Steel & Tube lifts annual net profit threefold
Aug. 11 (BusinessDesk) – Steel & Tube Holdings' annual profit jumped three-fold from last year's recession hit result but the company still describes market conditions in most areas as ‘difficult.’
It says business has been slow in the last couple of months but the economy is starting to show encouraging signs of the recovery gathering momentum.
Net profit for the year ended June 30 rose to $17 million from $5.7 million the previous year but is still well shy of the $26.1 million in earned in 2008/09.
The company said total domestic demand for steel rose 4% during the 12 months ended June but is still 20% to 25% below the highs of three years ago.
The result was helped by a small one-off tax expense of $289,000 compared with a similar expense last year of $4.2 million, both related to tax changes in the government’s 2010 budget.
Earnings before interest and tax (EBIT) rose 65% to $26.3 million while interest costs fell about $0.5 million due to lower interest rate and reduced debt.
“The economic environment was slow and subdued, in line with the company expectations outlined in last year's outlook statement with little upside from a trading perspective,” the company said.
As well, the Christchurch earthquakes “required significant time and resources to assist staff through a challenging and traumatic period.” Steel & Tube has 120 staff and six facilities in Christchurch which came through the quakes relatively unscathed. One employee lost his partner and many others have suffered damage to their homes, the company said.
Although March quarter GDP rose 0.8%, “from the company's perspective several key sectors continued to deteriorate, thereby offsetting those sectors showing signs of recovery.”
The construction sector in particular continued to deteriorate with residential construction at historical lows while non-residential construction consents also fell a further 4% during the year after an 18% reduction the previous year.
Government infrastructure projects generated much-needed work and included rail electrification in Auckland, the Newmarket Viaduct replacement and a further phase of the Victoria Park tunnel while in Christchurch the southern motorway upgrade started.
Construction remains weak and although housing demand in Christchurch will pick up substantially, “the question is when and it may be later rather than sooner, possibly impacting the latter stages of this financial year.”
Recent global events could undermine local sentiment leading to reduced demand for steel, the company said.
Steel & Tube shares rose 4 cents to $2.39 after the results were released. The shares peaked at $2.80 in April and fell as low as $2.18 yesterday. Rob Mercer at Forsyth Barr says the pre-one-offs result was about $1 million above his forecast.
The company will pay a 9 cents-per-share final dividend, up from 5 cents last year, taking the full-year payout to 15 cents from 8.5 cents last year. Mercer says the 75% payout ratio “provides some confidence in its profit outlook.”