Steel & Tube 2017 earnings will be up to 15% lower, company warns

Friday 7th July 2017

Steel & Tube has issued a profit warning after a challenging second half and increased competition in the market.

The company had previously said full-year earnings before interest and tax (ebit) in 2017 would be consistent with 2016, when underlying ebit was $30.5 million, excluding $6.2 million in gains from property sales. That guidance was issued after a 33 percent drop in first-half profit driven by a decline in non-residential construction, with the company then expecting a stronger second half.

Today, chief executive Dave Taylor said the period had "proved more challenging in the final weeks."

"We have faced multiple construction and infrastructure project challenges, and delays which have been out of our control, coupled with intense competition in the market leading to tighter margins particularly in the construction sector," Taylor said. As a consequence, 2017's ebit is expected to fall short of last year’s $36.7 million (which includes the gain from sale of property) by between 10 and 15 percent, but will be an increase between 2.5 percent and 8 percent on underlying ebit.

Last December, the Commerce Commission announced its plan to prosecute Steel & Tube, along with two other companies, following an investigation into its seismic steel mesh. The commission said it will allege the companies misrepresented that their mesh complied with New Zealand standards, when it did not.

In 2016, the company's 2016 full-year underlying profit was down 9.3 percent to $19.4 million, which it put down to increased costs including for substandard products and "intense" rivalry in the local steel market.

The shares dropped 5.3 percent to $2.49 this morning. They've gained 11 percent this year, continuing to recover from the 15-year low of $1.79 reached in June 2016 after the Commerce Commission began its investigation and the company cut guidance.

(BusinessDesk)

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