Overview
The key industry sectors important to Steel &Tube have shown little improvement, and although there has been a pick-up in Christchurch, national steel demand has seen only a marginal increase year-on-year. This has resulted in a very competitive environment with significant pressure on margins.
Our One Company approach has seen significant change in the company during the year. The customer-centric and employee-focused programme involves a comprehensive transformation of our operations and processes that will provide greater efficiencies, better practices and end-to-end solutions for our customers. This continues to be an exciting journey for the company and we have made good progress in a number of key areas.
Financial results
In a subdued but slowly improving market, sales for the year have increased by 5% to $405 million, an increase of $19.6 million.
Group profit after tax for the full year to 30 June 2012 was $13.1 million compared with $17.0 million the previous year. This reduction is due to the margin pressure, reflecting the low growth and particularly for those products aligned to the construction sector.
The second half of the year marginally improved on the previously announced results for the six months to 31 December 2011. Revenue was consistent in both halves, $202.9 and $202.5 million respectively. Net profit after tax increased slightly in the second half to $6.7 million, giving a total of $13.1 million.
Operating cash flow at $18.8 million is an increase of $4.9 million (35%) when compared with the previous year.
A final dividend of 6.5 cents per share was declared.
Trading environment
The three key industry sectors (construction, manufacturing and rural) have seen minimal growth over the year, although monthly and regional variations are becoming increasingly apparent, notably the following.
In Auckland, the first half of the year had low-activity levels. This was mainly during September and October with some recovery evident in November. The Auckland economy now appears to have entered into another period of subdued activity.
Wellington has progressively deteriorated throughout the 12-month period with little sign of improvement.
New Plymouth is seeing increased activity in the oil and gas sector and, as anticipated, there are early signs the rebuild is underway in Christchurch.
The construction sector is slowly improving with residential consents by value improving 12.1% to June 2012 but notably from 40-year lows in 2011. However, the more critical market for Steel & Tube is the non-residential market. This sector has seen a marginal improvement of only 0.2% to June 2012 and again from a very low base.
Excluding meat and dairy, manufacturing remained flat up to the March 2012 quarter. Increases in manufacturing of metal products were offset by decreases in machinery and equipment manufacturing.
Rural commodity prices continued to soften through the period but these were offset by improved volumes. Farmer confidence was relatively high providing solid activity either side of the half year. Weakening prices and concern around Europe and China have influenced sentiment and led to reduced activity by the year end.
The consequence of the on-going subdued economic environment means that total steel demand for New Zealand remains suppressed. While there has been a marginal increase for the year, the estimated consumption of approximately 665,000 tonnes is still significantly down on the peak of 970,000 tonnes in 2005. Therefore, competition remains intense and continues to inhibit margins throughout the industry.
Global steel pricing volatility, accentuated by the New Zealand dollar variations, has proved challenging both in terms of sourcing product and working with customers to provide certainty for their projects.
Stronger in Everyway
Company performance
The company is approaching its second anniversary on its reinvigoration journey under the One Company umbrella. Much has been achieved during that time including the introduction of a new operating model, a new and inspiring brand that is represented by a distinctive new logo and tagline Stronger in Everyway, the commencement of new supply-chain processes, as well as extensive training and development to support these initiatives and upskill our people.
Pleasingly, as the initiatives under One Company continue to gain traction, overall sales increased by $19.6 million (5%) due to increased pricing and volume. Market shares remained steady with some products showing marginal improvement. However margins were impacted as customers and contractors leveraged their positions through the supply chain and competition chased what activity there was.
Our Processing business, comprising roofing products, reinforcing, wire and mesh products, is primarily aligned to construction and despite the marginal improvement in this sector, margins have been under intense pressure.
The company change plans have seen expenses reduce since 2009 by $12.5 million. In the current year the company is investing in people capability, product capacity, particularly in Christchurch, and the establishment of much improved supply-chain processes. This investment, along with increased price pressure from insurance premiums has seen expenses increase by $2.3 million.
Pleasingly, the company balance sheet and cash management remain strong. Our focus on supply chain has seen inventory reduce by $6.0million, and this trend is expected to continue as the full impact of the supply-chain initiatives gain momentum in the next year. Higher sales revenue has resulted in higher receivables increasing by $6.0 million. Customer credit remains a concern in this trading environment and we are pleased with our overall management of credit.
Christchurch
Our attention in Christchurch is both supporting our people as well as being prepared to maximise opportunities with the projected rebuild. Additional staff have been recruited to all levels and plant and equipment have been reviewed to ensure we will have the capability to maximise the opportunity at the various stages of the rebuild.
Early in the year we introduced a new and complete range of earthquake seismic-ductile meshes for residential and commercial markets. This was consistent with the Department of Building and Housing’s new codes issued for use of reinforcing meshes in house slabs.
Maximising the One Company platform we introduced the Steel &Tube Residential Offer, initially for Christchurch, to encompass all of the products within our comprehensive range, including the new seismic meshes that go into residential buildings.
One Company
Our people, our values
United, open, trusted, integrity and accountable
With input from approximately 100 staff, refreshed core values were developed supportive of the One Company approach. These values were shared with all staff across the company during the second half. We also conducted an employee survey early in the year. As would be expected there are areas for improvement, which are being addressed but overall it is pleasing to see One Company principles being embraced by our employees for the full benefit of our customers.
Our customers
We are encouraged by our customer’s feedback to One Company and now have several examples where the One Company approach has resulted in the supply of all steel requirements for new facilities. A recent example has been for a specialist structural fabricator on the outskirts of Christchurch, as they themselves prepare for the rebuild.
The company continues to explore ways to improve the suite of products, services and technical specialist support available to all our customers.
We look forward to continuing the One Company journey with our customers and demonstrating our continued commitment to excellent performance and service.
Our commitment to health and safety
Steel & Tube remains committed to the health and safety of all of our employees, as well as contractors and others who visit our facilities. We have increased resources within the health and safety function to provide greater support for the front-line operations.
This year, the company improved on all lead-indicators, which are measures of activities undertaken that support our Health and Safety programme. However, we slipped back on the number of lost-time and medical incidents with a total of 15 incidents, of which all but one were of minor nature.
Our goal remains on addressing those high-risk activities that have the potential for significant injury consequences to our people, as well as driving behavioural changes across our organisation towards appropriate and safe practices at all times.
Outlook
It remains difficult to formulate a clear perspective on the economic outlook. External factors to New Zealand are likely to continue to overshadow local issues and drive sentiment.
On a positive note there are signs the rebuild in Christchurch is underway, albeit slowly. It is being led by the residential sector, infrastructure and preparatory activities of companies in readiness for the rebuild. Similarly, residential activity in Auckland is picking up, while oil and gas activities continue in the Taranaki region.
However, demand and activity levels outside of these sectors are expected to remain subdued in the short to medium term. The lack of non-residential activity is of concern and is likely to continue to challenge margins through the supply chain in that sector.
Rural sentiment has cooled recently with further deterioration in commodity prices and a stubbornly high New Zealand dollar. While investment in dairy conversions is strengthening, investment in existing farming platforms is expected to slow.
The global supply and demand balance for steel is expected to see global steel prices become more volatile as we extend into a period of uncertainty due to the debt crisis in Europe and a slowing Chinese economy. This impact coupled with a variable New Zealand dollar will lead to domestic steel pricing volatility.
Notwithstanding, the company’s internal initiatives are progressing well. These initiatives continue to help reposition Steel & Tube to maximise returns from a mixed external environment.
The company remains in very good shape with strong cash flows and a strong balance sheet and is well positioned for the future.