NZX Announcement
09 Feb 2012
Directors’ Report
For the Half Year Ended 31 December 2011
Results
The Directors are pleased to present the unaudited consolidated financial statements for the 2012 half year that were authorised for issue on 9 February 2012. The trading result for the six months to 31 December 2011 is a profit after tax of $6.4 million. This is a decrease of $2 million or 24% compared with the same period last year, and in line with previous guidance.
Sales increased by $12.5 million, or 7% to $202.9 million. However margin pressure resulted in a reduced overall trading result.
The net tangible assets per share at 31 December 2011 were $1.47 compared to $1.45 at 31 December 2010.
Dividend
Directors have declared a fully-imputed interim dividend of 5.5 cents per share to be paid on 30 March 2012 to holders of fully-paid ordinary shares registered at 16 March 2012. The amount payable is $4.86 million and a supplementary dividend of 0.97 cents will be paid to non-resident shareholders.
Performance
Industry activity levels saw no appreciable change from the prior year. Notably demand in Auckland was very subdued across all product categories, particularly during September and October, with November seeing some improvement.
Although the key sectors of residential and non residential construction, along with metal related manufacturing remained subdued, this was marginally offset by improvements in the rural sector. The ongoing uncertainties throughout the world continue to impact business sentiment, generally resulting in a cautious approach.
Our Christchurch operations and people continue to demonstrate considerable resilience as they deal with the ongoing earthquakes and aftershocks. There had been early signs that some rebuild activities were commencing, however the ongoing seismic activity may further impact the rebuild schedule.
Volatility in global raw material prices, finished steel prices and in the New Zealand dollar has led to increased volatility in domestic steel prices. This increased volatility along with inventory lead times is creating a more dynamic and challenging pricing environment for steel manufacturers, distributors and customers alike. In addition, the subdued demand led to some manufacturers and distributors being prepared to discount prices early, resulting in significant margin pressure. Prices were increased late in 2011, reflecting international pricing, to reduce the continuation of the margin decline.
At Steel & Tube, we remain focussed on delivering initiatives that focus in improving customer service and growing the company. The One Company approach has resulted in improved sales as the new operating model gains traction. The new and exciting brand was introduced to our customers and staff in July and rebranding was completed in September. Work continues to refresh other parts of our business, which includes upgrades to numerous facilities over coming periods as we continue with the facility rationalisation program.
Additionally our focus on costs, debtors and inventory management, position the organisation for the environment ahead.
Health and safety remains a top priority. Good progress is being made in addressing higher consequence safety risks and although the number of medical treatment injuries is higher than last year, none of the injuries were of a serious nature.
Outlook
From the Company’s perspective the economic recovery remains slow, and although the September quarter GDP was stronger than widely expected, the growth was not in those sectors of most relevance to Steel & Tube.
The rural sector commodity pricing remains elevated, despite softening through the second half of 2011, and we expect demand to reflect this. While non-food manufactured exports and metal related manufacturing both declined in the September 2011 quarter, the December Performance of Manufacturing Index showed some improvement.
Residential construction activity is now at its lowest level since 1993 and non residential building consents in December 2011 were down 3.3% year on year. Any meaningful activity in the rebuild for Christchurch is likely to extend further into the second half of the 2012 calendar year.
Ongoing global uncertainties and the impact these uncertainties have on the NZ economy makes it very difficult to forecast with any degree of certainty. Our view is that the issues overseas will continue to limit confidence and curtail investment. Other than the Christchurch rebuild, we see no reason for demands to increase from the current level in the short term.
We remain focused on delivering our internal initiatives, and we believe that they will increasingly generate benefits above that of the general trading environment. Overall we expect that the results for the second half of the year will be similar to or a little better than for the first six months.