BlueScope Steel Ltd (ASX: BSL) is a flat product steel producer. BlueScope was de-merged from BHP Billiton in July 2002 as BHP Steel was renamed BlueScope Steel in November 2003. BlueScope has a moderate global presence with more than 100 facilities in 18 countries, employing around 14,000 people serving thousands of customers. BlueScope has a market capitalisation of around $7 billion.
What are the key features of the FY20 result for BlueScope?
BlueScope underlying net profit after tax for FY20 is $353.0 million, down 63% from FY19. Sales revenue from continuing operations for FY20 is $11,284.5 million, down 10% from FY19. Underlying earnings before interest and tax for FY20 is $564.0, down 58% from FY19. Final ordinary dividend for FY20 is 8 cents per share, in line with FY19.
Australian Steel Products delivered underlying EBIT of $305.1 million, down 43% from FY19. The main reason why EBIT was down was due to weaker regional steel prices and higher raw material costs.
North Star delivered underlying EBIT of $189.6 million, down 71% from FY19. This result can be attributed to weaker realised steel spread compared to FY19.
Building Products Asia and North America delivered underlying EBIT of $155.3 million, up 16% from FY19. This was a positive result from a challenging FY20 for BlueScope. This result was driven by better margins, cost reductions and improved manufacturing processes.
Building North America delivered underlying EBIT of $37.9 million, down 29% from FY19. This result was driven by lower volumes, COVID-19 related impacts and weaker demand in the second half of FY20.
Finally, New Zealand and Pacific Islands delivered underlying loss EBIT of $5.8, down $86.4 million on FY19. This was driven due to lower steel prices, higher costs and a forced government shutdown during April 2020.
BlueScope also provided an update on the New Zealand and Pacific Islands write down and restructure. BlueScope noted a $197.0 million write-down is based on the future expectation that this operation will have lower sustained earnings in the current business model.
There are two main points regarding BlueScope capital management activities. Firstly, during FY20, BlueScope brought back $229 million of shares on-market. Secondly, BlueScope management has noted that during FY21, the company expects to spend between $375 - $450 million on the North Star expansion. This should expand North Star mini-mill in Deltra, Ohio, by around 850,000 tonnes per annum.
What is the outlook for BlueScope?
BlueScope management has decided to not provide guidance on FY21 at this time. This decision is based of the current uncertain macroeconomic environment. However, the main driver of BlueScope outlook is the North Star expansion, which could increase profitability in future years, given costs remain in-line and steel prices do not collapse.
What is the market reaction to the FY20 result?
The market reaction to BlueScope’s FY20 result is positive (17 August 2020). BlueScope share price is up 2.3% and is currently trading at A$12.35. BlueScope is trading at a forward P/E ratio in the mid-teens and has an annual dividend yield of around 1.2%.
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