Archive | Steel & Tube

The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On Wednesday, the day of the announcement, the price rose another 22c, and 3c more yesterday to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Both companies have been in serious trouble in the last 2 years, Fletcher Building in its construction division, and especially big-project vertical construction, Steel & Tube turning into a very poorly performing supplier, forecasting a heavy loss in May but clearing its books in August.

Fletcher Building priced its offer at $1.70, a cheeky undervaluation for an entity heading north under its own steam, although Fletcher chief executive Ross Taylor said that – somehow, by being bought out of an enterprise at the start of its journey on a stronger future – the offer was compelling and had the ability to deliver significant value to Steel & Tube shareholders.

That, to me, is arrant nonsense, which is not to say that a large number of Steel & Tube shareholders won’t take today’s money rather than wait for the company to grow on its own account.

Non-binding and Fletcher still wants confidentiality

Fletcher Building proposed acquiring all of Steel & Tube’s shares through a scheme of arrangement. The offer, which Fletcher delivered on 10 September, was non-binding, indicative & confidential. Steel & Tube responded publicly on Wednesday after seeking legal & commercial advice, saying it didn’t support the offer.

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson commented: “The fact that Fletchers has made this indicative offer speaks to our reputation & the strength of our business. Obviously Fletchers sees a lot of value in our business & its future potential as the benefits of our turn-around strategy start to become clear… as do we.”

She said $1.70 “significantly undervalues” Steel & Tube, then turned to practicalities if Fletcher pursued its approach: “The proposed acquisition would need clearance under the Commerce Act, which would take some time to work through due to Fletcher’s vertical presence & significant size in several steel product markets.”

She added: “While the market remains highly competitive, Steel & Tube continues to win new customers, sign large contracts, increase efficiencies & reduce costs.”

Fletcher focuses on short-term comparisons

Fletcher Building concentrated on the short-term comparisons, which showed 35-38% premiums over most recent trading.

Looking further back, Fletcher Building said: “A price of $1.70/share implies a transaction multiple of 12.3x Steel & Tube’s ebit (earnings before interest & tax) guidance for the 2019 financial year. Fletcher Building believes this implied transaction multiple represents compelling value for Steel & Tube shareholders given it is materially above the average trading EV/EBIT multiple over the last 5 years of 9.2x.”

Offer process will continue

Fletcher Building chief executive Ross Taylor.

Fletcher Building chief executive Ross Taylor, who took charge of the company last November, said Fletcher Building preferred to work constructively with Steel & Tube’s board to progress its proposal, and had been in discussions with Steel & Tube & a number of its major shareholders over the last 3 weeks.

“Through this process shareholders, who collectively own more than 20% of all Steel & Tube shares on issue, confirmed their position that the board of Steel & Tube should, in good faith, progress the development of the proposal with Fletcher Building, with a view to it being put to Steel & Tube shareholders.

“Given the strong shareholder support to date, Fletcher Building intends to continue discussions with Steel & Tube shareholders & board, with a view to reaching an acceptable outcome in the immediate future.”

He said the acquisition “is consistent with Fletcher Building’s 5-year strategy announced in June, and fits firmly within its focus on the New Zealand & Australian building products & distribution sectors.

“An acquisition of Steel & Tube is a unique opportunity to create the leading steel distribution business in the New Zealand market. We believe that there is a significant ability to leverage our business model & people across the combined business for the benefit of our customers, employees & shareholders.

“In particular, we believe customers would benefit from an improved service offering & distribution network, broader product range and investment in innovation. We consider there to be potential value creation over time as benefits of the combined operation are realised, providing us with the confidence to present an attractive proposal to Steel & Tube.”

“We believe this is a compelling proposal for Steel & Tube shareholders, representing a significant premium to recent share price trading and broker valuations. If successful, the proposed transaction has the ability to deliver significant value to Steel & Tube shareholders and materially de-risk the turnaround plan that Steel & Tube management are beginning to embark on,” says Mr Taylor.

The proposed transaction would require clearance from the Commerce Commission. Fletcher Building has undertaken a significant amount of work with its economic and legal advisers on combining Fletcher Steel and Steel & Tube.

Fletcher raises nationalism & ‘still competition’ flags

In an argument likely to be needed to convince the Commerce Commission, Mr Taylor said: “Fletcher Building believes that the New Zealand steel industry would remain highly competitive if it acquired Steel & Tube, with a number of well established competitors remaining, in addition to a growing number of offshore suppliers selling directly into the market.

“This work has given Fletcher Building confidence that the transaction would receive the necessary clearance from the Commerce Commission. Approval from the Overseas Investment Office will also be necessary.”

Mr Taylor said – without acknowledging the sharp lift in share price 4 days before Steel & Tube revealed the approach – “discussions with Steel & Tube in relation to the proposal are intended to be progressed confidentially until an agreement can be reached. Until that point, the proposal remains incomplete & is non-binding, and therefore may not result in a transaction occurring. The proposal is not a takeover notice for the purposes of the Takeovers Code. The company will update the market with any material developments as appropriate.”

Earlier Fletcher stories:
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million

Earlier Steel & Tube stories:
24 January 2018: Steel & Tube reaffirms guidance based on long list of new positives
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Fletcher and Steel & Tube releases.

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Steel & Tube reaffirms guidance based on long list of new positives

Steel & Tube Holdings Ltd reaffirmed its 2019 financial year guidance of $25 million ebit (earnings before interest & tax) today, citing positive progress under its “Striving for excellence” strategy.

In the June 2018 year, Steel & Tube made a $36.2 million loss before interest & tax, a $67.8 million turnaround from the 2017 profit of $31.6 million.

Susan Paterson.

Susan Paterson, who took over as chair from Sir John Anderson in January 2017, listed the major supply contract for the Westfield Newmarket construction project – and 7 ways the company has sharpened its performance – for her confidence in an improved result.

“The company has a clear focus on growth & improving financial performance as it positions itself as New Zealand’s leading supplier of steel products. While the market remains highly competitive, Steel & Tube continues to win new customers, sign large contracts, increase efficiencies & reduce costs.”

Ms Paterson’s list of positives:

  • Improved service levels & delivery performance across the business, with sales remaining on a positive trajectory
    • Underway with a significant contract to supply steel to the Westfield Newmarket project, the largest commercial construction project in Australasia; supply had begun to the Puhoi-Warkworth motorway project & an unidentified lower North Island infrastructure project
    • Established a more efficient & cost-effective freight & supply chain, including integration & consolidation of existing facilities, exiting third party warehousing arrangements and rationalising & retendering freight runs
    • The manufacturing excellence programme is delivering increasing machine efficiency & reduced overtime in many locations
    • Renewed commitment to the customer, with comprehensive sales training programmes across the group, the launch of a refreshed website and the launch of BIM-Spec, an innovation to make it easier for construction & design professionals to connect with Steel & Tube’s products
    • Reviewed product ranges with the customer in mind, added new products, such as the SR flooring platform for Comflor, which was already proving very popular
    • Investment in the new ERP IT system is delivering benefits and has set the platform for further customer-focused solutions
    • Enhanced quality systems further, including recent ISO 9001:2015 certification, and the company has partnered with Lloyd’s Register to complete annual independent audits across its international steel supply mills.

Ms Paterson commented: “The company now has a solid foundation from which to build Steel & Tube, and the financial flexibility to implement our business transformation initiatives, achieve longer-term strategic objectives and create long-term value for shareholders. The board remains confident in the improving performance of the company under its significantly advanced turn-around strategy.”
She said the company would give a further update on progress at the annual meeting on 25 October.

Earlier stories:
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Steel & Tube bookbuild scaled

Published 7 September 2018
Steel & Tube Holdings Ltd said yesterday it had to scale the shortfall bookbuild component of its $80.9 million capital raise announced on 7 August, after getting strong support from both existing shareholders & new investors.

After a turbulent period for the business, including a $32 million annual loss after writing off inventory & impairments, Steel & Tube chair Susan Paterson said: “We are pleased with the confidence shown in our future direction by our existing & new investors. Steel & Tube shares have good coverage from the broking community and our more diversified register should increase analyst coverage and improve liquidity.

“We are confident that the capital raise, combined with the new mix of institutional investors, will result in improvements in value for long-term shareholders who have supported the company. The funds raised significantly reduce our debt and ensure that the company has the financial flexibility to pursue its business transformation initiatives.”

The clearing price under the shortfall bookbuild was the maximum price of $1.23/share, a premium of 18c/share over the application price of $1.05 under the offer. Eligible shareholders who didn’t take up their full entitlements, and those ineligible to participate in the rights offer, will receive 18c for ever new share they didn’t take up. Shareholders took up 70.7% of the new shares for a total $42.3 million.

Previous story:
30 August 2018: Steel & Tube completes books-clearing, future already brighter

Attribution: Company releases.

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Steel & Tube completes books-clearing, future already brighter

Published 30 August 2018

Improved trading in the last 3 months of the financial year to June lifted Steel & Tube Holdings Ltd’s earnings slightly above guidance issued in May. The result was unchanged from guidance issued 3 weeks ago (see the story links below), but the company’s outlook has already brightened.

In May, Steel & Tube Holdings Ltd said it expected to lose $38 million before interest & tax, a $70 million turnaround from the 2017 profit of $31.6 million. The eventual outcome was a $36.2 million loss.

The company said it was seeing early benefits from its Project Strive business transformation initiatives, as the positive sales trajectory in the June quarter had continued into the first quarter of the 2019 financial year.

Key points of the year’s results announced yesterday:

Revenue, down 3% to $495.8 million ($511.4 million)
Earnings before interest & tax (ebit), down 215% to a $36.2 million loss ($31.6 million profit)
Normalised ebit, down 47% to $16.5 million ($31.2 million)
Net profit/loss after tax, down 260% to a $32.0 million loss ($20.0 million profit)
Normalised net profit after tax, down 60% to $7.8 million ($19.7 million)
Net debt:net debt + equity, 37.7% (37.4%); the company has set a new target range of 30-35%
Net debt:ebitda, 4.6 times (3.3); new target to stay below 2.0x; after its $80.9 million capital-raising, the company expects to operate within the 2 debt targets
Basic earnings/share, 35.8c loss (22.4c earnings); diluted, 35.8c loss (22.3c earnings)
Final dividend, nil (7c/share), total for year 7c (19c)

Balance sheet:

Working capital, down 9.2% to $165.4 million ($182.2 million)
Total assets, down 16.3% to $345.5 million ($412.7 million)
Total liabilities, down 13.8% to $172.9 million ($200.6 million)
Shareholders’ equity, down 18.6% to $172.6 million ($212.1 million)

Steel & Tube wrote $53.8 million off its books in the May revelation of the state of the business:

  • $24 million inventory writedown – aged inventory value adjustments of $15.3 million, stocktake writeoffs of $8.7 million
  • Exit from S&T plastics and associated impairment $10.9 million
  • Impairment of intangible assets & ERP (enterprise resource planning) system $12.1 million
  • Rationalisation of Distribution & Reinforcing $2.7 million
  • Organisational restructuring $3.3 million
  • Other, $800,000

Earlier stories:
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
24 June, 2 July 2018: Updated: Steel & Tube agrees second sale & leaseback
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance

Published 7 August 2018, updated 8 August 2018:
Update: The placement was completed overnight, with the full $20.8 million raised.

Steel & Tube Holdings Ltd announced 2 capital issues on Tuesday to raise $80.9 million, and produced slightly more positive guidance on its financial results for the year that ended on 30 June.

Chief executive Mark Malpass said the company was recapitalising its balance sheet to allow it to execute its business transformation initiatives and achieve its longer-term strategic objectives.

The placement is intended to raise $20.8 million at $1.15/share. It will be followed by a fully underwritten pro rata 1:1.9 rights offer at $1.05/share.

This represents a 28.1% discount to the closing price on the NZX on Monday, and an 18.3% discount to the theoretical ex-rights price of $1.28/share, after the placement & rights offer, based on the pre-announcement close of $1.46.

In year-end guidance based on unaudited management accounts, the company said it had reduced its ebit (earnings before interest & tax) loss projection from $38 million to $36.2 million and expected normalised ebit of $16.5 million, compared to $16 million announced in the 23 May guidance statement.

Guidance for 2019 is for ebit of $25 million, rising to $35-40 million in the next 3 years.

Company chair Susan Paterson said: “We remain deeply committed to rebuilding Steel & Tube as a leading provider of steel products & solutions in New Zealand. We have worked hard to address legacy issues, and early benefits from Project Strive business transformation initiatives are now being seen.

“The capital raised will be used to repay debt, strengthening our balance sheet and giving us greater flexibility to execute our strategy and deliver better value for our shareholders. In addition, we expect the capital-raising to strengthen Steel & Tube’s share register and help create liquidity which will benefit all shareholders.”

She said the capital-raising would significantly reduce Steel & Tube’s gearing, and the company was resetting its capital structure policy to operate with net debt of less than 2.0 times normalised ebitda (earnings before interest, tax, depreciation & amortisation).

While Steel & Tube won’t pay a final dividend for the 2018 financial year, Ms Paterson said the company expected to resume dividend payments in 2019, consistent with its stated policy of paying 60-80% of normalised net profit after tax.

The capital-raising

Steel & Tube shares went into a trading halt today for the placement, expected to be completed in the morning.

The rights offer will open on Friday 17 August and close on Monday 3 September. There will be a bookbuild for any shortfall on Wednesday 5 September.

Steel & Tube is one of New Zealand’s largest providers of steel products & solutions. Its 2 business divisions, distribution & infrastructure, – operate in the construction, manufacturing & rural sectors.

Link:
Steel & Tube presentations

Earlier stories:
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
24 June, 2 July 2018: Updated: Steel & Tube agrees second sale & leaseback
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Lawyer says interest in class action grows as steel mesh sentence awaited

Class action specialist, Auckland lawyer Adina Thorn, said yesterday Steel & Tube Holdings Ltd’s 24 guilty pleas last November relating to false & misleading representations about steel mesh had boosted interest in a proposed class action.

Steel & Tube pleaded guilty in November to 24 of 29 charges laid by the Commerce Commission relating to false & misleading representations concerning 500E earthquake-grade steel mesh. A sentencing hearing was held in the Auckland District Court in May but no sentence has been handed down yet.

Ms Thorn said: “This has led to further owners from across New Zealand signing up for a proposed steel mesh class action against Steel & Tube.

“Our registrations of interest are currently running at a high level and we expect that the sentencing itself will encourage more owners to join the proposed class action against Steel & Tube.

“The proposed action is funded, which means that while funding is in place owners will face no out-of-pocket costs, as all the legal, technical & court costs involved in a claim of this scale will be picked up by the funder in return for them receiving a share of any proceeds of success.”

Ms Thorn said the proposed class action was designed to deliver compensation for the stress & uncertainty for property owners who had ended up with non-compliant steel mesh in their homes & driveways: “The mesh is there forever. Everyone wants to know their home is compliant. Steel & Tube cannot give that assurance – we know the mesh is non-compliant. What we don’t know enough about is performance of that non-complaint mesh in an earthquake. That uncertainty is stressful & unacceptable. We are seeking for owners to be compensated for that.

“This mesh was sold between about March 2012 & April 2016 and much of it was used in the rebuilding of Canterbury following the earthquakes there. However, the mesh people were buying was supposed to be earthquake-grade, when it wasn’t.”

Link: Steel class action

Earlier stories:
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Thorn release.

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Steel & Tube gets waiver, settles Christchurch sale

Steel & Tube Holdings Ltd said today it had obtained a waiver from its banking partners for the covenant breach arising as a consequence of the signalled non-trading writedowns & impairments on its 2018 financial year earnings.

Chief financial officer Greg Smith said formal documentation on terms satisfactory to the company were in place.

He also said the company’s $21.1 million sale of 375 Blenheim Rd, Christchurch, had settled last Friday, 29 June, as expected, and the net proceeds applied to the repayment of bank borrowings.

Steel & Tube will lease the property back long-term, under terms which Mr Smith said were favourable.

Earlier stories:
24 June, 2 July 2018: Updated: Steel & Tube agrees second sale & leaseback
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback

Attribution: Company release.

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Updated: Steel & Tube agrees second sale & leaseback

Published 24 June 2018, updated 2 July 2018:
Update: The company’s sale below was settled on Friday, 29 June.

Steel & Tube Holdings Ltd has signed an unconditional agreement to sell its property at 375 Blenheim Rd, Christchurch, for $21.1 million on a sale & leaseback basis. It expects to complete the transaction next Friday – one day before the end of its financial year.

Late last year, Steel & Tube sold an East Tamaki property, 68 Stonedon Drive, for $32.577 million in its first sale & leaseback deal.

Chief executive Mark Malpass said on Friday: “This arrangement allows us to retain our successful operations in the newly upgraded Blenheim Rd distribution hub under favourable lease terms, while freeing up capital to pay down debt.”

He said the company’s established operations, long-term plans & recent investment into the property made it an attractive acquisition which attracted interest from multiple parties.

He expected the company would recognise a $1.3 million gain on sale this financial year, which ends next Saturday.

Steel & Tube’s earnings guidance on 23 May didn’t include any gain on sale.

The company said in that May announcement it expected to lose $38 million before interest & tax this financial year.

As a result of writedowns & impairments, it also expected its 2018 forecast earnings to result in a breach of one or more covenants in its senior debt facilities. The company said in May management was seeking a waiver from its banking partners for any covenant breach.

The company will release its annual results on 31 August.

Earlier stories:
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes

Attribution: Company release.

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Review puts Steel & Tube ebit loss at $38 million

Steel & Tube Holdings Ltd expects to lose $38 million before interest & tax in the financial year ending next month.

As a result of writedowns & impairments, the company expects its 2018 forecast earnings to result in a breach of one or more covenants in its senior debt facilities. The company said management was seeking a waiver from its banking partners for any covenant breach.

The company released this earnings guidance this morning after a 24-hour share trading halt. It will release the actual annual results on 31 August.

In its release today, Steel & Tube said it expected normalised ebit (earnings before interest & tax) of about $16 million, but non-trading costs & impairments of up to $54 million would take it to the $38 million loss.

In its guidance last November for the half-year to December, Steel & Tube said ebit would be $9-10 million lower than in the previous half-year, impacted by working capital review, reorganisation & restructuring activities and increased depreciation & amortisation costs.

After non-trading costs of $8.1 million, the half-year ebit came in at $6.7 million. However, in last November’s review the company said it expected full-year ebit to 30 June would be “materially the same as the 2017 financial year ebit of $31.1 million”.

Today’s release from the company said the revised guidance followed an extensive company-wide review of the business by the refreshed board & management team in conjunction with the previously announced change programme.

“The review has resulted in the planned exit from, and associated impairment of, S&T’s plastics business; a further writedown of inventory values; a likely impairment of intangible assets; rationalisation of distribution & reinforcing operations; and completion of further organisational restructuring.

“In addition, as previously advised, the company has been significantly impacted by issues relating to the implementation of its new ERP system [enterprise resource planning system, which went live on 2 October 2017].”

While the trading environment remained highly competitive, the company said its board was “confident that the change programme & restructuring undertaken will drive sustainable improvements in earnings and deliver benefits from the 2019 financial year [starting 1 July 2018] onwards”.

The resource planning system represented two-thirds of the year’s change in normalised ebit.

Steel & Tube chair Susan Paterson said at the end of the release: “As noted at the half-year, we have initiated a change programme and are restructuring the company to drive sustainable improvements in earnings. As part of the business review, a number of legacy issues have now been identified & resolved.

“The new management team has completed significant restructuring over the last 6 months and, while today’s announcement is disappointing, the board is confident the business is now well placed to move forward. We have put the past behind us and are focused on growing our business as a leading provider of steel products & solutions in New Zealand.”

Earlier stories:
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Steel & Tube reviews earnings guidance

Steel & Tube Holdings Ltd shares went into a 24-hour trading halt today to allow the company’s board to consider factors likely to impact on earnings guidance.

The board asked for the trading halt so it could complete a review of financial performance year to date and consider certain other factors likely to impact on earnings guidance previously provided to the market.

The company expects to announce revised earnings guidance for the 2018 financial year before the NZX opens on Wednesday morning.

Factors the board wanted to consider included asset valuations.

In its guidance last November for the half-year to December, Steel & Tube said earnings before interest & tax (ebit) would be $9-10 million lower than in the previous half-year, impacted by working capital review, reorganisation & restructuring activities and increased depreciation & amortisation costs.

However, in that review the company said it expected full-year ebit to next month would be “materially the same as the 2017 financial year ebit of $31.1 million”.

Earlier stories:
4 May 2018: Steel & Tube puts second property up for sale & leaseback
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes

Attribution: Company release.

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