|
AltX-listed steel group BSI (SA) has posted interim results for the six months to 30 September 2008 with revenues increasing by 79%. Joint CEO William Battershill says this increase takes group turnover across the billion rand threshold for an interim period, to R1,14 billion, and is mainly due to increased volumes and higher international steel prices driving up local prices. For the nine month period from January to September 2008, BSI’s South African based operations, excluding exports, achieved a 39% comparative period increase in tonnage attributable to organic growth and the introduction of new products – in contrast the South African Iron & Steel Institute (SAISI) reported a 10,2% increase in volumes. BSI increased its margins significantly during the interim reporting period, from 16,6% comparative to 24,6%. “We managed to achieve this on the rising up-cycle experienced in late 2007 and into 2008 through increasing our steel stockholding by 106%. However, we do expect margins to come off in the second interim period but we will still trade profitably at these levels,” says Battershill. Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 170% to R183,8m (2007: R68m) and attributable earnings for the six months were up 223% to R127,5 million. Effective management of working capital has allowed interest paid to reduce from R12,7 million to R11,8 million even in the cycle of large growth. Both earnings per share and headline earnings per share increased by 177% from the comparative period to 17,7 cents. The BSI group of companies operates in the steel and associated industries with strategically located operations in South Africa, Democratic Republic of the Congo (DRC) and Zambia to service the Southern African markets. BSI markets through three distinct channels, being stockists, bulk sales and exports; all supported by the company’s steel processing operations. Battershill says operating costs have been closely managed during this reporting period. “Fixed overheads as a percentage of sales have dropped significantly while the variable costs, which include transport and commissions, have increased in line with turnover. But in the light of more recent weaker steel pricing and demand, cost control and expense containment will be a core focus for the second half of the financial year.” The group secured long term financing facilities for its infrastructure expansion, including R33 million towards the Gauteng Klipriver processing and distribution depot project, scheduled for a phased-in occupation from December to March and which will offer significantly improved efficiencies, service levels and capacity. The group has been compelled to react quickly and appropriately to the recent unprecedented drop in steel prices and the accompanying decline in demand as consumers and stockists have been reluctant to place orders in anticipation of further price declines. Battershill highlights that close to the interim reporting date and thereafter, the abnormally high steel price has begun to subside, after a sharp fall of up to 50%, with local pricing following the international trend. “In response to this and to align BSI with a deflationary steel environment the group has been de-stocking to minimize the downside. This has resulted in the September trade payables being low at R199 million while the trade receivables remains relatively high at R456 million.” “SA prices have not dropped as dramatically as world prices because of the deteriorating Rand. But nevertheless local prices have dropped approximately R 2 500/ton for the fourth quarter of the year, equating to a 25% decrease from September price levels. We do not anticipate further steel price decreases into 2009 based on current international pricing trends (which are being stabilized by worldwide mill production cuts of up to 35%) and the weak Rand, but if the world slips into recession, prices could fall even further.” In response to market developments and a tough trading outlook, at least until January 2009, Battershill says the group has quickly and significantly reduced its inventory levels, which now sit at below the industry average. “And with the expectation that local industry inventory levels will be at all time lows by February/March, we should be presented with some positive trading opportunities. The commodity down cycle may detract from our exports to certain mining regions but volumes will be supported by ongoing demand from existing mines and projects currently under construction.” Battershill says the first half of 2009 should see local demand coming off but infrastructural projects should provide some relief. Third and fourth quarter demand should increase and will probably exceed the comparative levels for 2008. The group will also be considering some complementary acquisitions and would look to the smaller competitors battling in present conditions, which may be persuaded to sell at levels that would prove attractive to BSI. It continues with both its share repurchase programme and in seeking out an appropriate BBBEE shareholder and is scheduled for a BBBEE audit for January 2009. From 1 December, the group is changing its name from BSI (SA) to BSI Steel.
|
