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.”
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.