Address by Dave Taylor, CEO
Thank you Sir John, and good afternoon ladies and gentlemen…
The past year has been a significant one for S&T.
We have focused our efforts on enhancing efficiency and strengthening our core business.
The results are most clearly seen in the three new purpose-built facilities that we have opened this year: two in Auckland, an area that represents approximately one-third of domestic steel demand, at Savill Drive and Highbrook, and one in Palmerston North.
Their completion marks a key milestone in our extensive $30 million reinvigoration programme.
The state of the art facilities and processing equipment, enhance the supply-chain capabilities and position S&T at the forefront of the New Zealand steel distribution and processing sector.
Nowhere has this been more clearly evident than during the opening of our flagship Savill Drive facility, by New Zealand Prime Minister John Key in August.
After spending almost two hours with us, the Prime Minister was extremely enthusiastic about what he saw and acknowledged our extensive involvement in some of this country’s key infrastructure projects.
In completing the Savill Drive building, and those at Highbrook and Palmerston North, we have created facilities in excess of 23,000 square metres, that operate at the highest levels of health and safety, house state-of-the-art processing systems running on smart technology, designed and located in a way that follows the flow of the manufacturing process, from receipt of raw product till it leaves in its finished state.
Processing times and product capability have improved, alongside our ability to meet a greater range of delivery commitments.
Each new facility reflects our aim of creating a steel processing and distribution business, backed by efficient and safe operations, delivering a larger basket of products and services as whole-of-project or steel supply solutions to our customers.
They place us at the forefront of New Zealand’s steel industry, and its leading steel supplier.
Some external highlights of our year include:
- Our involvement in the design and build of New Plymouth’s Len Lye Centre, which opened in July. If you’ve visited, you will agree it is an iconic piece of architecture.
For us it is also a prime example of S&T’s One Company philosophy in action: S&T products were used throughout the build, from the reinforcing in the foundations, and ComFlor in the floor slabs, to structural steel supporting the main structure, and the building’s most visible and visual masterpiece, its stunning 14-metre-high mirrored stainless steel façade.
- S&T has also supported the delivery of New Zealand’s regional health services through our involvement in the redevelopment of Whakatane Hospital.
As exclusive New Zealand agents for Sikla products, S&T developed an extensive pipe support solution to meet a range of load-bearing and seismic specifications of the hospital’s main pump room, the supply hub of its gas, water and electrical services.
Details of these projects, together with those of our three new facilities, are available in video form as part of our digital annual report, which can be viewed on our website.
We will show those videos for you at the end of today’s meeting, just before we break for refreshments. They offer a window into our exciting and dynamic world, and the many great things we are doing as we go from strength to strength.
The One Company cornerstone of our strategy continues to underpin the many change initiatives that are collectively helping to reposition S&T as a forward-looking and sustainable business.
The S&T Stainless business has now been part of S&T for over 18 months and the One Company philosophy has quickly been embraced as an operating ethos across the business.
The recent acquisitions of the fastenings business, MSL and the large bore polyethylene business, Aquaduct, will also see them operating under their own brands while embracing the One Company approach, actively promoting the range of products from the S&T portfolio.
By extending our S&T stable of best-in-class companies, these acquisitions also increase the opportunities available to our people to continue learning, growing and building their career with us.
To support this, in 2014 we introduced a Diversity Policy. Our focus in this area will continue to evolve as we create a working environment that reflects the characteristics of the communities in which we operate, and where all of our people feel respected and valued.
The year has also seen us continue our commitment to the First Foundation, helping young New Zealanders reach their full potential, and to the Canterbury Crusaders, providing an opportunity for S&T to support those communities that support us.
Our working environment continues to grow and change, as new and smart technology creates an innovating and productive environment for our people.
New digital hardware and software across all our sites has further strengthened our communications capabilities, providing faster, easier interaction with customers.
New online meeting facilities mean we can connect with each other around the country, saving time and cost, and reducing our carbon footprint.
We continue with the planning and design of a new enterprise resources business system that will bring our customers closer to S&T, enabling us to respond to changing market expectations and further supporting our business into the future.
As always, workplace health and safety remains key to all our operations.
It is embedded in our culture and has been a fundamental consideration in the design and planning of our new facilities.
This approach has seen improvements in nearly all of the leading indicators, which are a measure of the inputs into health and safety. Particularly pleasing is the significant improvement in near-miss reporting.
The number of lost-time and medical treatment incidents remain consistent with last year, none were of a serious nature.
Globally the steel industry is struggling with a number of unprecedented issues. These issues are dominating the outlook for S&T…
By far the biggest issue is the ever-increasing low-priced steel exports, particularly from China.
Chinese steel production capacity is now almost 50% of the world’s production and with their domestic demand reducing, Chinese exports have increased by 38% in the year ending September 2015, and will likely exceed 100 million tonnes this year.
Putting this into perspective, New Zealand’s demand across all steel products is less than 1 million tonnes per year.
The consequence of this, compounded by low raw-material prices of iron ore, coal etc, is that finished steel prices are now at the same levels they were in 2002-3 as steel producers try to compete with the low-priced exports.
According to the Chinese Iron and Steel Institute, large and medium-sized Chinese steel producers have cumulatively lost $4.4 billion US dollars so far this calendar year.
However, the exports continue to increase and many jurisdictions have introduced anti-dumping legislation to help protect their steel industries.
Interestingly, this in turn increases focus on those areas where such actions are not being pursued, such as in New Zealand.
While steel producers such as SSI (Sahaviriya Steel Industries) and Tata in the UK, BlueScope in Australia and their subsidiary NZ Steel here in New Zealand, attract publicity around significant job losses involved in potential steel mill closures, steel distribution is equally impacted.
These lower steel prices have a significant impact on steel distribution margins.
With the decrease in steel prices over the past three years, and particularly the past 12 months, New Zealand’s entire steel profitability is estimated to have reduced by $45 million compared to three years ago.
While the New Zealand dollar depreciation has helped mitigate what may have otherwise been an even greater impact, competition is intense as players vie for increased volumes to help off-set reduced profitability resulting from lower selling prices.
Another increasing challenge is the importation of fabricated steel.
Again, pressured by soft domestic demand in their own geographies, construction companies, along with (their aligned) steel fabricators, look to New Zealand for new business.
While this provides a healthy challenge, ensuring the domestic steel fabrication supply chain remains competitive and agile, the long-term impact on the sustainability of our industry needs careful consideration.
Domestically, the New Zealand economy continues to moderate, business confidence is volatile, and margins continue to be squeezed within a competitive environment.
In the markets important to S&T we have seen investment in rural ease considerably.
This impacts on- and off-farm spending and those manufacturers aligned to the sector.
While S&T Stainless continues to perform well, reducing stainless demand is increasingly evident and will impact the short term.
Construction activity remains robust and will be the key market that supports the business in the short- to medium-term.
Auckland continues to gain momentum but remains intensely competitive. Christchurch residential activity has plateaued and commercial work remains lumpy.
Infrastructure continues to offer opportunities but, similarly to Auckland, the attractive volumes involved means margins are slim.
The upshot is that total steel volumes are lower than anticipated, slightly down on last year (with some products noticeably down) and margins remain under pressure.
Overall, S&T margins are holding reasonably well but with the lower selling prices, absolute profit is impacted.
As indicated at the full-year results announcement in August, the profit impact is being off-set by the acquisitions and, although early days, MSL is performing in line with expectations.
However, the first half of 2016 is likely to show a reduction in profitability compared to last year, as the global steel dynamics described earlier, had a greater impact in the second half of last year, continuing into this financial year.
This has also been compounded by the moderation in the New Zealand economy from its peak in mid-2014.
This low-priced global steel environment is likely to be around for some time.
To mitigate this, work in line with our strategy continues. I’ve already talked about our new facilities and our plans for our recent acquisitions. In addition to this:
- The plant and machinery installed this year at our new facilities is already delivering higher-quality product in a more efficient manner.
- Having installed smart technology we can now programme daily production requirements more effectively, thus meeting a greater range of delivery commitments.
- With our people we are looking to identify a range of strategies to maximise effective ways of working, thus boosting our overall productivity levels.
- As a team, we will focus on developing opportunities through our One Company operating model.
- The coming year will see us focus on selling more of the higher-value products, creating pricing opportunities wherever possible, and partnering with customers to provide total steel solutions.
As a Company we remain in very good shape and we are confident that our many internal change initiatives will deliver a better service for our customers, greater opportunities for our staff, and sound returns for our investors.
Thank you.