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Steel & Tube first-half profit drops 64% on inventory writedown, restructuring costs

Friday 23rd February 2018

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Steel & Tube posted a 64 percent decline in first-half profit as the steel products maker wrote down the value of inventory and bore the cost of restructuring the business, which it anticipates will lead to improved earnings over the next two years. 

Net profit fell to $3.8 million, or 4.2 cents per share, in the six months ended Dec. 31 from $10.6 million, or 11.8 cents a year earlier, the Lower Hutt-based company said in a statement. That included a $5.5 million writedown on old inventory and $2.6 million of restructuring costs. Earnings before interest and tax fell to $6.7 million from $16.1 million, within Steel & Tube's November guidance for ebit to fall by $9 million-to-$10 million. The company anticipates annual earnings, excluding non-trading costs will be largely in line with the $31.1 million reported in 2017. 

"We remain committed to improving the way Steel & Tube operates across all areas of its business, from sourcing and supplying quality products to delivering a high-quality customer experience," chair Susan Paterson said. "The change programme is progressing well and while there may be some further downside earnings potential as the company transitions through a period of significant change and rebuilding, early benefits are beginning to be seen." 

Steel & Tube yesterday appointed Mark Malpass as chief executive, a role he'd been acting in for the past five months since his predecessor Dave Taylor left suddenly. 

Stripping out the restructuring costs, normalised ebit of $12.9 million was in line with Forsyth Barr analyst Matt Henry's forecast, and a 5.3 percent increase in revenue to $267.9 million beat his expectation for sales of $255.7 million. 

The board declared an interim dividend of 7 cents per share, payable on March 29 with a March 15 record date. 

Steel & Tube embarked on a major review of its supply chain, focusing on inventory management, and aims to cut lease, freight and operating costs in the second half.

The company has separated its reporting structure into two lines of business: distribution and infrastructure. The distribution arm, which focuses on products sourced from steel mills and distributed through its national network, posted 36 percent slide in ebit before adjustments to $5.8 million on a 0.7 percent dip in revenue to $155.9 million. The infrastructure unit, which spans products processed by Steel & Tube, increased pre-adjusted ebit 5.9 percent to $10.7 million on a 15 percent gain in sale sot $112 million. 

"Market conditions remained fairly constant during the period with some softening around election time and a slowing of construction activity in Christchurch," Malpass said in his report. 

Strong global demand for steel and reduced Chinese capacity has increased steel prices, which the company said had a "significant impact" on margins in September and October last year with the "highly competitive New Zealand market slow to respond to input cost increases," although most local firms, including Steel & Tube raised prices in November, he said. 

Steel & Tube shares last traded at $2.06, having declined 1.9 percent so far this year. 


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