BlueScope Steel shares have been sold down heavily despite a turnaround in the steelmaker's performance as investors took fright at a flat outlook and queried an expansion of its local steel market exposure.
BlueScope shares fell 14 per cent to close at $4.70, down 77 cents, on heavy volumes after the company reported a net loss of $84 million for 2012/13 - recovering from a $1.04 billion loss a year earlier.
BlueScope chief executive officer Paul O'Malley said the result showed the company had turned around, but warned that challenges remained, with a poor outlook for the domestic market and benefits of a lower Australian dollar not flowing until the second half of 2013/14.
No dividend was paid, making it two years since shareholders received a return.
BlueScope announced that, subject to regulatory approval, it would buy Orrcon, a steel pipe and tube business, and Fielders, a building products business, from Hills Holdings for $87.5 million.
Mr O'Malley said the businesses would complement BlueScope's existing Australian operations and would contribute to earnings from 2015, after $15 million in integration expenses.
He indicated that some job losses might occur.
Mr O'Malley also said further small acquisitions were possible if they helped build a "robust" footprint and allowed better competition with cheap imports.
"I think there is an opportunity now for significant restructuring to occur in the Australian industry," he said.
Hills shares rallied 14.5 cents, or 11.2 per cent, to $1.435 on the deal, with Hills CEO Ted Pretty citing it as a major step in Hills' ongoing restructure.
Mr O'Malley ranked the sluggish Australian economy and slowing in the key Chinese east coast markets as his greatest concerns.
However, he said he expected the lower Australian dollar and a boost in consumer confidence to start helping the local construction market after the federal election.
"I think once the election is behind us, there will be a bounce back of confidence but I think that's going to be much more obvious in the second half," he said.
BlueScope recorded growth in its Asian and North American coated steel operations and its North American hot rolled coil plant.
The BlueScope boss pointed out that about six staff would be hired at a Victorian plant in 2014 to meet expected rising demand from residential building, calling it "the one green shoot" in Australia's struggling steelmaking industry.
Morningstar analyst Mathew Hodge said there was "probably some frustration" among investors with how long BlueScope's turnaround was taking and queried the acquisition strategy.
"They had to work really hard to get the balance sheet back in order," he said.
"Then to be turning around and starting to spend that on acquisitions, to me it seems like a pretty high-risk move."
Mr Hodge said the main challenge for BlueScope remains global competition, as Chinese steel makers are likely to move into the higher value-added products category at some point in the future.
BlueScope's revenue was 15 per cent lower at $7.3 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) were $367.3 million.
Net debt was cut by more than $400 million to $148 million.
