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Steel & Tube expects annual revenue to grow 13% on stainless steel acquisition

Friday 14th November 2014

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Steel & Tube, the steel building products manufacturer, expects full year revenue to increase 13 percent as its stainless steel acquisition boosts earnings, while the wider trading environment remains competitive as falling dairy prices and a high New Zealand dollar weigh on key sectors.

Revenue will rise to $500 million in the year ending June 30, 2015, from last year's $441 million which was boosted by $13 million as a result of the S&T Stainless acquisition in April, chief executive Dave Taylor told shareholders at the annual meeting in Wellington. The Lower Hutt based company acquired Tata Steel (Australasia), the local division of the Indian manufacturer now renamed S&T Stainless, for $28.1 million, giving it market share of stainless, engineering steel and floor decking products in New Zealand.

The company didn't provide a profit forecast.

The wider trading environment was benefiting from a lift in economic activity, although "volatility remained, given the project nature of some of our key sectors," Taylor said. In particular, the 40 percent fall in the global dairy price from its peak earlier in the year had seen some orders cancelled in the rural sector, although investments for longer term processing capacity continued. The manufacturing sector, and in particular exporters, had also been volatile as businesses were "struggling against an over valued dollar" but the recent depreciation of the currency had seen improvements in the sector.

Steel & Tube chairman John Anderson told shareholders the New Zealand outlook remained "relatively robust, although the first few months of this current financial year had a moderating effect."

"Investments in dairy processing continue, despite what will inevitably be a short term decline in commodity prices, providing a good outline for the stainless business," Anderson said. "Manufacturing appears resilient."

Residential building, particularly in Auckland and Christchurch, was leading most construction activity, while non-residential construction continued at a slower pace, with the exception of the Christchurch city rebuild, New Zealand's second largest city which was devastated by a series of earthquakes in 2010 and 2011, and ongoing development in Auckland. Activity in the oil and gas sector had also fallen.

In February, BlueScope Steel, Australia’s largest steelmaker and owner of the New Zealand Steel mill, bought Fletcher Building’s Pacific Steel in a $120 million deal that saw BlueScoope become the country's only steel maker. Taylor, in response to a shareholder's question on whether the sale would have any effect on Steel & Tube's operations, said it had given Steel & Tube more power as the business's largest customer.

"Being the leading distributor here in New Zealand we're effectively one of their largest customers," Taylor said. "Both organisations actually do not have competing organisations in New Zealand. So the fact they were in disparate organisations but have come together effectively does not change the dynamics. It fundamentally means we are now an even more critical customer of a larger organisation and we're looking to leverage that to some degree."

Shares of Steel & Tube rose 0.7 percent to $2.98, and have fallen 3 percent since the start of the year, underperforming the NZX 50 Index's 16 percent gain over the same period. The stock is rate an average of 'hold' based on the recommendation of four analysts surveyed by Reuters, with a median price target of $3.17.

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