BlueScope profits double after deal to cut jobs and freeze wages

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BlueScope doubled full year underlying profit to $293.1 million after the steelmaker cut costs, shed jobs and froze wages in market weakened by overproduction in China.

Sales were up 8% to $9.18 billion and the statutory net profit was up 160% to $353.8 million at a time when steel prices are at their lowest levels since BlueScope listed in 2002.

“Our direct interventions in reducing costs have significantly lifted performance of our steelmaking operations in Australia and New Zealand despite continuing global overcapacity,” says CEO Paul O’Malley.

In October last year, BlueScope announced what it called a “game changer” agreement with its employees to cut 500 jobs and freeze wages for three years.

The agreement is a significant part of the company’s $200 million cost cutting target. And it keeps the Port Kembla steelworks south of Sydney from shutting.

BlueScope also has a deal with the NSW government which will save it $60 million in payroll taxes.

O’Malley says BlueScope lifted underlying EBIT (earnings before interest and taxes) by 89% to $570.5 million through a combination of sales growth, cost cuts and the benefit of the North Star acquisition.

However, O’Malley says there’s no time to be complacent.

“We need to deliver returns necessary to support a decision in 10 to 15 years to reline the blast furnace at Port Kembla,” he says.

“What we have achieved in the last year is essential to being the competitive and profitable producer needed to support this future reinvestment opportunity. All stakeholders have a role to play in securing our steel making future.”

Net debt was $778.0 million, reduced by $595.4 million.

The company declared a fully franked full year dividend of 3 cents a share in line with the 2015 final dividend.

BlueScope sees underlying EBIT in the first half of 2017 to be around 50% higher than the $340.4 million of the second half of 2016.

The 2016 results in detail:

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