Steel & Tube underlying profit falls 9.3% on increased costs, rivalry

Friday 12th August 2016

Steel & Tube Holdings, whose shares have recovered from a 15-year low in the past two months, posted a 9.3 percent decline in full-year underlying profit as it faced increased costs including for substandard products and "intense" rivalry in the local steel market.

Underlying profit was $19.4 million in the year ended June 30, from $21.4 million a year earlier, the Wellington-based company said in a statement. Sales rose 3 percent to a record $516 million but the gain was swallowed up by selling and administration expenses and a one-off cost impact in the second half related to product quality issues.

The steel products distributor is clawing back from a horror year, which saw its shares sink as low as $1.79 in June, the lowest since 2001. In March, the Commerce Commission began an investigation into earthquake reinforcing mesh products that weren't certified as claimed, the company was forced to cut guidance in May as intense competition in the domestic steel market squeezed margins and its Chinese-sourced road reinforcing for the Huntly bypass was found to be weaker than specified.

In the event, full-year underlying earnings exceeded its May guidance.

"The continued execution of the company strategy through the financial year has positioned Steel & Tube well, creating strong foundations as shown by the year’s performance in spite of the challenges of low global steel prices and questions around some product quality," said chief executive Dave Taylor. “Despite the headwinds we’ve experienced and particularly in the second half of the year, our results demonstrate our resilience and ability to continue delivering sustainable value.”

Net profit rose about 21 percent to $25.8 million, helped by a $6.4 million gain on the sale of Steel & Tube's Bowden Road property in Auckland.

The company will pay a final dividend of 13.5 cents on Sept. 30, up from 10 cents a year earlier, lifting total payments for the year to 22.5 cents from 19 cents.

Taylor said the company remains "in a challenging global steel environment" but steel prices "are firming both domestically and globally."

"When coupled with a relatively robust domestic economy, we are optimistic that we’ll see a stronger performance from the business in our next trading year,” he said.

The shares last traded at $2.07. They are rated a 'hold' based on the consensus of three analysts polled by Reuters with a median price target of $2.20.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

No comments yet