Steel & Tube Holdings Ltd said in a trading update & year-end forecast on Monday it expects to make a loss of $5-7 million before interest & tax.
The company is scheduled to announce its full year-end results on Friday 28 August.
Normalised earnings before interest & tax (ebit), expected to be about break-even subject to completion of audit work
Normalised ebit on a pre-NZ IFRS 16 basis, expected to be a loss of about $5-7 million
Normalised ebit excludes non-trading adjustments such as non-cash goodwill impairment & other writedowns due to acceleration of branch network changes, business restructuring & digitisation and the impact of Covid-19.
Steel & Tube adopted NZIFRS 16 leases on 1 July 2019. The adoption of this standard results in the reclassification of operating lease expenses to depreciation & financing costs resulting in an increase to ebit & operating cashflow. Pre-NZIFRS16 financial information is provided to assist with comparison to 2019 reported results.
The company expects to report strong operating cashflows of about $26 million (pre-NZIFRS 16) on the back of continued working capital discipline, with inventory significantly reduced to about $101 million.
And it said its balance sheet remained strong – the group expects to report net cash of about $7 million.
Expanding on the basics, chief executive Mark Malpass said:
“Post-balance date, Steel & Tube has completed the sale of a surplus Gisborne property with net proceeds of $1.3 million to be applied to further reducing borrowings.
“In addition to waivers of existing bank covenants for 30 June & 31 December 2020, Steel & Tube has also agreed temporary revised covenants with its bank syndicate for the remainder of the 2021 financial year, which it expects to comfortably meet.
“The Covid-19 alert level 4 lockdown, and then progressive return to more normal business operations, occurred during a traditionally high earning period for the business. Post-lockdown, sales recovered through May and in June were in line with the prior year.”
The company included a $37 million non-cash impairment of goodwill recognised in the December half-year, and other writedowns due to the acceleration of branch network changes (including site consolidations), business restructuring & digitisation in response to anticipated post-Covid-19 market conditions.
Mr Malpass said: “Steel & Tube’s geographic sales strength, improved customer service functions, recent investment in digital capabilities and e-commerce options for customers are a key source of competitive advantage for the company. The previously advised restructuring programme to ensure a cost base that is fit for purpose and to realign Steel & Tube’s cost base with the expected economic recession is well underway.
“The Covid-19 pandemic & lockdown have had a significant impact on the 2020 financial year results, and have intensified the softening we had seen in vertical construction prior to Covid. In response, we have accelerated restructuring of the company, including our branch network & organisation. Our 2020 financial year result has been impacted by non-cash goodwill & other business restructuring and digitisation-related impairments.
“We start the new financial year with a strong balance sheet & a leaner cost structure. Our investment in digital technology has laid a critical platform that is supporting our move to a service model that combines ease of access & customer service. We are confident Steel & Tube is well positioned to weather a range of forecast economic scenarios and, importantly, to take advantage of the opportunities ahead of us.”
29 April 2020: Steel & Tube starts redundancies in business restructure
24 March 2020: Steel & Tube cans dividend
26 February 2020: Steel & Tube confirms half-year loss
28 August 2019: Market contraction offsets Steel & Tube turnaround gains
18 February 2019: Steel & Tube confirms turnaround from 2018 loss
12 September 2018: Steel & Tube completes books-clearing, future already brighter
Attribution: Company release.