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Steel & Tube's first-half profit falls 24%

Thursday 9th February 2012

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Steel & Tube Holdings, the construction materials supplier, reported a 2.4 percent fall in first-half profit, and isn't expecting much improvement in a hurry.

Net profit fell to $6.4 million, or 7.2 cents per share, in the six months ended Dec. 31, compared to $8.4 million, or 9.5 cents per share, in the same period a year earlier. That reflected weak demand, volatile domestic steel prices and discounting by some manufacturers and distributors leading to significant margin pressure.

“Other than the Christchurch rebuild, we see no reason for demand to increase from current levels in the short term,” the company said in a statement. “We expect that the results for the second half of the year will be similar to, or a little better than, for the first six months.”

Sales rose 7 percent to $202.9 million. Net profit in the year ended June 30 was $17 million.

The result was in line with the company's guidance at last November's annual shareholders' meeting when it said it expected first-half net profit would be between $6 million and $7 million, and slightly better than the $6.2 million profit expected by broker First NZ Capital.

“Industry activity levels saw no appreciable change from the prior year. Notably, demand in Auckland was very subdued across all product categories, particularly during September and October with November seeing some improvement,” the company said.

While demand remained subdued in residential and non-residential construction – residential construction is at its lowest level since 1993 and non-residential building consents fell 3.3 percent in December from a year earlier – there has been some improvement in the rural sector, it said.

There have been early signs of the Christchurch rebuild was starting but ongoing aftershocks may further impact the rebuild schedule, it said.

The volatility in global raw material prices, finished steel prices and the New Zealand dollar, along with inventory lead times, had created “a more dynamic and challenging pricing environment for steel manufacturers, distributors and customers alike,” Steel & Tube said.

Prices had increased late in 2011 to reflect international pricing and that reduced margin decline.

Steel & Tube will pay a fully imputed first-half dividend of 5.5 cents per share, down from the 6 cents it paid for the previous first half.

Steel & Tube shares fell 1.4 percent to $2.17, up from November's low at $1.99 but well below the year peak at $2.80 in April last year.


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