Overview
Steel & Tube delivered a solid year’s performance. The first half saw a gradual market improvement led by construction activity in Christchurch. This momentum was expected to continue through the second half but, due to a number of variables, trading proved to be challenging from February.
Our One Company approach continued on multiple fronts bringing greater efficiencies to the business with benefits and opportunities for our customers.
On 9 October Arrium (formerly known as OneSteel) divested their 50.3 per cent majority shareholding in Steel & Tube mostly to New Zealand institutional and retail investors. Steel & Tube returned to the NZX 50 on 14 November 2012.
Financial results
The trading result for the full year to 30 June 2013 is a profit after tax of $15.6 million compared with $13.1 million for the previous year, an increase of 19 percent.
Reducing steel prices resulted in sales for the year at $393 million, compared with $405 million for the previous year, a decrease of 3 percent on consistent volumes.
Operating cash flow remains strong at $27.5 million and is an increase of $8.7 million (47 percent) when compared with the previous year.
Working capital was well managed and, with strong operating cash flows, borrowings reduced to $23.5 million and gearing reduced to 13 percent.
A final dividend of 8.5 cents a share was declared on 15 August 2013.
Trading environment
Global raw-material pricing volatility early in the year led to domestic price increases for most products and saw a good start to the year. We expected the sharp and significant price swings, particularly for iron ore in the first half to lead to finishedsteel price increases. This was true in US dollars, but did not materialise locally due to an appreciating NZ dollar and soft underlying demand. Consequently, the expected price increase in the third quarter did not occur, and steel prices throughout the year were on average lower than the prior year.
Domestically, the three key industry sectors for our business; construction, manufacturing and rural, experienced mixed activity levels during the year. The first half saw both the rural and manufacturing sectors subdued, albeit with volatility, whilst construction demand slowly increased, led by Christchurch.
Christchurch residential construction activity continued to gain momentum and infrastructure activities maintained target levels. Our roofing and reinforcing products, particularly reinforcing meshes experienced good growth from this activity. Several commercial build projects, mostly in suburban areas and rebuild preparatory activities led us to believe the commercial rebuild was gaining momentum.
Elsewhere in New Zealand, with the exception of increasing residential consents and specific key infrastructure projects in Auckland, most other regions remained subdued. Quoting activity increased in several locations including Wellington, reversing previous trends but this did not manifest in increased volumes.
Early second-half indications suggested Christchurch construction momentum would continue and, with manufacturing finishing the first half reasonably strongly, expectations were for an improved second half trading environment.
However, February saw the momentum dissipate and demand soften across the country and this soft market continued into April. May and June saw a small recovery. The lower activity was against a domestic economic backdrop of growing optimism.
Despite this ‘mixed’ environment, the second-half performance was ahead of the first and further demonstrates the positive impact on performance of the company’s’ various initiatives.
Stronger in Everyway
One Company
We are pleased with the momentum One Company continues to gain with customers as we held volumes whilst lifting margins in a competitive environment. Customers are recognising the benefits and several new customer partnerships were formed during the year.
The supply-chain changes continue with much foundation work now complete. This will positively impact our overall business effectiveness next year and beyond.
Investment in plant and equipment continues. We have commissioned leadingedge, plate-processing machinery to serve Auckland and the North Island. In Christchurch, additions to wire processing have increased our seismic-mesh capacity and our new commercial-roof profile roll formers have complemented our range in anticipation of the commercial rebuild.
In Nelson and Hamilton we have consolidated our multiple facilities into new, singlesite operations. At each location the distribution and the processing facilities have been brought together to better meet the entire needs of customers and improve efficiencies. Our National Support Centre moved from Lower Hutt to a new singlefloor location in Petone, purposefully designed to underpin our One Company culture and working environment.
Developing our workplace culture and our people continued with significant investment in our Values programme and capability. Pleasingly, this commitment is reflected in the latest employee-engagement survey, which showed improvement across all business areas.
In addition to the numerous One Company initiatives being implemented we remain focused on the fundamentals of the business. Costs were well managed despite the additional resources required to give effect to the change programme.
Health and safety
Steel & Tube places the highest priority on the commitment to the health and safety of our staff, contractors and visitors to our facilities. Over the past 12 months Lost Time Incidents have reduced from four to two and Medical Treatment Incidents from 14 to eight. This represents a 40 per cent improvement on the previous year and we acknowledge the conscientious efforts of all of our staff. Steel & Tube staff face high-risk activities everyday, and we remained focused on addressing those activities with the potential for injuries to our people. We continued to drive behavioural change across our organisation towards appropriate and safe practices at all times.
Outlook
The New Zealand economy appears to be slowly gaining momentum across an increasingly broad range of sectors. While encouraging, our optimism remains tempered until we see an actual uplift in the sectors we serve.
Clearly, the big opportunity for Steel & Tube is the Christchurch rebuild and whilst the residential and infrastructure activities continue to offer growth in certain products, we await the commercial part of the rebuild to decisively commence. It remains unclear when the key anchor projects will begin.
Outside of Christchurch, residential consents continue to increase in most regions and in Auckland especially. Non-residential consents are also increasing but to a lesser degree. Whilst the residential activity will boost roofing and reinforcing throughout the year, commercial activity is likely to impact only the 2013/14 second half and beyond.
In the rural sector, the end of the drought, a strong late season and the latest increase in forecast farm-gate milk prices should see additional maintenance and equipment expenditure on farm. We expect the sector to remain resilient and robust for us in the short to medium term.
We anticipate continued volatility in metal, transport and equipment manufacturing with some pull through for domestic manufacturers as a consequence of construction activity.
From a global steel perspective, we expect the volatility of raw material prices to continue and underlying demand to remain soft. Asian steel manufacturers continue to face financial viability concerns with steel prices at the current level. Over capacity remains and many steel makers are rumored to be facing losses. Therefore, the global steel manufacturing industry needs to improve margins and there appears to be increasing sentiment to find ways to improve pricing. We expect upward pressure on steel pricing domestically and a price increase may follow in the first half.
The company’s many initiatives including one company, staff engagement, supply chain and people development are progressing well, and continue to position Steel & Tube to realise the opportunities from a varied but slowly improving external environment.
With excellent cash flows, increasing performance and a very strong balance sheet the company is well positioned for expansion and growth.
For further information please contact Dave Taylor, Chief Executive Officer, Steel & Tube Holdings Limited, on (04) 570-5001 or [email protected].