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Steel & Tube FY profit helped by lower input prices

Steel & Tube FY profit helped by lower input prices; Christchurch commercial work awaited

Aug. 16 (BusinessDesk) – Steel & Tube Holdings posted a 19 percent gain in full-year profit, even as sales fell, as the company benefited from low prices for the unfinished steel it uses to make its building products, chief executive Dave Taylor says.

Sales declined 3 percent to $393 million in the 12 months ended June 30, but cost of sales fell 4.5 percent in the same period, helping contribute to profit growth to $15.6 million that about met a forecast by brokerage First NZ Capital. The company didn’t give specific guidance for the current year.

“The vast majority of that (cost of sales) would’ve been the steel costs,” Taylor told BusinessDesk. “How well we buy has a key impact on overall trading results. What we’ve managed to do this year is eke out a couple of extra basis points from careful buying.”

The shares gained 3.6 percent to $2.60, and have gained 16 percent in the past 12 months, lagging behind the NZX 50 Index’s 25 percent gain. The stock is rated a ‘buy’ based on a Reuters survey.

Steel & Tube is likely to be a key beneficiary of the rebuild of Christchurch and building activity in Auckland but the company reported mixed results across the country. Momentum in construction activity in Christchurch dissipated in the second half compared to the first six months of the financial year half and with the exception of Auckland “most other regions remained subdued,” it said today.

Taylor said the commercial elements of the rebuild of Christchurch, such as warehouses and office blocks, are “the big opportunity” for Steel & Tube, as well as infrastructure work such as bridges because that typically consumes more steel building materials than residential building work.

To date, much of the work has been residential, which uses little steel, as the city finalizes its plans for rebuilding the CBD.

The company lifted its final dividend payment to 8.5 cents a share from 6.5 cents a year earlier.

“The New Zealand economy appears to be slowly gaining momentum across an increasingly broad range of sectors,” it said. “While encouraging, our optimism remains tempered until we see an actual uplift in the sectors we serve.”

“The global steel manufacturing industry needs to improve margins and there appears to be increasing sentiment to find ways to improve pricing,” the company said. “We expect upward pressure on steel pricing domestically and a price increase may follow in the first half.”

In October, Australia’s Arrium sold its 50.3 percent stake in Steel & Tube.


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