The exit door has been swinging at Steel & Tube Holdings Ltd, and the departures now include property.
Interim chief executive Mark Malpass said in September the board had determined to test the property market, putting its East Tamaki distribution centre up for sale, and on Friday he said the company had accepted an unconditional offer.
“At the heart of any change is recognition that we are a company that provides steel solutions, not a commercial property company. A sale & leaseback would release capital, improving the efficiency of our balance sheet, while still reflecting the importance of the property through favourable lease terms,” Mr Malpass said in September.
On Friday he said the company had signed an unconditional agreement to sell its 68 Stonedon Drive property for $32.577 million on a sale & leaseback basis. The transaction will be completed on 20 December.
That followed a statement from new chair Susan Paterson at the annual meeting on Thursday, that the company believed it could use funds from the sale to generate a better return for shareholders: “Steel & Tube intends to apply the sale proceeds to repay debt and strengthen its balance sheet. This positions the company well for future growth.”
Mr Malpass said the sale didn’t change the earnings guidance the company gave on Thursday – half-year earnings before interest & tax (ebit)) down $9-10 million, but restored in the second for full-year ebit “materially the same” as for the year just gone, which was $31.1 million.
In the first half of the 2018 financial year the company has seen margin pressures from higher steel purchase prices, which the market took some time to pass on to customers. The company has increased selling prices across its portfolio of steel products from mid- November and expects margins to improve in the second half of the financial year.
Mr Malpass said recent changes to the senior executive team were also bringing a fresh focus and, together with the board, he was targeting a turnaround of poorly performing business units and efficiency gains through a change programme.
Ms Paterson told the annual meeting: “Our strategy is to maximise value for our shareholders by creating a sustainable, long-term, successful business. The capital investment made into acquisitions & the business in the past 5 years has created a strong platform for Steel & Tube. However, we are very aware that the company has been too slow to realise the significant benefits & value from these.
“Management & the board are focused on resetting the performance of the business and delivering a sustainable improvement in financial performance, and we expect Steel & Tube to be a significantly stronger business in 12-24 months.”
The board has identified 2 key goals – to provide superior value to customers and to simplify the business. Among guidance points:
- Half-year ebit is expected to be impacted by working capital review, reorganisation & restructuring activities, increased depreciation costs for a new ERP (enterprise resource planning) system and the slow response by the industry to margin pressures arising from increased costs of supply. Steel & Tube announced price changes to take effect from mid-November in response to market cost pressures
- The recent implementation of the new ERP system is a key enabler now available to the business and has helped assist management with a review of slow-moving inventory
- About half the expected decrease in half-year ebit is due to an anticipated writedown of inventory
- Excluding the one-off inventory valuation adjustment included in the half-year earnings guidance, full year EBIT for the 2018 financial year is expected to be materially the same as the 2017 financial year EBIT of $31.1 million, as the impacts from recent price changes and the benefits of change actions are realised.
The change programme, to enable the company to maximise the value of investments made over the last 5 years, includes:
- The realignment & simplification of Steel & Tube businesses into 2 streams (distribution & infrastructure), including the integration of acquired businesses
- Delivering sustainable earnings growth and leveraging the value from the recent capital expenditure programme, including the new ERP system
- Strengthening the company’s capital structure, including optimising the supply chain and review of the company’s property portfolio
- Reviewing working capital with a focus on surplus slow-moving inventory items; and
- A continuing focus on quality, health & safety and the environment.
Attribution: Company releases, annual meeting speechnotes.