Archive | Steel & Tube

Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance

Published 7 August 2018, updated 8 August 2018:
Update: The placement was completed overnight, with the full $20.8 million raised.

Steel & Tube Holdings Ltd announced 2 capital issues on Tuesday to raise $80.9 million, and produced slightly more positive guidance on its financial results for the year that ended on 30 June.

Chief executive Mark Malpass said the company was recapitalising its balance sheet to allow it to execute its business transformation initiatives and achieve its longer-term strategic objectives.

The placement is intended to raise $20.8 million at $1.15/share. It will be followed by a fully underwritten pro rata 1:1.9 rights offer at $1.05/share.

This represents a 28.1% discount to the closing price on the NZX on Monday, and an 18.3% discount to the theoretical ex-rights price of $1.28/share, after the placement & rights offer, based on the pre-announcement close of $1.46.

In year-end guidance based on unaudited management accounts, the company said it had reduced its ebit (earnings before interest & tax) loss projection from $38 million to $36.2 million and expected normalised ebit of $16.5 million, compared to $16 million announced in the 23 May guidance statement.

Guidance for 2019 is for ebit of $25 million, rising to $35-40 million in the next 3 years.

Company chair Susan Paterson said: “We remain deeply committed to rebuilding Steel & Tube as a leading provider of steel products & solutions in New Zealand. We have worked hard to address legacy issues, and early benefits from Project Strive business transformation initiatives are now being seen.

“The capital raised will be used to repay debt, strengthening our balance sheet and giving us greater flexibility to execute our strategy and deliver better value for our shareholders. In addition, we expect the capital-raising to strengthen Steel & Tube’s share register and help create liquidity which will benefit all shareholders.”

She said the capital-raising would significantly reduce Steel & Tube’s gearing, and the company was resetting its capital structure policy to operate with net debt of less than 2.0 times normalised ebitda (earnings before interest, tax, depreciation & amortisation).

While Steel & Tube won’t pay a final dividend for the 2018 financial year, Ms Paterson said the company expected to resume dividend payments in 2019, consistent with its stated policy of paying 60-80% of normalised net profit after tax.

The capital-raising

Steel & Tube shares went into a trading halt today for the placement, expected to be completed in the morning.

The rights offer will open on Friday 17 August and close on Monday 3 September. There will be a bookbuild for any shortfall on Wednesday 5 September.

Steel & Tube is one of New Zealand’s largest providers of steel products & solutions. Its 2 business divisions, distribution & infrastructure, – operate in the construction, manufacturing & rural sectors.

Link:
Steel & Tube presentations

Earlier stories:
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
24 June, 2 July 2018: Updated: Steel & Tube agrees second sale & leaseback
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Lawyer says interest in class action grows as steel mesh sentence awaited

Class action specialist, Auckland lawyer Adina Thorn, said yesterday Steel & Tube Holdings Ltd’s 24 guilty pleas last November relating to false & misleading representations about steel mesh had boosted interest in a proposed class action.

Steel & Tube pleaded guilty in November to 24 of 29 charges laid by the Commerce Commission relating to false & misleading representations concerning 500E earthquake-grade steel mesh. A sentencing hearing was held in the Auckland District Court in May but no sentence has been handed down yet.

Ms Thorn said: “This has led to further owners from across New Zealand signing up for a proposed steel mesh class action against Steel & Tube.

“Our registrations of interest are currently running at a high level and we expect that the sentencing itself will encourage more owners to join the proposed class action against Steel & Tube.

“The proposed action is funded, which means that while funding is in place owners will face no out-of-pocket costs, as all the legal, technical & court costs involved in a claim of this scale will be picked up by the funder in return for them receiving a share of any proceeds of success.”

Ms Thorn said the proposed class action was designed to deliver compensation for the stress & uncertainty for property owners who had ended up with non-compliant steel mesh in their homes & driveways: “The mesh is there forever. Everyone wants to know their home is compliant. Steel & Tube cannot give that assurance – we know the mesh is non-compliant. What we don’t know enough about is performance of that non-complaint mesh in an earthquake. That uncertainty is stressful & unacceptable. We are seeking for owners to be compensated for that.

“This mesh was sold between about March 2012 & April 2016 and much of it was used in the rebuilding of Canterbury following the earthquakes there. However, the mesh people were buying was supposed to be earthquake-grade, when it wasn’t.”

Link: Steel class action

Earlier stories:
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Thorn release.

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Steel & Tube gets waiver, settles Christchurch sale

Steel & Tube Holdings Ltd said today it had obtained a waiver from its banking partners for the covenant breach arising as a consequence of the signalled non-trading writedowns & impairments on its 2018 financial year earnings.

Chief financial officer Greg Smith said formal documentation on terms satisfactory to the company were in place.

He also said the company’s $21.1 million sale of 375 Blenheim Rd, Christchurch, had settled last Friday, 29 June, as expected, and the net proceeds applied to the repayment of bank borrowings.

Steel & Tube will lease the property back long-term, under terms which Mr Smith said were favourable.

Earlier stories:
24 June, 2 July 2018: Updated: Steel & Tube agrees second sale & leaseback
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback

Attribution: Company release.

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Updated: Steel & Tube agrees second sale & leaseback

Published 24 June 2018, updated 2 July 2018:
Update: The company’s sale below was settled on Friday, 29 June.

Steel & Tube Holdings Ltd has signed an unconditional agreement to sell its property at 375 Blenheim Rd, Christchurch, for $21.1 million on a sale & leaseback basis. It expects to complete the transaction next Friday – one day before the end of its financial year.

Late last year, Steel & Tube sold an East Tamaki property, 68 Stonedon Drive, for $32.577 million in its first sale & leaseback deal.

Chief executive Mark Malpass said on Friday: “This arrangement allows us to retain our successful operations in the newly upgraded Blenheim Rd distribution hub under favourable lease terms, while freeing up capital to pay down debt.”

He said the company’s established operations, long-term plans & recent investment into the property made it an attractive acquisition which attracted interest from multiple parties.

He expected the company would recognise a $1.3 million gain on sale this financial year, which ends next Saturday.

Steel & Tube’s earnings guidance on 23 May didn’t include any gain on sale.

The company said in that May announcement it expected to lose $38 million before interest & tax this financial year.

As a result of writedowns & impairments, it also expected its 2018 forecast earnings to result in a breach of one or more covenants in its senior debt facilities. The company said in May management was seeking a waiver from its banking partners for any covenant breach.

The company will release its annual results on 31 August.

Earlier stories:
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes

Attribution: Company release.

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Review puts Steel & Tube ebit loss at $38 million

Steel & Tube Holdings Ltd expects to lose $38 million before interest & tax in the financial year ending next month.

As a result of writedowns & impairments, the company expects its 2018 forecast earnings to result in a breach of one or more covenants in its senior debt facilities. The company said management was seeking a waiver from its banking partners for any covenant breach.

The company released this earnings guidance this morning after a 24-hour share trading halt. It will release the actual annual results on 31 August.

In its release today, Steel & Tube said it expected normalised ebit (earnings before interest & tax) of about $16 million, but non-trading costs & impairments of up to $54 million would take it to the $38 million loss.

In its guidance last November for the half-year to December, Steel & Tube said ebit would be $9-10 million lower than in the previous half-year, impacted by working capital review, reorganisation & restructuring activities and increased depreciation & amortisation costs.

After non-trading costs of $8.1 million, the half-year ebit came in at $6.7 million. However, in last November’s review the company said it expected full-year ebit to 30 June would be “materially the same as the 2017 financial year ebit of $31.1 million”.

Today’s release from the company said the revised guidance followed an extensive company-wide review of the business by the refreshed board & management team in conjunction with the previously announced change programme.

“The review has resulted in the planned exit from, and associated impairment of, S&T’s plastics business; a further writedown of inventory values; a likely impairment of intangible assets; rationalisation of distribution & reinforcing operations; and completion of further organisational restructuring.

“In addition, as previously advised, the company has been significantly impacted by issues relating to the implementation of its new ERP system [enterprise resource planning system, which went live on 2 October 2017].”

While the trading environment remained highly competitive, the company said its board was “confident that the change programme & restructuring undertaken will drive sustainable improvements in earnings and deliver benefits from the 2019 financial year [starting 1 July 2018] onwards”.

The resource planning system represented two-thirds of the year’s change in normalised ebit.

Steel & Tube chair Susan Paterson said at the end of the release: “As noted at the half-year, we have initiated a change programme and are restructuring the company to drive sustainable improvements in earnings. As part of the business review, a number of legacy issues have now been identified & resolved.

“The new management team has completed significant restructuring over the last 6 months and, while today’s announcement is disappointing, the board is confident the business is now well placed to move forward. We have put the past behind us and are focused on growing our business as a leading provider of steel products & solutions in New Zealand.”

Earlier stories:
22 May 2018: Steel & Tube reviews earnings guidance
4 May 2018: Steel & Tube puts second property up for sale & leaseback
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Company release.

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Steel & Tube reviews earnings guidance

Steel & Tube Holdings Ltd shares went into a 24-hour trading halt today to allow the company’s board to consider factors likely to impact on earnings guidance.

The board asked for the trading halt so it could complete a review of financial performance year to date and consider certain other factors likely to impact on earnings guidance previously provided to the market.

The company expects to announce revised earnings guidance for the 2018 financial year before the NZX opens on Wednesday morning.

Factors the board wanted to consider included asset valuations.

In its guidance last November for the half-year to December, Steel & Tube said earnings before interest & tax (ebit) would be $9-10 million lower than in the previous half-year, impacted by working capital review, reorganisation & restructuring activities and increased depreciation & amortisation costs.

However, in that review the company said it expected full-year ebit to next month would be “materially the same as the 2017 financial year ebit of $31.1 million”.

Earlier stories:
4 May 2018: Steel & Tube puts second property up for sale & leaseback
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes

Attribution: Company release.

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Steel & Tube puts second property up for sale & leaseback

Steel & Tube Holdings Ltd has put a Christchurch property on the market as a sale & leaseback, 6 months after a similar $32.6 million deal in Auckland.

Chief executive Mark Malpass said in September: “At the heart of any change is recognition that we are a company that provides steel solutions, not a commercial property company. A sale & leaseback would release capital, improving the efficiency of our balance sheet, while still reflecting the importance of the property through favourable lease terms.”

New company chair Susan Paterson emphasised the switch in thinking at Steel & Tube’s annual meeting in November, saying the company believed it could use funds from these sales to generate a better return for shareholders: “Steel & Tube intends to apply the sale proceeds to repay debt and strengthen its balance sheet. This positions the company well for future growth.”

The first sale was its 68 Stonedon Drive distribution centre in East Tamaki. The new one, the distribution centre at 375 Blenheim Rd, Riccarton, in Christchurch, is being taken to market through CBRE.

Mr Malpass said yesterday: “Over the last few years, Steel & Tube has been consolidating its property footprint. This is an ongoing process as the company looks to capture synergies from recent acquisitions and build on its significant breadth of product offering to customers across New Zealand. Its objective is to create a ‘one stop shop’ for customers, allowing them to access the range of Steel & Tube’s products & services in one place.

In Christchurch, Steel & Tube has recently undertaken 2 major developments. In December, it opened a new coil processing site on Seymour St, Hornby. The development was undertaken by the landlord on a long-term lease arrangement. The second development is the Blenheim Rd site, which has been upgraded and forms a key distribution hub for the South Island.

Earlier story:
20 November 2017: East Tamaki property sold as Steel & Tube rings in changes

Attribution: Company release.

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Steel & Tube owns up to mesh label & testing guilty pleas

After revelations in news outlets this morning that Steel & Tube Holdings Ltd had pleaded guilty – in August – to 24 charges of making false & misleading representations about its seismic mesh products, the company issued a statement to the NZX confirming the guilty pleas.

The company set out numerous dates concerning testing, logos & methodologies, but didn’t mention that it had gone from co-operating with the Commerce Commission to guilty pleas over 3 months ago. It will be sentenced in March.

Steel & Tube interim chief executive Mark Malpass said in today’s statement to the NZX: “On 7 June 2017, Steel & Tube confirmed that the Commerce Commission had filed charges against the company under the Fair Trading Act in relation to 500E grade seismic mesh. The charges in regards to compliance with the testing standard for seismic mesh relate to the application of testing methodologies only, not the performance characteristics of the seismic mesh.

“12 charges relate to the inadvertent use of a testing laboratories logo at the bottom of the test certificates of SE62 mesh. Steel & Tube acknowledged the mistake in March 2016 and immediately removed the logo.

“The remaining 12 charges relate to the application of testing methodologies in the applicable standard, not the performance characteristics of the mesh.

“Steel & Tube has been co-operating with the commission to reach an appropriate resolution of the charges and has entered guilty pleas to the charges.

“Steel & Tube takes quality & compliance very seriously and, since April 2016, the company has had external accredited laboratories testing seismic mesh. The company has also taken significant steps to enhance its quality & product assurance systems.

“These charges relate to historical matters that are before the courts and the company cannot comment further.”

Others too

As if to make itself look not so bad, Steel & Tube added: “The commission has previously confirmed it has filed charges against 2 other companies in relation to false & misleading representations about seismic mesh. The commission has also said previously that it expected to lay charges against one other company, and that investigations continued into another.”

Background

Steel & Tube also added some background – which, through this 2-year episode, has made the company look less bad, even good, for its proactive approach.

Mr Malpass said: “There were significant interpretational issues with the standard for testing seismic mesh. The ambiguities in the standard led to Steel & Tube calling for a Government/industry review of the testing standard and, in November last year, the clarification that Steel & Tube had sought was issued by the Ministry of Business, Innovation & Enterprise.

“Clarification of the standard gives all seismic mesh manufacturers & sellers certainty regarding how seismic mesh is to be tested to ensure it complies with the standard. It also gives building owners reassurance that all seismic mesh will now be tested in the same way.”

Earlier stories:
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Company release.

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East Tamaki property sold as Steel & Tube rings in changes

The exit door has been swinging at Steel & Tube Holdings Ltd, and the departures now include property.

Interim chief executive Mark Malpass said in September the board had determined to test the property market, putting its East Tamaki distribution centre up for sale, and on Friday he said the company had accepted an unconditional offer.

“At the heart of any change is recognition that we are a company that provides steel solutions, not a commercial property company. A sale & leaseback would release capital, improving the efficiency of our balance sheet, while still reflecting the importance of the property through favourable lease terms,” Mr Malpass said in September.

On Friday he said the company had signed an unconditional agreement to sell its 68 Stonedon Drive property for $32.577 million on a sale & leaseback basis. The transaction will be completed on 20 December.

That followed a statement from new chair Susan Paterson at the annual meeting on Thursday, that the company believed it could use funds from the sale to generate a better return for shareholders: “Steel & Tube intends to apply the sale proceeds to repay debt and strengthen its balance sheet. This positions the company well for future growth.”

Mr Malpass said the sale didn’t change the earnings guidance the company gave on Thursday – half-year earnings before interest & tax (ebit)) down $9-10 million, but restored in the second for full-year ebit “materially the same” as for the year just gone, which was $31.1 million.

In the first half of the 2018 financial year the company has seen margin pressures from higher steel purchase prices, which the market took some time to pass on to customers. The company has increased selling prices across its portfolio of steel products from mid- November and expects margins to improve in the second half of the financial year.

Mr Malpass said recent changes to the senior executive team were also bringing a fresh focus and, together with the board, he was targeting a turnaround of poorly performing business units and efficiency gains through a change programme.

Ms Paterson told the annual meeting: “Our strategy is to maximise value for our shareholders by creating a sustainable, long-term, successful business. The capital investment made into acquisitions & the business in the past 5 years has created a strong platform for Steel & Tube. However, we are very aware that the company has been too slow to realise the significant benefits & value from these.

“Management & the board are focused on resetting the performance of the business and delivering a sustainable improvement in financial performance, and we expect Steel & Tube to be a significantly stronger business in 12-24 months.”

The board has identified 2 key goals – to provide superior value to customers and to simplify the business. Among guidance points:

  • Half-year ebit is expected to be impacted by working capital review, reorganisation & restructuring activities, increased depreciation costs for a new ERP (enterprise resource planning) system and the slow response by the industry to margin pressures arising from increased costs of supply. Steel & Tube announced price changes to take effect from mid-November in response to market cost pressures
  • The recent implementation of the new ERP system is a key enabler now available to the business and has helped assist management with a review of slow-moving inventory
  • About half the expected decrease in half-year ebit is due to an anticipated writedown of inventory
  • Excluding the one-off inventory valuation adjustment included in the half-year earnings guidance, full year EBIT for the 2018 financial year is expected to be materially the same as the 2017 financial year EBIT of $31.1 million, as the impacts from recent price changes and the benefits of change actions are realised.

The change programme, to enable the company to maximise the value of investments made over the last 5 years, includes:

  • The realignment & simplification of Steel & Tube businesses into 2 streams (distribution & infrastructure), including the integration of acquired businesses
  • Delivering sustainable earnings growth and leveraging the value from the recent capital expenditure programme, including the new ERP system
  • Strengthening the company’s capital structure, including optimising the supply chain and review of the company’s property portfolio
  • Reviewing working capital with a focus on surplus slow-moving inventory items; and
  • A continuing focus on quality, health & safety and the environment.

 Attribution: Company releases, annual meeting speechnotes.

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Steel & Tube performance dissatisfies new chair

Steel & Tube Ltd went close to last year’s pretax & after-tax earnings in the year to June, but new chair Susan Paterson said a number of external & internal factors took the final result below the high expectations the company had set for itself.

Ms Paterson took over as chair from Sir John Anderson in January.

The company said on Friday its revenue was $511.4 million ($515.9 million in 2016), earnings before interest & tax (ebit) was $31.1 million ($30.5 million) and net profit after tax was $20.0 million ($25.8 million). It improved the bottom line with $35.7 million of revaluation (nil last year), minus $2.9 million of deferred tax.

After excluding the non-recurring gain of $6.3 million on the sale of property in 2016, this year’s ebit was up 2% and profit was up 3.1%.

Basic earnings/share were 22.4c (28.9c), diluted 22.3c (28.9c).

Chief executive Dave Taylor said the increased profit reflected positive contributions from $80 million of strategic acquisitions over the last 4 years and a continuing focus on margin management & cost efficiencies. Several of the group’s businesses delivered record or near record revenue & ebit results.

Mr Taylor said Steel & Tube had positioned itself to improve: “Along with the rollout of a new ERP system (business process management software) across the business, these initiatives enable a much improved customer offering, reduce costs within the business, improve health & safety and position the company to lift capability and better execute its strategy. Steel & Tube is now in a position where it can gain significant operational leverage from its investments.”

Steel & Tube continues to build on its successful One Company philosophy to add value to customers and create a modern and innovative company that leverages its unique capabilities, including an unrivalled product range and nationwide footprint.

An $80 million acquisition programme over the past four years has seen the stable of Steel & Tube businesses grow, and costs and working capital have increased in line with the company’s expansion. One Company synergies have yielded performance improvements to all parts of the business, noticeably the acquisitions. Cost management continues to be a focus and initiatives in FY17 are enabling some cost synergies to be realised, with further overhead cost savings expected in FY18.

He said the company had the next phase of facility upgrades underway. A purpose-built facility would open in Dunedin this year, and the optimisation of Christchurch facilities into distribution & processing hubs would open this financial year. The leaseback model was proving successful and an opportunity existed to further optimise Steel & Tube’s property footprint.

“The completion of the facility upgrades, and the ERP & other IT initiatives, will end a $32 million capital reinvigoration programme, which, along with the acquisitions, has been funded by operating cashflows & debt. The focus is now on strengthening the balance sheet, including capturing working capital benefits from the company’s significant scale & ERP investments.

“Steel & Tube remains New Zealand’s leading distributor & manufacturer of steel solutions. Our ‘one company’ approach has seen Steel & Tube modernise and become more efficient, with best-in-class acquisitions expanding our offer. Going forward, we will have an increasing focus on initiatives that leverage our unique capabilities and deliver better value to our customers through a more effective supply chain.”

Mr Taylor said Steel & Tube had 2 operating groups – infrastructure & distribution – that operate across 3 sectors: “The construction sector continues to be buoyant, however is intensely competitive, with limited resources in some areas leading to project delays impacting on subcontractors. The manufacturing sector remains resilient, with activity levels approaching pre-global financial crisis levels, and commodity prices continue to firm for the rural sector, leading to increasing payouts, improving confidence & renewed investment.

MSL and S&T Plastics both completed their first full year of contribution, following acquisition in 2016. MSL delivered record revenues & strong ebit.

After investment in S&T Plastics’ plant, it secured about $27 million of contracts, which are expected to run through the 2017 & early 2018 calendar years: “Teething issues with the manufacturing process resulted in higher scrap rates than expected, which reduced 2017 ebit by $2 million. These issues are being addressed and scrap rates are expected to reduce considerably over coming months.”

Steel & Tube completed its acquisition of Composite Floor Decks Ltd last October, and Mr Taylor said the business had performed in line with expectations, even though external project delays had pushed some activity into the new financial year.

Price increases following the uplift in raw material & finished steel prices, and supply chain efficiencies delivered a margin lift of almost 2%.

Mr Taylor said the construction industry remained highly competitive and reinforcing prices were at multi-year lows, reducing margins and impacting on the reinforcing business’s returns.

He said the company continued to work with the Commerce Commission to reach an appropriate resolution regarding the application of testing methodologies for seismic mesh and, as a leading industry participant, supported changes for a more robust regulatory framework: “The company is confident about the performance characteristics of its seismic mesh, and Steel & Tube stands behind its products. Following a group-wide review, quality resources have been strengthened and quality management processes have and continue to be enhanced.

The board has declared a fully imputed final dividend of 7c/share, taking full-year dividends to 16c/share.

Attribution: Company release.

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