Steel & Tube hopes major projects will lead to a better second half

Steel & Tube reported a net loss of $37 million for the six months ended December. Photo / File

Steel & Tube Holdings is pinning its hopes on supplying a number of major projects to help it produce a better second-half result.

Those projects include the Metro Sports facility in Christchurch, the new wharf at Port of Napier, the Mangere Bridge rebuild and the City Rail Link in Auckland.

The steel products distributor's underlying first-half operating profit fell nearly 42 per cent, even before further goodwill write-offs and yet more restructuring costs, although both were well-flagged.

The company's net loss of $37 million for the six months ended December compares with a net profit of $5.6m in the same six months a year earlier.

Excluding the one-offs, earnings before interest and tax were $5.7m, down from $9.8m in the previous first half and sales were down 9.8 per cent to $232m.

The company said high-rise construction activity was down, as was the stainless steel market, and ready-mixed concrete volumes also fell, although residential activity remained strong.

About the best thing that can be said about the result is that it's less of a plunge than what Fletcher Building's steel division reported: a fall in ebit to $1m from $22m in the previous first half.

The supply-side of the business is little better with Australia-based Bluescope reporting that its New Zealand unit's first-half operating earnings fell 82 per cent on a 9 per cent drop in revenue.

That reflected poor weather, lower infrastructure spending and reduced volumes of products such as wire, reinforcing and beams. Bluescope owns 16 per cent of Steel & Tube.

Steel & Tube chief executive Mark Malpass said his team has done everything within its control to position the business for the recovery, including reducing headcount from 1,100 to below 1,000, and reducing and consolidating a further four operational sites to 31 now compared with 48 in January 2018.

"It's not a flash result but this business has great bones. The operating leverage in the business is significant. If we can get that additional revenue, it goes straight to ebit," Malpass told BusinessDesk.

Like Malpass, Fletcher and Bluescope have both reported signs the second half will be better.

For Steel & Tube, there's a question over what could be considered a "normal" result.

The company told last September's annual shareholders' meeting that it remained confident of producing $30m to $35m in annual ebit in the longer term, albeit it was taking longer to achieve than it had hoped.

In the latest six months, Steel & Tube said it held market share and its margins held steady at about 22 per cent, despite the fall in sales.

And it cut underlying operating expenses by $2.8m, excluding the impact of bad debts – the latter totaled $2.8m, mainly because a large customer went bust.

Operating cashflow also improved and the company was able to cut net debt to $10.9m at December 31 from $15m at June 30 last year. Steel & Tube's gearing ratio is now just 5.4 per cent.

Steel & Tube will pay a 1.5 cents per share first-half dividend on March 27 to shareholders on the register on March 13, down from 3.5 cents for the previous first half.

Steel & Tube shares rose 1 cent to 81 cents after the results were released but have fallen 36.2 per cent in the last 12 months.