Haley van Leeuwen
A continued tough trading environment for Steel &
Tube did not stop it improving its margins and boosting its
half-year after-tax profit about 10%, to $7.3 million.
Steel & Tube's performance, and its outlook, are being
keenly watched as an indicator for both the construction
sector in general and specifically the rebuilding of
Christchurch, which have both been flat and, until recently,
While Steel & Tube's revenue was down from $202.9 million
to $199.5 million, brokers were pleased with the overall
result. Earnings before interest and tax, margins and
after-tax profit all increased.
Shares in Steel & Tube rose 4.33%, to $2.65, after the
announcement of the half-year results.
Forsyth Barr broker Haley van Leeuwen said sales were down
1.6%, at $199.6 million, compared with the previous
corresponding period and 4.5% below Forsyth Barr's forecast
of $209 million.
''The weaker sales continue to reflect the tough underlying
steel demand in New Zealand, specifically in the
manufacturing and construction sectors,'' she said.
While steel prices were flat in New Zealand dollar terms and
domestic demand was soft excluding Christchurch, the
improvement in margins boosted the outlook for Steel &
Tube, she said.
The earnings before interest and tax (ebit) were a ''positive
surprise'', up 12.4% to $11 million, price hikes driving the
ebit margin from 4.8% a year ago to 5.5%, which was,
nonetheless, still low and below historical averages, Ms Van
Craigs Investment Partners broker Greg Easton said it was a
good result and exceeded Craigs' forecasts and guidance.
''Margin improvements offset the slight fall in top line,
which suggests restructuring is working well. Strong
cashflows put the balance sheet in even better shape,'' he
said. The result suggested a recovery in earnings momentum
after a volatile start in the first quarter and some
improvement in the second.
''Overall, it was a good performance, signalling a recovery
is under way, and will continue to improve in the second half
of the year,'' Mr Easton said. The company's focus on
supply-chain initiatives was paying off, as the increased
margins showed, inventory management having improved
''sharply'' on a year ago, with inventories down 13%, he
Steel & Tube chief executive Dave Taylor said global
uncertainty was continuing to shape domestic markets
important to Steel & Tube, notably the manufacturing,
construction and rural sectors, as well as ''ongoing pricing
volatility and sluggish, worldwide demand'' in the steel
However, the construction sector was improving, led by
Christchurch, and other regions were showing increased quote
activity across the sector, ''suggesting the non-residential
inertia has bottomed''.
''Overall, we expect the results for the second half of the
year to be ahead of the first six months,'' Mr Taylor said.
The Mainzeal receivership was not expected to affect Steel
& Tube, he said. However, Ms Van Leeuwen said there was
likely to be a one-off impact ''of some kind'', though not
sufficient to affect Steel & Tube's valuation.