Stemcor delivers strong turnaround in H1 2010
Financial highlights
- Turnover increased from £1,862m to £2,435m
- Tonnage invoiced increased from 5.5m tonnes to 7.9m tonnes
- Operating profit of £61m compared with a loss of £17m in H1 2009
- Pre-tax profit of £50m compared with a loss of £35m in H1 2009
Operational highlights
- All business activities performed strongly
- Continental European operations contributed more than a quarter of the profit for the period
- Raw Materials invoiced tonnage increased by 93% over the same period last year
- Emerging markets accounted for 80% of trading volumes
- In India, iron ore mine increased operating profits and pellet plant now 95% complete
- $562m revolving credit facility renewed (up from $400m in 2009 and 37.5% oversubscribed)
- Firm order book for H2 2010 despite current softening in demand for steel
Chairman's Statement
Twelve months ago I reported poor results for the six month period covering the first half of 2009. This year I am pleased to announce record results for the first six months of 2010. The turnaround has been dramatic, a profit before tax of £50 million compared to a loss of £35 million a year ago. This was also a strong improvement on the profit of £18 million achieved in the second half of 2009.
World economies improved in the first quarter of 2010 and there was a marked recovery in the steel industry. This meant increased demand for all the products that Stemcor trades and we increased tonnage invoiced by 44% year-on-year. As steel prices rose, we were able to dispose of stocks at prices above the net realisable values assumed in our provisioning. This effect was particularly marked in our Continental European distribution operations, which we reorganized last year and which bounced back to contribute more than a quarter of our profit for the period. We are once more firing on all cylinders, with continuing good results from our operations in the UK and outside Europe.
Our profit before tax as a percentage of turnover increased from the historical average of 1% to 2%. This is a reflection in part of the growth in our mining and steel stockholding interests and the higher margins achievable in those activities. Our steel stockholding interests had a satisfactory half year. Our mining interests in India made a substantial contribution to profits and in addition we recorded further income from the disposal of residual interests arising from the sale of the Savage River mine in Australia. Once the monsoon is over, we expect to complete the construction of our pellet plant in Orissa. This is now some 95% complete, still within budget and we hope to commence production before the end of the year.
The upward movement in steel and commodity prices stalled in June and economic prospects look somewhat questionable at present. However, recovery from what many have described as the worst recession since the 1930s will inevitably take a few years. 2010 is certainly a better year for the world economy and for the steel sector than 2009 and I expect 2011 to be better than 2010. Although demand in developed markets remains below the level experienced before the recession, emerging markets continue to show strong growth. Around 80% of our trading by volume is in these emerging markets.
We always aim to be conservative, with a prudently structured balance sheet, strong liquidity, low gearing and a cautious approach to risk. The lessons we have learnt from the extraordinary market conditions of 2008 have been put into practice with the adoption of tighter risk management procedures. Our stock positions are appropriate to the current market. Our forward sales order book for the second half is firmer than it was at the beginning of the year. We are well placed to face the uncertainties of the economic environment and I expect a strong second half, even if it may not fully match the first half.
We have not paid a dividend for two years because of the financial crisis, but the improvement in our results now allows us to resume dividend payments and we will shortly be paying 25p a share as an interim dividend for 2010. My thanks to our shareholders for their patience. Our staff have worked tirelessly and imaginatively to make these good results possible and I thank them all for their hard work. Without becoming complacent, we can take pride in the turnaround achieved and I look forward to the future with confidence.
Ralph Oppenheimer
9th August 2010
Click here for the corresponding consolidated profit and loss account and consolidated balance sheet.