Steel & Tube was insured against a record $1.9 million fine for making misleading representations about steel mesh products but admits it is no longer covered for any continuing litigation.
Auckland District Court Judge Warren Cathcart on Wednesday sentenced and fined the company on 24 charges under the Fair Trading Act after an earlier guilty plea.
Steel & Tube chairwoman Susan Paterson apologised to shareholders at today's annual meeting for the historic breaches, stressing that the false and misleading batch test certificates was an "unintentional" mistake.
She also expressed concern that homeowners were being targeted by people "intent on spreading unnecessary worry, fear and alarm to promote potential litigation," referring to lawyer Adina Thorn's efforts to initiate a class action lawsuit against steel mesh suppliers.
The company will vigorously defend any class action if it proceeds she added.
In response to a shareholder question, chief executive Mark Malpass said the company did not have insurance for any forward problems with the mesh in question, which was supplied between 2012 and 2016.
"We have full confidence in the quality of our product. Unfortunately some decisions were made that weren't quite right and we've apologised for that.
"We have since strengthened our procedures and ensured we have external testing." That includes third-party auditors of steel mills the company sources materials from and bar code tracking.
We are confident that even the mesh that wasn't tested under the current regime, while it may not have met the exact testing procedures around ageing and some of the other requirements, we were insuring that it was fit for purpose. So we aren't insured for a class action or the potential for that coming through."
Meanwhile, Paterson and fellow director Anne Urlwin withstood mild opposition to their board seats as shareholders probed the board's handling of a withdrawn takeover proposal from Fletcher Building.
Paterson was re-elected with 94.24 per cent support and Urlwin with 93.97 per cent of shareholder votes.
Some institutional shareholders criticised Steel & Tube's swift rejection and failure to seek an independent valuation report, after Fletcher abandoned its bid in the face of the Steel &Tube's board's valuation of the company's shares at between $1.95 and $2.36 per share.
One shareholder told Paterson he viewed the board's actions in keeping the Fletcher bid secret for 23 days as "despicable" and asked how First NZ Capital value the shares at around twice the value used in the capital-raising, when the investment advisory firm was the adviser in both circumstances.
However, the chief executive of the New Zealand Shareholders Association, Michael Midgley, defended the board, saying there had never been a concrete offer from Fletcher that could have been put in front of shareholders and that he intended to vote proxies held by the NZSA in favour of Paterson's re-election at today's meeting.
Paterson said the existence of the proposal was only made public when it became aware that Fletcher "was selectively approaching some of our institutional shareholders".
Milford Asset Management, which had built much of its 15.8 per cent stake in Steel & Tube in preceding weeks, subsequently sold its stake to Bluescope Steel, owner of NZ Steel and Pacific Steel, in what is seen now as a blocking holding for the Australian-listed steel manufacturer.
"Bluescope are supportive of our company and our strategy and have publicly said they have no intention of taking over Steel & Tube," said Paterson, who said the company was now well into a turnaround strategy.
Malpass reaffirmed earnings guidance of $25 million earnings before interest and tax in the current financial year, with most of that appearing in the second half, rising to $40 million in the 2021 financial year.
While the results in the last financial year were disappointing and included trouble with a major IT project and $23 million of inventory writedowns, "we are now moving forward under our new strategy, with a clean P&L and balance sheet", he said.
He noted that steel prices had been rising in the last two years "and are currently at some of the highest prices we have seen since 2014, particularly when the softer NZ dollar is taken into account", with direct impact on Steel & Tube margins.
To counter that, the company was seeking to pass through price changes on finished product prices as they occur, within the constraints of competitive market forces.
"Demand for steel in New Zealand remains high, correlating with global demand trends as countries such as China invest into large infrastructure projects," Malpass said.
- Additional reporting Businessdesk