Tuesday 7th August 2018
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Steel & Tube Holdings, the steel supplier whose shares have lost almost a third of their value this year, plans to raise about $80.9 million to repay debt and strengthen its balance sheet as it restructures its business under new management.
The Lower Hutt-based supplier of steel building products plans to raise $20.8 million through a placement at $1.15 per share followed by a fully underwritten pro rata 1 for 1.9 rights offer at $1.05 per share, a 28.1 percent discount to the $1.46 closing price yesterday, it said in a statement.
Steel & Tube has been reviewing its business to drive long-term sustainable earnings improvement under the guidance of a refreshed board and new chief executive Mark Malpass. The company expects to post a loss in the 2018 financial year to the end of June and won't pay a dividend, but said today that the result would be slightly ahead of its previous expectation as legacy issues uncovered during the review have been addressed and improvements are now being seen. An improving sales trend seen in the last three months of the 2018 financial year had continued into the current financial year.
“We remain deeply committed to rebuilding Steel & Tube as a leading provider of steel products and solutions in New Zealand," chair Susan Paterson said in a statement. “The capital raised will be used to repay debt, strengthening our balance sheet and giving us greater flexibility to execute our strategy and deliver better value for our shareholders. We expect the capital raising to strengthen Steel & Tube’s share register and help create liquidity which will benefit all shareholders.”
The company said today it expects to post a loss on an earnings before interest and tax basis of about $36.2 million in the year ended June 30, compared with a previous estimate in May for an ebit loss of $38 million. It expects normalised ebit of $16.5 million, ahead of its earlier forecast for $16 million. The normalised figure excludes $53.8 million of non-trading costs and impairments and a $1.1 million benefit from reduced software amortisation costs due to delay in implementing a new enterprise resource planning system.
The company will release its audited 2018 results on Aug. 31.
For the 2019 financial year, the company expects ebit of at least $25 million, with normalised ebit of $35 million to $40 million expected to be achieved in the next three years, it said.
Given the capital raising, Steel & Tube won't pay a final dividend for the 2018 financial year, although it expects to resume paying dividends in 2019 consistent with its policy of paying out 60-to-80 percent of normalised net profit after tax.
The capital raising will significantly reduce Steel & Tube's gearing and the company is resetting its capital structure policy to operate with net debt of less than 2x normalised ebitda, it said.
Directors holding shares and the chief executive intend to take up their rights under the offer.
Shareholders wanting to take up the offer must hold the shares at 5pm Aug. 15. Any entitlements that are not taken up by eligible shareholders and entitlements of ineligible shareholders will be offered for sale in a shortfall bookbuild.
The shares are in a trading halt until tomorrow while the placement is conducted.
First NZ Capital Securities is lead manager of the capital raising, and the offer is fully underwritten by First NZ Capital Group.
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