THE pressure on Arrium's steel division shows no signs of abating, with the group relying on iron ore exports and its mining product unit as it struggles with weak domestic steel demand.
At the same time, it has flagged further job cuts at its steel division as it works to lift efficiencies amid the tough headwinds of a strong currency and weak demand.
In the December half, Arrium lost $447 million, which was significantly worse than the $74 million loss posted a year earlier, as a result of $474 million of asset write-downs. Stripping this out, Arrium said it posted a net underlying profit of $51 million for the half. Revenue fell to $3.32 billion from $3.55 billion.
The heat is still on Arrium. Photo: Jim Rice
Despite solid cash flow, it cut the interim dividend to 2¢ a share from 3¢. Underlying earnings fell to 4¢ from 5.8¢ a share.
Earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $230 million from $196 million a year earlier, benefiting from a strong contribution from the mining products unit. At this level, the result was well ahead of some analyst expectations of an EBITDA profit of the order of $170 million.
Arrium managing director Geoff Plummer was downbeat on the prospects for a revival in domestic steel demand, while admitting the group had adapted to the strong Australian dollar.
The domestic market ''continues to be pretty weak'', he said, with residential sector demand still at cyclical lows.
''We are starting to adapt to [the strong dollar],'' he said, pointing to the fact that the steel division was now at cash break even and not far off earning a profit.
''I don't see a near-term upside in the domestic market. I think it will be tough for the balance of the financial year. We've got to gear the business for things to continue [to be] tough.''
''The result was a little ahead of expectations,'' one research analyst said. ''Steel was cash positive, which was notable given the high currency and soft demand.
''Earnings will be heavily skewed to the second half,'' he said, with iron ore the significant swing factor as it builds exports towards 12 million tonnes a year by midyear.
Lower iron ore prices had a $75 million to $85 million impact on net profit in the mining business, compared with the previous corresponding period, Mr Plummer said.
''While further volatility is possible, we anticipate iron ore prices for the balance of this financial year to continue to be above the average level for the first half,'' the company said in a statement.
Mr Plummer flagged further job cuts at the group's steel division as it struggles to stem red ink and improve operating efficiencies.
''We've taken [out] more than 2000 people over four years,'' Mr Plummer told analysts. ''We have to keep making [the steel division] sharper and more efficient … Labour reductions will continue.''
Arrium shares closed down 2.5¢ at $1.235.