News release - profit report for the year ending 30 June 2007

16 Aug 2007

Financial Performance 

The Company announced a full year after tax result of $27.77 million. This is a decrease of $3.05 million, or, 10%, when compared with the previous year’s result. Sales at $466.32 million were up from $439.34 million in the previous year. 

This result includes a full year’s contribution from NZF Stainless compared with 3 months in the previous period. 

After allowing for the effect of this acquisition, Group sales were similar to last year. 

A final dividend of 14 cents per share was declared. 

The Company’s result represents an EBIT return on year end total funds employed of 24% and an after tax return on average shareholders funds of 20%. 

Market Conditions 

In commenting on the Company’s operations, the Chief Executive Officer, Mr Nick Calavrias, said; 

Although the result did not match last year’s, the Company performed well considering the volatile market conditions it had to contend with. 

The impact of the strong NZ dollar and high interest rates throughout the year, adversely affected the key industries serviced by the Company. 

Although total construction activity increased during the year buoyed by the demand for residential housing, the value of commercial construction activity which is a key driver for our business was similar to last year’s levels. 

Export receipts for the manufacturing and rural sectors were adversely affected by the strong New Zealand Dollar. Although dairy commodity prices increased rapidly from the third quarter, the full benefit will not be seen until next year. Domestic based manufacturing also suffered as an increasing amount of cheaper sourced imports replaced locally manufactured product. 

Considerable market volatility was also encountered in the cost of replacement inventory as the NZ currency progressively strengthened by 27% against the US dollar. 

The combination of these market conditions coupled with a very competitive environment impacted on the Company’s ability to pass on the full effect of cost increases incurred during the year resulting in a squeeze on margins in many areas of our business. 


Distribution business; comprising Steel Distribution, Stainless Steel, Fastening Systems, Piping Systems and Industrial Products produced higher earnings than the previous year. 

Although the value of commercial building activity was similar to last year, the volume of building products consumed by this sector was lower once the effects of price increases were taken into consideration. 

Volume to the manufacturing sector was also slightly lower than last year. 

The increased level of earnings posted by this division was aided by the addition of the stainless steel business acquired in April 2006 and an increased focus on Industrial Products which allowed the Company to increase its overall market offer to our expanded customer base. 

The effect of the weakening NZ Dollar in the first half of calendar 2006 increased the replacement cost for the majority of our steel products in the early part of the year which then progressively decreased in value as the dollar strengthened to a 23 year high against the US Dollar by year end. 

This had the effect of putting downward pressure on selling prices and margins at a time of soft domestic demand. 

Manufacturing business; Comprising Roofing Products, Reinforcing Fabrication and Hurricane Wire did not in aggregate perform as well as the previous year. 

Although the Roofing operation posted another solid result against the backdrop of strong demand for rain water and cladding products from both the light commercial construction and new residential property sectors, the Reinforcing operation and Hurricane Wire businesses suffered from a considerable squeeze on margins. 

Soft demand from the construction sector impacted heavily on margins affecting both Reinforcing Fabrication and Hurricane Wire. 

Hurricane Wire was further impacted by the downturn in rural spending by farmers in general. 


The New Zealand economy is expected to stay soft in the near term as business activity copes with increased costs of doing business, high interest charges and a volatile currency. 

Some positive impact is expected over the next 12 to 18 months as the benefit of the increased earnings from dairy farming flow through the rest of the community. 

Beef and lamb farm incomes however are not likely to improve significantly in the short term as this sector is affected by drought and a strong NZ currency. 

Commercial construction activity and infrastructure projects relating to the 2011 Rugby World Cup are likely to commence early 2008 providing a welcome boost to this sector. The construction of residential housing however is expected to suffer as the lower levels of net migration and the impact of servicing higher interest costs begin to take effect. 

International steel prices and supply volatility have been key issues that have impacted on the Company’s financial results these past few years. World demand for raw materials led by the industrialisation of China is expected to remain strong for some time yet causing a long term upward trend on pricing but with continued price volatility in the short to medium term. 

In summary, trading conditions are expected to remain tough with some upside prospect in calendar year 2008. 

For further information, please contact Mr Nick Calavrias, Chief Executive Officer, Steel & Tube Holdings Limited on (04) 570-5001.