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Steel & Tube pushes return to 'normal' earnings beyond 2021

Thursday 26th September 2019

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Steel & Tube Holdings has pushed out its target for earning more than $30 million a year in operating profit from 2021 to an undetermined time beyond that.

The company managed to produce $16 million in earnings before interest and tax in the year ended June, well short of its original $25 million target.

"Longer-term, we still see a business that's capable of generating $30-35 million in ebit but it's going to take us longer to get there than the initial three-year period that we expected" in September 2018, chief executive Mark Malpass told the annual shareholders meeting on Wednesday.

That in itself was a downgrade of Steel & Tube's potential earnings capability. In August last year, when the company launched its $81 million capital raising, it was aiming for $35-40 million ebit in the year ending June 2021.

However, that reflects a change in the starting point after the company discovered in May this year that about $4 million of inventory had been mis-classified.

The last time Steel & Tube earned more than $30 million ebit was in 2017 and that was only achieved because of acquisitions. The company had then been through several years of effectively running flat-out to stand still

By June 2017, Steel & Tube had invested $32 million in upgrading its operations and had spent $80 million on acquisitions over the previous four years but produced little in the way of payoff.

As for the current year, the company isn't game to voice a forecast.

"It is too early to give guidance. We expect a continuation of current adverse market trends, coupled with a softening in business confidence, and ongoing competitive intensity across the major of sectors that we're operating in," Malpass said.

Improving margin performance and delivering profitable growth are the priorities for the current year, he said.

That will include delivering on the company's customer service promise, getting the benefit of its restructuring and rationalising of inventory and savings from bringing its warehousing in house. The company will also continue to sell property.

"We are reviewing options for the sale of the three remaining owned properties, one of which is surplus to requirements. We anticipate that two of the properties will be sold this financial year," Malpass said.

Steel & Tube shares rose 1.2 percent to 86 cents, trimming their decline this year to about 28 percent.


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