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Steel and Tube annual profit drops 23% as competition squeezes margins

Friday 10th August 2012

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Steel & Tube, the constructions materials supplier, reported a 23 percent fall in annual profit as dwindling demand and stiff competition squeezed margins.

Net profit fell to $13.1 million, or 14.9 cents per share, in the year ended June 30, from $16.2 million, or 19.3 cents per share, a year earlier, the Lower Hutt based company said in a statement. That was short of Forsyth Barr analyst Rob Mercer's forecast profit of $14.8 million, or 16.8 cents per share, though he had warned earnings could be weaker.

"Margins were impacted as customers and contractors leveraged their positions through the supply chain and chased what activity there was," the company said. "The lack of non-residential activity is of concern and is likely to continue to challenge margins through the supply chain in that sector."

Sales rose 5 percent to $405.4 million though estimated total steel demand of 665,000 tonnes remained subdued at almost a third lower than the peak 970,000 tonnes in 2005, the company said.

The directors declared a final dividend of 6.5 cents per share, taking the total payout to 12 cents per share, or $10.6 million.

Steel & Tube's key industry sectors - construction manufacturing and rural - showed minimal growth in the year, though the company noted there was an "increasingly apparent" variation between the regions.

Auckland showed some recovery in Novembe, but has entered into another period of "subdued activity" while Wellington progressively deteriorated through the period with little sign of improvement, it said.

Activity in New Plymouth increased due to its exposure to the oil and gas sector, and Christchurch was showing early signs of the rebuild kicking off.

While residential construction was increasing, Steel & Tube's more important non-residential construction market was showing marginal signs of improvement, it said.

The shares rose 0.5 percent to $2.13 in trading yesterday. The stock is rated an average 'hold' based on four analysts' recommendations compiled by Reuters, with a median target price of $2.255.

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