Announcement

FLLYR: STU: Steel & Tube FY19 Results 08:31a.m. 
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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