BlueScope shares slammed

Steelmaker reports $84 million loss for the 2013 financial year

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 19, 2013 1:40 pm AEST

Investors have given BlueScope Steel's (ASX:BSL) share price a hiding today, after the company reported a $84 million net loss for the 2013 financial year.

In mid-afternoon trading, shares are down 16% to $4.59, with investors not happy with the company's loss, nor its announcement that it was buying Hills Holdings' (ASX:HIL) Fielders and Orrcon businesses for $87.5 million. Orrcon makes and distributes piping and tubes, while Fielders supplies roofing, fencing and garage products. Bluescope says the acquisitions will be earnings accretive in the 2015 financial year.

Despite the loss, it's a $960 million turnaround for the steelmaking company, compared to last year. Underlying earnings rose to $267 million, while net debt has fallen dramatically, from $584 million in 2012, to just $148 million as at June 30.

Managing director and CEO, Paul O'Malley said, "Despite the ongoing difficult trading conditions in the domestic economy and the global steel sector overall, we are pleased with the progress of the company's turnaround."

BlueScope has been cutting costs, and restructuring its business to cope with the high Australian dollar, cheap imports as well as structural changes in its businesses.

Heavily dependent upon the local economy and in particular the building sector, BlueScope says it is well placed to benefit from any recovery in the Australian economy and has the ability to grow in key overseas markets. The falling Australian dollar should certainly help there, while making imported steel more expensive, and BlueScope's products more competitive.

Investors also weren't all that happy with the company's forecast for 2014. BlueScope says it expects the first half of the 2014 financial year to be no better than the equivalent period last year, thanks to uncertain domestic Australian demand. The news doesn't bode well for competitor, Arrium Limited (ASX:ARI) ex-OneSteel, which is expected to report its results tomorrow. Still, Arrium now has an iron ore mining business, which may offset some of the impact on its steel division.

Foolish takeaway

Australia's steel manufacturing industry still faces a tough time ahead. While a recovery in the building and construction industry should spur some growth, shareholders in BlueScope and its competitors may still have to wait some time before they see decent profits and dividends.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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