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Steel & Tube upbeat about FY19, expects to resume paying dividends

Wednesday 29th August 2018

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Steel & Tube Holdings says improving sales have continued into the current financial year and it expects to resume dividends as its business overhaul begins to pay off. 

The Lower Hutt-based supplier of steel building products, restructured under the guidance of a refreshed board and new chief executive Mark Malpass, now "has a balanced exposure across the rural, manufacturing and construction sectors, with consistent demand and activity forecast in all sectors over the next few years," it said in a statement.

"Steel & Tube has begun to see positive results from the implementation of its change programme – specifically increasing both volumes and sales," the company said. 

The overhaul uncovered a number of legacy issues which materially impacted earnings in the year to June 30.  The company reiterated its loss on an earnings before interest and tax basis was $36.2 million in the year ended June 30 while normalised ebit was $16.5 million. Both were slightly better than expected. There was no change from the unaudited results announced earlier this month. 

The normalised figure stripped out $53.8 million of non-trading costs and impairments and a $1.1 million benefit from reduced software amortisation costs due to delays implementing a new enterprise resource planning system. 

"These issues have now been addressed and the initiatives being implemented as part of Steel & Tube’s ‘Project Strive’ business transformation programme are delivering early results," it said.

According to Steel & Tube, the improving sales trends in the three months to June 30 "have continued into the current financial year." It reiterated that it expects to report ebit of at least $25 million in the current financial year. 

While no final dividend will be paid for FY18, the company expects to resume dividend payments in FY19 consistent with its stated policy of paying 60-80 percent of normalised net profit. 

Among other things, it has initiated an $80.9 million capital raising to strengthen the balance sheet. The funds will pay down debt and, following completion, gearing is expected to be approximately 1.15 times normalised ebitda The capital structure policy has been reset to operate with net debt of less than 2.0 times normalised ebitda, it said.

Steel & Tube needed a waiver from its banks earlier this year after writedowns and impairments put it in breach of at least one lending covenant. 

A $20.8 million placement was successfully completed on Aug. 7, with strong support from existing and new institutional investors. A $60.1 million, pro rata, 1-for-1.9 rights offer at an issue price of $1.05 per share closes at 5pm on Monday. 

The stock last traded at $1.16 and has fallen about 40 percent so far this year. 

Steel & Tube said it still sees a highly competitive construction market. The North Island is experiencing high demand and that activity is "expected to drive reinforcing, piping, roll-forming and structural steel revenue."

It said manufacturing is expected to remain stable with significant opportunities in the food subsector where demand will likely drive growth in plates, coils, sections and fasteners. The rural sector is driving demand for stainless steel, it said.


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