Profit Plunge at Vulcan Steel Highlights Risks in Australia’s Steel Market
Vulcan Steel’s 1H FY25 results reveal a steep decline in profitability amid tough economic conditions, yet the company signals cautious optimism for a market rebound in 2025.
- EBITDA down 30.5% to NZ$56.9 million in 1H FY25
- Net profit after tax plunges 64.8% to NZ$9.2 million
- Operating cash flow decreases 23.4% to NZ$80.7 million
- Interim dividend declared at 2.5 NZ cents per share, fully franked
- Outlook points to gradual recovery in New Zealand and steady metals demand in Australia
Financial Performance Under Pressure
Vulcan Steel Limited (ASX: VSL) has reported a challenging first half for the 2025 financial year, with earnings sharply down across key metrics. EBITDA fell 30.5% to NZ$56.9 million, while net profit after tax (NPAT) plunged 64.8% to NZ$9.2 million compared to the same period last year. Operating cash flow also contracted by 23.4%, reflecting the subdued trading environment.
These results underscore the difficult economic backdrop facing Vulcan’s core markets. New Zealand remains in recession, and Australia’s growth continues to lag, with restrictive interest rates and weaker demand impacting customer activity, particularly in the Steel division.
Strategic Resilience and Debt Reduction
Despite the downturn, Vulcan achieved a 10% return on capital employed, a testament to operational discipline amid adversity. The company also reduced net bank debt by NZ$34.3 million to NZ$241.5 million, driven by lower working capital requirements and positive cash flow generation. This deleveraging provides some financial flexibility as Vulcan navigates ongoing market headwinds.
Vulcan’s Managing Director and CEO, Rhys Jones, highlighted the company’s commitment to continuous improvement and customer service, noting the rollout of five new hybrid sites in Australia during the half. These sites, which blend distribution and processing capabilities, are expected to enhance customer offerings and contribute to improved financial outcomes over time.
Dividend and Shareholder Returns
In light of the results, Vulcan declared an interim dividend of 2.5 NZ cents per share, fully franked and with 20% imputation credits. This represents a significant cut from the prior period’s 12 cents per share, reflecting the company’s cautious stance amid uncertain conditions but maintaining a commitment to returning value to shareholders.
Outlook: Signs of Stabilisation and Recovery
Looking ahead, Vulcan anticipates a gradual recovery in market volumes, particularly in New Zealand, where recent interest rate cuts have begun to restore business confidence. The company expects trading volumes to improve in the second or third quarter of the 2025 calendar year, supported by positive pre-sales activity and independent business surveys.
In Australia, the Metals segment is forecast to remain steady, bolstered by the commissioning of additional hybrid sites. However, the Steel segment is likely to continue facing challenges, especially in Victoria, due to persistent economic softness and market disruptions.
Vulcan’s strategic investments in hybrid sites and its focus on operational efficiency position it to capitalize on an eventual market upswing, though the timing and pace of recovery remain uncertain.
Bottom Line?
Vulcan’s steep profit decline signals tough times, but strategic moves and early recovery signs warrant close investor attention.
Questions in the middle?
- How quickly will New Zealand’s easing interest rates translate into sustained volume growth for Vulcan?
- Can Vulcan’s hybrid site expansion materially offset ongoing weakness in the Steel segment?
- What risks remain if Australian economic conditions deteriorate further, especially in Victoria?
