On first blush, the Arrium results look positive; underlying net profit of $51 million was well ahead of the five brokers covering the result with the medium price forecast coming at $25.3 million. The well-flagged $474 million goodwill impairment has taken a chunk out of this headline figure, taking the statuary net loss to $447 million compared to the $67.2 million net loss in the corresponding period, but the beat on the underlying NPAT cannot be ignored.
We note the strong earnings from the mining consumables business, with EBTDA coming in at $100 million, which is 23% higher on the corresponding half and up to 93% on expectations. This does give the thumbs up to ARI’s decision to appoint Andrew Roberts as the new CEO. Mr Roberts’ performance speaks for itself – as CEO of Arrium Mining Consumables he led the acquisition and integration of Moly-Cop as well as expanding the consumables business in Asia, Australia and The Americas. Today’s EBITDA result just highlights his management skills. He will bring new ideas to the strategic direction of the company. The restructuring and asset impairments will also provide Mr Roberts with clear air to move the company back to profit.
With management expecting the Southern Iron operation to ramp up in the second half of this year, ARI is also poised to take advantage of the higher iron ore price and we expect this operation to add an extra $110+ million NPAT line. Management’s other task will be the stabilisation of losses from manufacturing, recycling and distribution. On the whole, with ARI coming from a low base, the market should see this result as a net positive.