• Operating Cash Flow: $81 million, with $34 million used to reduce debt.
• Revenue Decline: 13% decrease in the first half, due to 8% reduction in volume and 5% reduction in price achievement.
• EBITDA: Declined by 30% year-on-year.
• Gross Profit per Tonne: Fell by $89 year-on-year.
• Return on Capital Employed: Reported at 10.3% on a rolling 12-month basis, with a pre-IFRS16 basis at 15%.
• Debt Reduction: Reduced by $148 million, matching the debt-funded acquisition of aluminum for $149 million.
• Dividend Payout Policy: Adjusted to 40% to 80% of net profit after tax.
• Dividend Declared: $0.025 per share with 100% franking for Australian shareholders and 20% imputation credits for New Zealand shareholders.
• Number of Sites: 66 sites, with a slight reduction due to consolidation.
• Client Base: 22,500 clients, with top 20 clients representing around 9% of revenue.
• Geographic Revenue: Queensland and New Zealand combined represent roughly 60% of revenue; Victoria accounts for 11%.

• Warning! GuruFocus has detected 6 Warning Sign with ASX:VSL.

Release Date: February 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Vulcan Steel Ltd (ASX:VSL) reported a strong operating cash flow of $81 million, with $34 million used to reduce debt.
• The company successfully integrated its aluminum business, expanding its product range and geographic reach.
• Vulcan Steel Ltd (ASX:VSL) maintained a high level of customer service, resulting in a steady number of active trading accounts despite challenging market conditions.
• The company has reduced its debt by $148 million, aligning with its acquisition costs for the aluminum business.
• Vulcan Steel Ltd (ASX:VSL) has implemented 13 hybrid sites, enhancing operational efficiency and customer service capabilities.

Negative Points

• The company experienced a 13% decline in revenue due to an 8% reduction in volume and a 5% reduction in price achievement.
• EBITDA declined by 30% year-on-year, reflecting weaker market conditions.
• The New Zealand market faced significant economic challenges, with weak demand impacting performance.
• Victoria, representing 11% of revenue, is experiencing high costs and a lack of business confidence, affecting growth prospects.
• Inflationary pressures and high interest rates continue to impact operating costs and market conditions.

Q & A Highlights

Q: Rhys, regarding New Zealand pre-sales activity, how long does it typically take for these to come through, and what does the recovery look like? A: We've seen specific examples where large orders are placed, indicating a recovery starting from March. It's patchy but real, with some clients having orders for six to eight months. However, smaller clients in Auckland and Christchurch are still affected by high interest rates.

Q: What is your view on the pace of recovery, considering the current lean operations across the industry? A: The improvement will be progressive rather than rapid. In Queensland, for example, the change in government and upcoming Olympics are positive factors. Conversations about necessary projects are starting, indicating a positive outlook.

Q: How should we think about EBITDA in light of growth initiatives and fewer trading days? A: Starting with the first half numbers, the average revenue per day is about $4 million. With 10 fewer working days, there's a $40 million headwind to make up. Applying the gross margin to this should help bridge the differences between the first and second half.

Q: Are you seeing any improvement in recent trading weeks post-December? A: Yes, we've called a turning point with definite signs of improvement. Investment surveys and activity surveys are improving, particularly in Queensland and New Zealand. However, Victoria remains a concern with no immediate improvement expected.

Q: How do you view the steel gross profit per tonne decline and the metals gross profit strength for the second half? A: Aluminum, part of our metals division, is seeing margin improvements due to self-help initiatives and the eradication of subsidized exports from China. We expect sustainable improved margins in metals, while steel margins are challenged by market behavior.

Q: Why did you adjust the dividend payout policy, and is it related to debt covenants? A: The adjustment is for long-term positioning. Despite bank support, our earnings have decreased, naturally lowering the payout. We're managing to customer service levels rather than a specific debt number.

Q: How is this start to the second half different from previous false starts in recovery expectations? A: The volumes in New Zealand were unsustainably low, and now we're seeing genuine green shoots with large clients resuming significant orders. This isn't a false dawn; there's a more positive sentiment across our client base.

Q: Can you provide more color on the competitive environment and any changes in behavior? A: Some competitors have raised prices, and profitability challenges are evident. While some companies are dropping stock at low prices, we maintain core disciplines. Difficult environments often lead to service impacts, which we aim to avoid.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.