its net debt, from $2,242 million to $2,143 million. Debts maturing in 2013 have been extended to the second half of 2014, giving the company some breathing space as it morphs from a steel producer to an iron ore miner, with a smaller steel division.

During the 2012 year, the mining division sold 6.3 million tonnes of iron ore, and the company says it remains on track to almost double production to 11 million tonnes per year by mid-2013. That would make it one of Australia's largest iron ore producers behind Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and put Arrium alongside Atlas Iron Limited (ASX: AGO).

The Mining Consumables division is the world's largest supplier of grinding balls and grinding rods, and it increased sales revenues by 43% over the previous corresponding year, mainly thanks to the acquisition of the Moly-Cop businesses.

Arrium's OneSteel steel and recycling division continues to face many headwinds, including the high Australian dollar, wet weather and generally weak markets. 815 staff lost their jobs during the year, resulting in annualised labour savings of $85 million.

The company expects strong demand for iron ore (mainly from China) to underpin high prices, as the company ramps up production. Management have also stated that they expect Mining Consumables to remain strong, underpinned by increasing levels of copper and gold production in North and South America.

The Foolish bottom line

Underlying return on equity came in at 4.4%, still lower than the average interest rate on its debt – which is around 5%. Until the company can increase this important metric above its cost of capital, this result is not a turnaround. Foolish investors should be very wary about investing in a company that can't generate higher returns on its equity, than it has to pay on its capital.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in BHP. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »