Directors’ Report For the Half Year Ended 31 December 2010
Results
The Directors present the unaudited consolidated financial statements for the 2011 half year that were authorised for issue on 10 February 2011. The first-half trading result to 31 December 2010 of $8.4 million profit after tax, was an increase of $5.2 million or 165% when compared with the same period last year.
Sales at $190.5 million are similar to the corresponding period last year, with increased volumes being offset by lower global steel prices.
The net tangible assets per share at 31 December 2010 were $1.45 compared to $1.43 at 31 December 2009.
Dividend
Directors have declared a fully-imputed interim dividend of 6 cents per share to be paid on 31 March 2011 to holders of fully-paid ordinary shares registered at 11 March 2011. The amount payable is $5.30 million and a supplementary dividend of 1.06 cents will be paid to non-resident shareholders.
Performance
Slow improvements in the economy have seen volumes increase by 6% compared to the same period last year, although remaining well below historical levels. Strong competition continues and despite increasing prices from the prior 6 months, prices were still below those of the same period last year.
Most market sectors saw marginal improvements through a period of significant volatility from month on month with October particularly slow. As indicated at the annual meeting, commercial construction continues to decline with little improvement expected for the foreseeable future.
In line with the revised strategy and plans, we successfully implemented the new operating model aimed at advancing the strengths of the Company’s product range and geographic coverage with customers. The significant internal change programme continues to be very positively received both internally and externally.
Facility rationalisation continued with a further seven business operations consolidated into existing facilities, supporting the new “One Company” operating model.
Focus on costs, debtors and inventory management all continue whilst our ongoing initiatives reposition the organisation for the environment ahead.
The Company came through the Christchurch earthquake remarkably well with only very minor damage to facilities and stock, reflecting the standards we employ at our facilities. As reported at the time, some of our people fared less well and we continue to support them. Accordingly our focus is now on the rebuild as we continue to work with those organisations leading the rebuild activity.
Focus has continued on health and safety, and the performance which now includes contractors, again continued to improve with zero lost time incidents and three medical treatment injuries sustained during the half year.
Outlook
So far the economic recovery has been slower than expected, primarily due to lower household expenditure as many remain cautious about the outlook. The GDP data for the September quarter released in December, was disappointing with both manufacturing and construction declining.
From the Company’s perspective both the residential and non residential sectors, with the exception of infrastructure, remain soft and any improvements will be from low bases. The Christchurch rebuild will offer some upside. However indications are that although the final cost of the reconstruction activity may be higher than initial estimates, the duration will be longer.
We note that despite no fundamental or material changes to the economy, business and consumer confidence is starting to increase, as it did last year.
In the rural sector export prices for both dairy and meat look encouraging, although due to a number of weather related issues volumes remain subdued.
Global steel pricing volatility is likely to continue. However in the immediate future prices are likely to increase as the industry tries to recover escalating raw material costs, compounded recently by the floods in Australia with many coal mines unable to produce. This combined with a volatile New Zealand Dollar means domestic steel prices will most likely continue to experience considerable variations.
We expect to see a slow and gradual improvement in activity across most sectors with the exception of commercial construction, where we expect further contraction in the short term. Our internal initiatives are starting to gather momentum and we expect to see some uplift in performance as a consequence. Overall we expect the second half of the year results will be similar to those of the first six months.