NZX Announcement15 Feb 2013
It has been a successful six months to 31 December 2012 for Steel & Tube. The on-going One Company and supply-chain initiatives have contributed to an improvement in the Company's performance compared with the same period last year.
The trading result for the six months to 31 December 2012 is a profit after tax of $7.3 million. This is an increase of $0.9 million or 14 per cent compared with the same period last year and slightly higher than previous guidance.
Sales decreased marginally by $3.3 million or 1.6 per cent to $199.6 million. However, margins improved due to close management of market pricing.
The net tangible assets per share at 31 December 2012 were $1.53 compared with $1.47 at 31 December 2011.
The Directors have declared a fully-imputed interim dividend of 6.5 cents per share to be paid on 28 March 2013 to holders of fully-paid ordinary shares registered at 15 March 2013. The amount payable is $5.75 million and a supplementary dividend of 1.15 cents will be paid to non-resident shareholders.
Arrium's majority shareholding divestiture
A significant development for Steel & Tube during the half year was the divestiture on 9 October 2012 by Arrium (formerly known as OneSteel) of their 50.3 per cent majority shareholding in the Company. The shares were acquired by New Zealand institutional and retail investors.
A positive development for Steel & Tube was the return to the NZX 50 on 14 November 2012. This has generated a much greater interest in the Company from our new shareholders and the wider investment community.
As a consequence of the shareholding change existing Director Sir John Anderson replaced Dean Pritchard as the Chairman, effective 10 October. Dean Pritchard and Rosemary Warnock, both formerly Arrium-appointed Directors, remain as independent Directors. Steve Hamer Chief Executive of OneSteel Distribution resigned 9 October and a search for his replacement is underway. Independent Director Janine Smith and Chief Executive Officer Dave Taylor remain as Directors.
Global uncertainty continues to shape those domestic markets important to Steel & Tube, notably manufacturing, construction and rural, as well as the steel sector generally with on-going pricing volatility and sluggish, worldwide demand.
The start of the new financial year coincided with price increases improving margins, although underlying demand remained restrained with subdued activity in the manufacturing and rural sectors. However, this was offset by increased construction activity led by Christchurch.
With rising concerns about a slowing Chinese economy and increasingly soft global demands, pricing for steel raw materials and finished products eased. This coupled with ongoing intense domestic competition led to pricing pressures, which reduced some of the earlier margin gains as the half year progressed.
Christchurch construction activity continued to slowly improve and our business there remains well positioned. Auckland activity levels and, in particular, commercial construction have remained subdued with only the residential construction sector offering any real sign of improvement. Manufacturing remained suppressed with metal manufacturing activity by volume down 6.9 per cent for the quarter ending September on seasonally adjusted figures. Transport and machinery equipment saw a slight improvement at 0.8 per cent.
Progress continues with the Company's various reinvigoration initiatives under the banner of 'One Company'. Two further areas, Nelson and Hamilton, have consolidated all of their respective businesses into single-site operations.
The Company's Lower Hutt-based national support centre has been relocated to a new office facility in the Hutt Valley.
A new plate-processing facility was commissioned in Auckland and resources have been bolstered in Christchurch. Extensive staff development and capability programmes have continued, which are all underpinned by the Company's brand and values.
The half year saw the introduction of the new supply-chain model with the culmination of several supply-chain initiatives. Although the transition remains in its early days it is pleasing to see some benefits already flowing through.
As always, health and safety are a priority for Steel & Tube with considerable effort and focus placed on educating and engaging staff and particularly on those activities with high risk. Pleasingly, the number of incidents resulting in injury was reduced compared with the previous year and all of those incidents were of minor nature.
Underlying demand remains the fundamental issue for the steel industry both domestically and globally. Internationally, business sentiment appears to be more optimistic with the Chinese and the US economies appearing more bullish and Europe a little more stable. This is reflected in slow expansions to manufacturing in the US and emerging markets, although Europe continues to contract.
Similarly, and despite mixed data, domestic sentiment appears to be strengthening aided by a reasonable December quarter, increasing construction activity centred predominately around Christchurch and improving house prices.
Volatility in manufacturing continues with a weak September quarter countered by a marginally stronger December quarter. With the slow improvement in the economy and other trading partners it is hoped this sector will continue to deliver growth, albeit likely to be muted by the ongoing strength of the New Zealand dollar.
With robust overseas demand, the rural sector appears to be more positive than the previous year. However, generally on-farm spending is slow but consistent with our expectations. New investment in processing capacity in dairy shows a continuing long-term confidence in the sector.
From a company perspective, construction is improving, clearly being led by the Christchurch rebuild activities. Other regions are showing an increase in quote activity across the sector suggesting the non-residential inertia has bottomed. The recent appointment of receivers to Mainzeal Property and Construction Ltd has no material impact on the Company. Manufacturing is holding but under pressure, and the rural sector is constant.
With the pick-up in global activity and compounded by a tightening in supply, iron ore has rebounded from the lows of September 2012 and is currently above $150 per tonne. Some mills have already started to increase finished steel product prices and this is likely to impact the domestic market in the near term.
At Steel & Tube we remain focused on delivering the various reinvigoration initiatives that put the customer at the centre of what we do. We believe our strengthened approach will increasingly generate benefits above those of the general trading environment.
Overall, we expect the results for the second half of the year to be ahead of the first six