Looking at the last financial year, it was again characterised by a contrast of two halves. The first half produced a continuing decline in demand, volumes and selling prices, bringing reduced profitability, and a low first half result. The second half however saw some recovery, albeit off a low base. Margins recovered somewhat by year end while overheads reduced substantially, as the effects of management initiatives to improve processes and increase productivity took hold.
Overall the underlying profit for the year of $9.9 million (before a one-off charge in tax expense) was encouraging in difficult economic circumstances.
A final dividend of 5 cents per share was declared, bringing total dividends for the year to 8.5 cents per share.
It is a time of considerable change for the company, and change that we welcome.
We have a new CEO who has been in the job for just over a year now, and he and his team are implementing a number of new initiatives. Dave will talk to these in more detail, but some of the significant issues include strengthening of the executive team, engaging more directly with our customers for feedback, revitalising our people policies and focus, and restructuring the way in which we take our products and services to market.
This has created both opportunity and pressure for our people, and we are encouraging and supporting staff to be flexible in their approach to these initiatives, in the face of a challenging environment.
During this time, we have managed to preserve and improve the fundamental building blocks of the business.
Our cash performance has been a strength, with significant gains being achieved from working capital management. Continued focus on debtors has been successful in reducing debt and lowering write-offs.
Committed group funding lines have been reduced overall, but extended in tenure, and remain sufficient to meet existing requirements while maintaining flexibility to pursue growth opportunities as they arise.
Our facilities rationalisation program has continued to plan, with the achievement of significant cost benefits and improved operating efficiencies. At the same time our distribution network has been enhanced.
Our ability to deal with the situation in Christchurch in the last few months, from withstanding the major earthquake, to supporting our people in need and to mobilising an effective team to respond to likely rebuilding demand, has demonstrated our broad base of capability.
Often during periods of change and extra pressure there is a tendency for safety performance to suffer. I am very pleased that our ongoing safety program continues to produce excellent results, which is a credit to all.
There are changes for the Board also.
Later in the meeting you will be asked to elect three new directors. At this time however, I would like to acknowledge the services and significant contributions to the Company of retiring directors Ian Lindsay and Eileen Doyle. Both have been members of the Health and Safety Committee that has overseen the continuing excellent performance I mentioned. Ian has also been a member of the Audit Committee, the Governance and Remuneration Committee and the Nominations Committee.
On behalf of the directors, staff and shareholders I would like to thank them for their efforts and contribution to the Company, and to wish them well in the future.
As we go through this refreshment process, we have maintained our view of the benefits of a diverse range of experience and perspective in the makeup of the Board, so it is a pleasure to welcome Janine, Robert and Rosemary to their first General Meeting.
I should mention also that Barry Dineen will not seek re-election at next year’s meeting.
The environment that we are operating in is certainly a demanding one.
World growth seems to be suffering a temporary slowdown in the second half of 2010 and this is expected to continue in to 2011, with the pace in advanced economies achieving lower levels than expected, particularly when coming out of such a recession. Many of the stronger growth regions are still dependent on demand from the developed economies.
Concern about China’s growth rate has eased, and recent data including manufacturing order strength have reinforced the view that the demand for mineral resources will continue at high levels.
Of particular importance to Steel & Tube, the world’s biggest steelmakers, after a strong start in 2010, have lost ground in the recent months. They anticipate facing uneven demand, and high input costs for the next period, so world steel price volatility is likely.
In this framework, the NZ economy faces even more challenges. Recovery is much slower than expected and business confidence has slumped. Lack of demand seems to be the key concern.
Building and construction markets are still experiencing low levels of activity with expectations of recovery now pushed further out. The rural market, still focussed on reducing debt levels, has been buoyed by forecast increases in the Fonterra milk payout but adverse weather conditions affecting livestock and production have moderated the expectations of increased incomes to farmers. The strength of the currency has also weighed on the returns likely to be generated by the rural sector and the manufacturing sector.
In his presentation shortly, Dave Taylor will help explain the way in which these issues are affecting Steel & Tube.
Our trading in the first four months of the new financial year has seen a continuation of the performance in the latter part of June 2010 half year, although demand has softened somewhat in October. Present indications are that the performance in this December half will exceed the underlying performance achieved in the second half of last year.
The last twelve months has seen considerable change for the Company in a period where the trading environment has been volatile. Management and staff have confronted the issues and have admirably balanced the efforts to reduce costs and improve operating productivity, while at the same time ensuring that the Company takes the significant forward looking steps that are required for us to take advantage of a stronger economic recovery when it emerges.
Before handing over to Dave for his presentation, on behalf of the Directors I would like to thank him and all in Steel & Tube for their commitment to, and embracement of change, which augurs well for the future of the Company.