Review of the Financial Year ending 30 June 2009
I am pleased to be able to record that the Company reported a profit after tax of $26.1 million, an increase of $3.6 million, or 16% on the previous year, on reduced turnover of $484 million.
Operating cashflows were strong at $57million, an improvement of $36 million on the previous year.
The Directors declared total ordinary dividends for the full year of 19 cents per share, fully imputed, which was the same as the previous year.
From our previously released information, including the Annual Report, it is clear that it was very much a year of two halves. After a record start to the year, the full impact of the Global Financial Crisis was felt in the second half.
Demand for our products collapsed, prices fell and our margins were squeezed, as purchases by our customers dried up. Our inventories, particularly because of the considerable lag between ordering and delivery of many products and exacerbated by extensive customer de-stocking, grew quickly.
Management responded on a number of fronts.
Our cost base has been restructured based on critical review of all activities, with the result being that we have found better ways to do things as well as eliminating unnecessary processes.
Inventory has been substantially reduced, and the intense focus on capital management has brought down debt through the second half of the year. Our managers have increased their diligence in responding to the increased likelihood and occurrence of bad debts.
We moved to secure our funding and extend the tenure, as part of our strategy to maintain maximum flexibility to be able to pursue growth strategies as conditions permit.
Throughout this we have continued to focus on the needs of our customers, and have supported our people to be more flexible and responsive.
We have continued with our focus on safety performance, with excellent results.
Dave Taylor will report in more detail on progress with these issues and provide some insight into current priorities and plans.
Before this there are several matters that I will comment on specifically.
As you know, the board conducted a search to replace long serving CEO Nick Calavrias, who left the company at the end of April this year. It was a long process, managed by a highly regarded recruitment firm and included consideration of candidates internationally. We are delighted with the outcome, and I am sure that you will be also.
It is an appropriate point for me to acknowledge the role that Tony Candy played during this time as acting CEO, and to be able to thank him most sincerely for his excellent contribution. Tony accepted the challenge enthusiastically, and tackled front-on the issues before us at the time.
It has been previously announced that Tony Reeves will leave OneSteel our major shareholder by the end of this year. He will therefore shortly retire from this board. On behalf of the board I wish to recognise his significant contribution to the company since 2001, and to thank him for this. He has been an excellent board member and valued by us all.
His replacement will be the subject of a further announcement.
Last year I indicated that management would try to find growth opportunities that would allow us to leverage our skills, distribution network and customer base in other metals and products. This remains an important part of our strategy, and we are well placed to respond to opportunities that may arise in these demanding times.
Looking ahead for Steel and Tube I wish first to say that we have had a tough first four months of trading, with a continuation of soft volumes and even greater pressure on margins. Present indications are that we will not in this current half year to December meet the performance of the second half of last year.
However, the global recession appears to be ending as world economic growth turns positive, although the pace of recovery is expected to be slow. This is particularly so in the developed world where unemployment is expected to continue to rise. Although sentiment has pushed share markets higher and at unexpected rates, and credit is beginning to free up, volatility is still expected.
Governments that had stimulated economies to restore a sense of direction are now beginning to look at ways to remove some of the safety nets that had been applied, without distorting financial markets. Interest rate rises are on the agenda, although here in NZ the Governor of the Reserve Bank has recently said that he expects to keep the Official Cash Rate at the current level until the second half of 2010.
However the IMF has maintained its cautionary tone, with concerns remaining about the sustainability of China’s 8% plus growth rate, the nature and extent of any recovery in the US, and the ability of the UK and Europe to grapple effectively with their respective economic challenges.
The world steel market production levels have recovered significantly, but uncertainty about levels of re-stocking and sustainable ongoing demand in China, and in the rest of the world, has maintained volatility in prices. After strong rises through to August, prices have fallen back a little.
As we have previously explained, steel price volatility, along with exchange rate fluctuations, are the two most significant factors impacting upon our business.
There are signs that the NZ economy is stabilising, but the rate at which recovery occurs is still uncertain. Building and construction markets, which have a significant impact on Steel and Tube, are still experiencing low levels of activity, with expectations of solid recovery still some way off.
The rural market is subdued, and its future is very much tied to the rate of recovery of our trading partners.
The remainder of this financial year will be challenging, but aided by an economy that appears to be turning the corner, a pick up in demand for the company’s products and services would, when combined with the cost saving measures taken by management, be capable of improving profitability quite quickly.
This last twelve months has been a time of extraordinary pressure on all members of the Steel and Tube team, and I would like to thank everyone for their ongoing commitment and support for this terrific company.
On behalf of the Directors I would like to welcome Dave Taylor and wish him well in the challenges that face him, his management team and all our employees, and ask him to present the CEO report.