Steel & Tube first half profit slips as inflation eats into margins

Steel and Tube's first half net profit fell by 17.5 per cent. Photo / Supplied

Steel & Tube Holdings’ first-half net profit slipped by 17.5 per cent to $11.8m as improved margins were offset by inflation and depreciation.

Revenue hit a record $315.3m, up 11.7 per cent on the previous comparative period.

The company’s earnings before interest and tax dropped by 10.2 per cent to $20.3m.

The board declared a fully imputed dividend of 4 cents per share, equivalent to the unimputed dividend of 5.5 cps for NZ taxpayers in the previous first half.

“Earnings were down slightly on the previous comparative period as margin improvement was offset by inflation and depreciation,” the company said.

New Zealand’s consumer price inflation ran at 7.2 per cent over calendar 2022.

Chief executive Mark Malpass said following the recent “super cycle”, Steel & Tube was well-positioned to respond to moderating demand.

“We have a strong balance sheet and cashflows, and are actively managing costs and margins per tonne,” he said.

A focus on margin management and fast-moving inventory had minimised margin squeeze, the company said.

The manufacturer’s net debt dropped to $32.5m from $43m in the full year 2022, supported by strong cashflows.

Solid demand for steel continued in the first half, despite an easing in activity across most sectors, and there was a long pipeline of projects under way.

But the company said steel demand was expected to moderate as economic conditions impact on businesses across a broad range of sectors.

Activity in January and February 2023 was impacted by wet weather, affecting construction and infrastructure projects.

Supply chain constraints started to lift with international freight costs reducing towards the end of the half.

Steel prices started to recede during the half although in December and January, international prices firmed on a New Zealand dollars basis.

“Macroeconomic headwinds, including inflation, a higher interest rate environment, a tight labour market and the ongoing impact from Covid continue to provide challenges,” the company said.

Further actions have been taken during the period to strengthen the business through debt reduction, it said.

From this month, Steel & Tube had also entered the aluminium market with a select range of high-demand, high-value products, largely servicing existing customers.

Gross margin was 21.7 per cent with gross margin dollars per tonne increasing to $850 per tonne.

Inventory increased in the full year to support customers through a period of supply chain constraints.

This position was now being reduced as supply chain headwinds eased.

The company had a substantial bank facility in place to fund growth.

“Steel demand is expected to moderate as economic conditions impact on businesses and across a broad range of sectors,” Steel & Tube said.

“Activity in January and February 2023 has been impacted by wet weather, impacting construction and infrastructure projects.”

Steel & Tube shares last traded at $1.33, down five cents from Tuesday’s close.