Steel & Tube Holdings Limited 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 $498.1 million, earnings before interest and tax was $16.8 million and net profit after tax was $10.4 million. On a normalised basis (excluding Plastics and FY18 non-trading adjustments), EBIT improved 22% to $16.0 million and profit increased 74% to $9.9million .
The Project Strive turnaround programme delivered a $10 million 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 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 $21.3 million.
Prudent capital expenditure of $7.2 million was slightly below depreciation & amortisation and focused on productivity improvements.
Net debt reduced from $104m to $15 million due to a combination of the $78.8 million 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.
Mr Mark Malpass CEO said that “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.”
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. (Ukrainian metal)