Steel & Tube in expansion plan

Nick Calavrias says the rural and manufacturing sectors are likely to be under pressure for the "foreseeable future". Picture / Mark Mitchell

A 10 per cent fall in first-half profit has not stopped steel distributor Steel & Tube from expanding.

The Lower Hutt-based company has conditionally agreed to buy stainless steel distributor New Zealand Fasteners for about $11 million.

Chief executive Nick Calavrias said NZ Fasteners, which employs 80 people at eight regional locations, would give Steel & Tube's stainless steel arm the opportunity to grow.

The purchase, subject to due diligence, was expected to be completed early next month, although it was unlikely to contribute to bottomline earnings until the 2006-2007 financial year.

The company reported a net after-tax profit of $17.68 million for the six months to December 31, down 10.5 per cent on the same period a year earlier, as high interest rates and the strong kiwi dollar made market conditions "challenging".

Last year's result was revised up to $19.75 million from $18.6 million, in line with new international financial reporting standards.

Trading revenue was $222.8 million, up 3.1 per cent. An interim dividend of 15c will be paid.

Calavrias said there were clear signs the economy was slowing after several super-charged years.

"Although the economy expanded 2.6 per cent for the September year, this was well down from the 4.3 per cent growth recorded a year earlier," he said.

While activity in the construction sector was at all-time highs, the manufacturing and rural sectors continued to suffer the effects of high interest rates and a strong dollar.

Steel & Tube is New Zealand's largest distributor of steel and steel products such as roofing, pipes, wire and metal fasteners.

It generates much of its turnover from housing and commercial construction, and big infrastructure projects like roading.

Calavrias said demand from the construction sector partly offset falling rural volumes in Steel & Tube's steel and roofing divisions during the half-year period, but competitive pressures reduced margins for its Hurricane Wire division.

Although the outlook for commercial construction was expected to be strong, the rural and manufacturing sectors were likely to be under pressure for the "foreseeable future".

"A slowing in consumer spending may further affect the demand for new housing as well as the industries that are reliant on an active residential housing sector," Calavrias said.

International steel prices had also softened, although the impact of that would be lessened if the dollar fell, as expected.

Steel & Tube's shares ended the day up 5c at $3.99.

- NZPA