Steel & Tube cuts full-year guidance on margin squeeze, mesh costs

Wednesday 18th May 2016

Steel & Tube Holdings, the NZX-listed steel products distributor under fire for sales of seismic steel mesh that wasn't independently tested, cut its full-year guidance and said underlying earnings may fall 10 percent to 15 percent as margins contracted and it incurred costs related to quality issues for the mesh.

The updated guidance is a downgrade from the forecast it gave in February for underlying net profit to be unchanged from last year's $21.4 million but doesn't include a $6 million gain on the sale of its Bowden Road property.

"While global raw material and finished steel prices remain volatile, they have increased dramatically in many parts of the world from the 13-year lows in late 2015," the company said. "Conversely, New Zealand steel distribution prices have continued to decline since January, due to intense competition as some competitors vie for market share, impacting margins."

The Lower Hutt-based steel products company said it expects "minimal impact on trading during the remainder of this half" and "some uplift in New Zealand steel prices in the early part of the new financial year commencing 1 July 2016."

"Recent issues around product quality, and in particular seismic mesh have also impacted short term earnings," it said.

Last month Steel & Tube agreed to sell only seismic reinforcing steel mesh which has been independently tested, after the Commerce Commission signed court enforceable undertakings with the company. The commission is conducting a wider investigation into the industry, focused on possible misrepresentations on the mesh’s performance characteristics which would breach the Fair Trading Act.

Steel & Tube shares last traded at $2.25 and have dropped 23 percent so far this year.

BusinessDesk.co.nz

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