Steel & Tube forecasts drop in first-half earnings on inventory writedown

Steel & Tube Holdings' first-half earnings may fall as much as 38 percent reflecting a writedown of inventory, restructuring costs and margin pressures.

The guidance comes as the company holds its annual meeting in Wellington. First-half earnings before interest and tax would be $9-to-$10 million below the year-earlier period it said in a statement. Underlying ebit was about $16 million in the first half of the 2017 year.

Steel & Tube, which manufactures and distributes steel building supplies, said reorganisation and restructuring "will have an unavoidable impact on short-term ebit, however, the benefits from this are expected to offset these costs over the remainder of the financial year."

In the first half, "the company has seen margin pressures from higher steel purchase prices, which the market took some time to pass on to customers," it said. Steel & Tube "has increased selling prices across its portfolio of steel products from mid- November 2017. Margins are expected to improve in the second half of the 2018 financial year from improved pricing."

Full-year ebit, excluding the inventory writedown, was expected to be about the same as 2017's $31.1 million, it said. That would mark the third year without earnings growth.

Steel & Tube has undertaken an $80 million acquisition programme over the past four years, widening the scope of its business, while adding to costs and working capital. At the same time, it has been caught up in a Commerce Commission probe into steel building products and along with two other companies it is being prosecuted after an investigation into seismic steel mesh that the regulator alleges was misrepresented as complying with New Zealand standards.

In September, chief executive Dave Taylor resigned after eight years running the company and director Mark Malpass was named as interim CEO. Chair Susan Paterson became a director in January and replaced John Anderson as head of the board when he retired in the first half.

"Our strategy is to maximise value for our shareholders by creating a sustainable, long-term, successful business," Paterson, said. "The capital investment made into acquisitions and the business in the past five years has created a strong platform for Steel & Tube. However, we are very aware that the company has been too slow to realise the significant benefits and value from these."

Steel & Tube shares last traded at $2.06 and have fallen 13 percent this year.

(BusinessDesk)