Announcement

FLLYR: STU: Steel & Tube FY19 Results 08:31am 
STU
23/08/2019 08:31
FLLYR
PRICE SENSITIVE
REL: 0831 HRS Steel & Tube Holdings Limited

FLLYR: STU: Steel & Tube FY19 Results

Steel & Tube announces its financial results for the twelve months ended 30
June 2019.

Summary
- Gross margin performance adversely affected by market and trading
conditions; initiatives underway expected to drive improvement in FY20.
- Good progress made and benefits being delivered by Project Strive, with
increased revenue, a reduction in operating costs and a reduction in net
debt.
- Reported revenue of $498.1m, EBIT of $16.8m and NPAT of $10.4m.
- Consistent with May 2019 guidance and on a normalised basis (excluding
Plastics and FY18 non-trading adjustments), EBIT improved 22% to $16.0m and
NPAT increased 74% to $9.9m.
- Board has declared a fully imputed final dividend of 1.5 cents per share.
- Continuing strong performance in safety and quality.
- The focus for FY20 is on continuation of initiatives to improve earnings.

See attached media release for summary results table.

Commentary
Steel & Tube Holdings Limited (NZX: STU) made good progress on its business
turnaround programme in FY19, although positive gains were offset by lower
than expected gross margin performance due to market contraction in some high
value categories and a highly competitive market.

Revenues were $498.1m, earnings before interest and tax (EBIT) was $16.8m and
net profit after tax (NPAT) was $10.4m.

On a normalised basis (excluding Plastics and FY18 non-trading adjustments),
EBIT improved 22% to $16.0m and profit increased 74% to $9.9m.

The Project Strive turnaround programme delivered a $10m benefit in FY19
contributing to a 5% improvement in revenues and a 4% reduction in operating
costs (on a normalised basis). A new operating structure has been established
including a strengthened leadership team. Good progress has also been made
improving safety performance and quality systems. The employee total
recordable injury frequency rate (TRIFR) of 1.5 was well below industry
benchmarks.

The 5% normalised revenue gain was a result of new business growth and a
combination of improved delivery performance and customer service.

Operating costs were down 4% year on year on a normalised basis, with
significant structural efficiencies achieved and more being targeted. Key
drivers included benefits from network optimisation, labour and other cost
efficiencies. Some short term cost impacts were absorbed from Strive
initiatives which will deliver long term benefits and value.

Gross margin performance was below expectations with revenue gains and cost
efficiencies not enough to offset the impact of market contraction and
competitive price pressures. Price competition was significant throughout
the second half of FY19, business confidence has softened and some higher
value sectors have contracted (stainless market particularly). The impact has
mainly been seen in the Distribution businesses.

A disciplined approach to managing working capital resulted in improved
inventory availability across the business whilst reducing inventory
holdings, and improving debt collection rates led to a reduction in overdue
debt balances. The company significantly improved cash generation with net
operating cash flow of $21.3m.

Prudent capital expenditure of $7.2m was slightly below depreciation &
amortisation and focused on productivity improvements.

Net debt reduced from $104m to $15m due to a combination of the $78.8m net
proceeds from the capital raise, improved operating cash flows, tighter
working capital management and prudent capital expenditure. The company has
a strong balance sheet providing the financial strength to execute strategies
and manage business trading cycles.

While Directors are cognisant of the work still to be done, the Board remains
confident in the company's strategic progress and has declared a fully
imputed final FY19 dividend of 1.5 cps, taking total FY19 dividends to 5.0
cps.

CEO Mark Malpass said: "Steel & Tube has a number of strengths, including our
national network providing a metropolitan and regional presence, a broad
product range, technical capability, operational integrity and high standards
of safety and quality. Our pursuit of customer excellence will help to ensure
we remain a relevant and attractive option for customers. Margin performance
has been challenging and, while there are external factors that are difficult
to influence, the initiatives being undertaken are expected to deliver an
improvement in both business divisions. We are very focused on building a
business that is fit for the future and, while this is taking longer than
originally anticipated, we remain confident in our long term prospects as a
leader in the steel industry in New Zealand."

Divisional Review
Overall, the Distribution division's FY19 performance was ahead of prior
year, with revenue of $287.7m and EBIT of $2.9m. Volumes increased driven by
improving product availability, deliveries and sales team focus, and despite
aggressive price pressures from several key competitors. However, the
division has been the hardest hit by the trading and market conditions, with
stainless steels, in particular, suffering from a significant market
contraction. Overall costs reduced significantly with the exit from third
party warehousing, site integrations and optimisation of staffing levels. A
focus on cash has also resulted in improved debtor days and total inventory
levels.

The Infrastructure division reported pleasing improvements in revenue and
EBIT, to $209.4m and $11.9m respectively. Freight savings and improved labour
productivity helped drive the improved results, although margins continued to
be under pressure. Revenues also benefited from building a strong and growing
reputation for delivery and investments such as the introduction of a new
composite floor decking profile.

Outlook
The tighter market conditions and competitive landscape are expected to
prevail in FY20 and the company is adapting to ensure the business model is
fit for purpose.

The Project Strive turnaround programme will continue to focus on additional
cost efficiencies by reducing business complexity and streamlining the supply
chain. Competitive advantage is expected to be built through maximising
cross-selling opportunities, margin management and leveraging the AX ERP
system to support customers with digital solutions. Benefits will include
improved product availability, service and delivery times for customers, and
lower inventory and logistics costs for the business.

The product and asset footprint will continue to be improved and the company
is reviewing options for the sale of remaining owned properties which are
surplus to requirements. Costs associated with Strive initiatives will be
realised in the first half results, however, will benefit the full year
results.

Chair Susan Paterson commented: "While there is more to be done, Steel & Tube
made good progress during FY19, with management delivering on controllable
commitments, particularly revenue growth, operating cost reductions and
working capital discipline. Improving margin performance is a priority for
management this year.

"We have a strong balance sheet and the investments and work already done
will be of benefit to us in FY20. The underlying value inherent in our
business was reflected in the non-binding indicative offer to buy the company
in September 2018, which the Board considered did not reflect full value and
had been advised that regulatory hurdles would be unlikely to be overcome.

"Steel & Tube remains an important part of New Zealand's economy, providing
customers with choice and access to specialised products and technical
knowledge. We remain absolutely focused on improving the return on investment
and delivering value to our shareholders."

ENDS

Steel & Tube will be holding an analyst and investor conference call at
10.00am NZST. Dial in details can be viewed here.
https://steelandtube.co.nz/investor/media/2019/stu-confirms-guidance-results-
date

For further information please contact:
Mark Malpass
Steel & Tube CEO
Tel: +64 27 777 0327
Email: mark.malpass@steelandtube.co.nz

Greg Smith
Steel & Tube CFO
Tel: +64 21 755 803
Email: greg.smith@steelandtube.co.nz

For media assistance, please contact: Jackie Ellis, +64 27 246 2505
jackie@ellisandco.co.nz
End CA:00339641 For:STU Type:FLLYR Time:2019-08-23 08:31:05

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