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Steel & Tube annual profit drops 22% in 'highly competitive' construction sector

Friday 18th August 2017

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Steel & Tube posted a 22 percent drop in annual profit after the year-earlier earnings were boosted by a property sale. It reduced its dividend payment and said business performance hadn't met its expectations.

Net profit dropped to $20 million in the 12 months ended June 30, from $25.8 million a year earlier, as revenue slipped 1 percent to $511.4 million, the Wellington-based company said in a statement. The year-earlier profit was boosted by a $6.3 million gain on the sale of the company's Bowden Road property in Auckland. It expects to provide an outlook on 2018 earnings at its annual meeting in November.

The company will pay a final dividend of 7 cents per share on Sept. 29, taking the total annual dividend to 16 cents. That's lower than the previous year's final dividend of 13.5 cents, which took the total payment in that year to 22.5 cents.

Steel & Tube, which manufactures and distributes steel building supplies, posted a 1.9 percent gain in operating earnings to $31.1 million as it benefited from acquisitions, margin management and costs. Still, the company said earnings hadn't met its expectations due to a competitive environment, project delays and teething issues with its new plastics plant. 

"It is less than our expectations and so we are a little bit disappointed by that," chief executive Dave Taylor told BusinessDesk. "The construction sector is a particularly difficult sector at the moment, highly competitive, lots of delays on projects so certainly we have missed out on revenue and earnings that we anticipated would come through into the last financial year to these results which have been delayed for various reasons, and that will impact this new financial year."

Taylor noted the company's reinforcing business was operating in "an incredibly competitive environment" which was depressing margins and the company had taken a $1 million provision in the latest earnings relating to some difficult contracts to reflect the additional costs to come. He declined to name the contracts.

Meanwhile, teething issues with the company's S&T Plastics business, acquired in the 2016 financial year, led to the company producing a higher scrap rate than anticipated, which lowered ebit by $2 million.

Still, Taylor said the outlook for construction activity looks "pretty solid". While non-residential building consents had eased, infrastructure remained strong with good activity levels, the manufacturing sector was resilient, and the rural sector had renewed confidence following a lift in dairy commodity prices.  

"That should bode well for Steel & Tube," he said.

Steel & Tube has undertaken an $80 million acquisition programme over the last four years, which has widened the scope of its business, and increased costs and working capital. The company said cost management continues to be a focus and initiatives in the 2017 financial year realised some savings, with further overhead cost savings expected in 2018.

Last December, the Commerce Commission announced its plan to prosecute Steel & Tube, along with two other companies, following an investigation into its seismic steel mesh. The commission said it will allege the companies misrepresented that their mesh complied with New Zealand standards, when it did not. Steel & Tube said today that it is continuing to work with the Commerce Commission to reach an appropriate resolution, and it expects the legal process to be finalised in the first half of the 2018 financial year.

The stock last traded at $2.30, and has gained 4 percent the past year.


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