Steel & Tube Ltd went close to last year’s pretax & after-tax earnings in the year to June, but new chair Susan Paterson said a number of external & internal factors took the final result below the high expectations the company had set for itself.
Ms Paterson took over as chair from Sir John Anderson in January.
The company said on Friday its revenue was $511.4 million ($515.9 million in 2016), earnings before interest & tax (ebit) was $31.1 million ($30.5 million) and net profit after tax was $20.0 million ($25.8 million). It improved the bottom line with $35.7 million of revaluation (nil last year), minus $2.9 million of deferred tax.
After excluding the non-recurring gain of $6.3 million on the sale of property in 2016, this year’s ebit was up 2% and profit was up 3.1%.
Basic earnings/share were 22.4c (28.9c), diluted 22.3c (28.9c).
Chief executive Dave Taylor said the increased profit reflected positive contributions from $80 million of strategic acquisitions over the last 4 years and a continuing focus on margin management & cost efficiencies. Several of the group’s businesses delivered record or near record revenue & ebit results.
Mr Taylor said Steel & Tube had positioned itself to improve: “Along with the rollout of a new ERP system (business process management software) across the business, these initiatives enable a much improved customer offering, reduce costs within the business, improve health & safety and position the company to lift capability and better execute its strategy. Steel & Tube is now in a position where it can gain significant operational leverage from its investments.”
Steel & Tube continues to build on its successful One Company philosophy to add value to customers and create a modern and innovative company that leverages its unique capabilities, including an unrivalled product range and nationwide footprint.
An $80 million acquisition programme over the past four years has seen the stable of Steel & Tube businesses grow, and costs and working capital have increased in line with the company’s expansion. One Company synergies have yielded performance improvements to all parts of the business, noticeably the acquisitions. Cost management continues to be a focus and initiatives in FY17 are enabling some cost synergies to be realised, with further overhead cost savings expected in FY18.
He said the company had the next phase of facility upgrades underway. A purpose-built facility would open in Dunedin this year, and the optimisation of Christchurch facilities into distribution & processing hubs would open this financial year. The leaseback model was proving successful and an opportunity existed to further optimise Steel & Tube’s property footprint.
“The completion of the facility upgrades, and the ERP & other IT initiatives, will end a $32 million capital reinvigoration programme, which, along with the acquisitions, has been funded by operating cashflows & debt. The focus is now on strengthening the balance sheet, including capturing working capital benefits from the company’s significant scale & ERP investments.
“Steel & Tube remains New Zealand’s leading distributor & manufacturer of steel solutions. Our ‘one company’ approach has seen Steel & Tube modernise and become more efficient, with best-in-class acquisitions expanding our offer. Going forward, we will have an increasing focus on initiatives that leverage our unique capabilities and deliver better value to our customers through a more effective supply chain.”
Mr Taylor said Steel & Tube had 2 operating groups – infrastructure & distribution – that operate across 3 sectors: “The construction sector continues to be buoyant, however is intensely competitive, with limited resources in some areas leading to project delays impacting on subcontractors. The manufacturing sector remains resilient, with activity levels approaching pre-global financial crisis levels, and commodity prices continue to firm for the rural sector, leading to increasing payouts, improving confidence & renewed investment.
MSL and S&T Plastics both completed their first full year of contribution, following acquisition in 2016. MSL delivered record revenues & strong ebit.
After investment in S&T Plastics’ plant, it secured about $27 million of contracts, which are expected to run through the 2017 & early 2018 calendar years: “Teething issues with the manufacturing process resulted in higher scrap rates than expected, which reduced 2017 ebit by $2 million. These issues are being addressed and scrap rates are expected to reduce considerably over coming months.”
Steel & Tube completed its acquisition of Composite Floor Decks Ltd last October, and Mr Taylor said the business had performed in line with expectations, even though external project delays had pushed some activity into the new financial year.
Price increases following the uplift in raw material & finished steel prices, and supply chain efficiencies delivered a margin lift of almost 2%.
Mr Taylor said the construction industry remained highly competitive and reinforcing prices were at multi-year lows, reducing margins and impacting on the reinforcing business’s returns.
He said the company continued to work with the Commerce Commission to reach an appropriate resolution regarding the application of testing methodologies for seismic mesh and, as a leading industry participant, supported changes for a more robust regulatory framework: “The company is confident about the performance characteristics of its seismic mesh, and Steel & Tube stands behind its products. Following a group-wide review, quality resources have been strengthened and quality management processes have and continue to be enhanced.
The board has declared a fully imputed final dividend of 7c/share, taking full-year dividends to 16c/share.
Attribution: Company release.