The Company announced a first half trading result of $10.136 million after tax. This is a decrease of $4.616 million when compared with the same period last year and in line with the forecast indicated at the Annual Meeting in November 2007.
A restructuring provision of $1.57 million after tax has been made for the Hurricane Wire business which will be completed in the second half of our financial year thus reducing the reported profit to $8.566 million.
Although sales increased by $16.06 million to $245.55 million, gross profit was adversely affected primarily due to steel price volatility and competitive pressures leading to margin erosion during the period.
The Company also announced that a fully imputed interim dividend of 9 cents per share will be paid on 31 March 2008.
The financial result represents an estimated year end EBIT return on average funds employed of 18% and 16% after tax return on average shareholders funds.
Market Conditions
In commenting on the Company’s operations, the Chief Executive Officer, Mr Nick Calavrias, said,
The Company’s three Key market segments of, Construction, Manufacturing and the Rural sector all suffered to a varying degree as the combination of exchange rate volatility, high interest rates and reduced growth in consumer spending slowed the economy.
The manufacturing sector had to contend with a volatile currency and the rising cost of doing business while the commercial construction sector was affected by escalating finance costs.
Construction of residential housing is on the decline as the cost of servicing mortgages increased substantially at the same time that net immigration has more than halved from the year before.
Although dairy commodity prices increased rapidly during the year, difficult trading conditions remain for sheep and beef farmers.
Performance
Although the value of product sold by the distribution sector was higher than last year, this was influenced to some degree by the higher nickel prices for stainless steel. Volume however remained similar to last year.
Volume processed by the manufacturing sector was slightly up on last year assisted by strong demand for reinforcing products from infrastructure projects. Volume to the rural sector however, was down due to lower expenditure from beef and sheep farmers.
The effect of a volatile New Zealand dollar relative to the US currency continued to adversely affect most business units as the cost of replacement inventory fluctuated, affecting the profit margins for our goods and services.
Outlook
The New Zealand economy is expected to stay soft in the near term as growth in consumer spending slows and business activity copes with increased costs of doing business and a volatile currency.
Dairy farmers will benefit this year from the rapid rise in world commodity prices for dairy products adding an extra $3billion to the economy, however, the outlook for beef and lamb farmers is not as rosy.
Although the construction of residential housing is slowing, commercial activity and infrastructure projects relating to the 2011 Rugby World Cup are expected to provide a welcome boost to the commercial construction sector later in the year.
International steel prices and supply volatility have been key issues that have impacted on the Company’s financial results these past few years.
Substantial price increases for input costs to make steel, such as iron ore, coal and scrap metal coupled with an increased global demand for steel products are once again pushing the price of replacement steel inventory up.
As a result of this, the domestic price of steel products will increase substantially as new inventory arrives with the expectation of further increases to follow, as the year progresses.
Domestic economic growth is under significant risk in the year ahead as consumers adjust to the correction in the housing market. Exports could also come under threat if the weak American economy spreads to Europe and Asia.
Provided that the economy does not slow further, the Company is comfortable with the guidance provided at the Annual Meeting that the second half profit will be in line with last year’s comparable period.
In summary, trading conditions are expected to remain tough in the short term with some upside prospect late in calendar year 2008.