Steel & Tube June year net profit falls 20pc

WELLINGTON - Steel & Tube Holdings today reported its June year net profit fell 20 percent to $30.8 million.

Chief executive Nick Calavrias said the market had been in retreat for much of the year and the company expected a further softening in the 2006/2007 year.

"Although the outlook for commercial construction and infrastructure spending is expected to remain strong, the rural and manufacturing sectors will continue to be under pressure in the foreseeable future and a slowing in consumer spending is expected to adversely affect the demand for new housing."

However, Mr Calavrias said the company was comfortable with analysts' profit forecasts.

The company said it would pay an unchanged, fully imputed 17cps dividend on September 8 bringing the total for the year to an unchanged 32cps.

Steel prices and supply volatility had been key ingredients affecting the last few year's results, Mr Calavrias said.

World demand for raw materials, led by the industrialisation of China, was once again outstripping production capacity, causing upward pressure on pricing.

"This pricing pressure is now flowing through the supply chain with substantial increases applying to all steel products."

Steel & Tube, half owned by OneSteel of Australia, said earnings per share fell 20 percent to 35.1cps.

The lower profit was despite a rise in sales to $439.34m from $437.42m in the previous year. This includes sales from Allrig Ltd and NZF Stainless which were acquired during the year. Adjusting for these acquisitions, sales were $9.5m lower.

Mr Calavrias said although the result did not match last year's, the company had performed very well in a volatile market.

"The impact of a continuing strong currency, increasing energy costs and high interest rates throughout the year slowed the economy considerably during the year under review."

National economic growth for the three quarters ending March 2006 was 0.7 percent compared with 2.8 percent in the preceding 12 months.

Construction activity remained at similar levels to last year. Building approvals for new houses declined by 2 percent during the year following a 16 percent fall in the previous year.

The manufacturing and rural sectors were adversely affected by the strong New Zealand dollar and domestic-based manufacturing also suffered as cheap imports replaced locally manufactured product.

"The combination of these impacted on the company's ability to pass on the full effect of cost increases incurred during the year," Mr Calavrias said.

Demand in the steel distribution unit began the year strongly but then became patchy.

Considerable supply chain volatility was also encountered. The replacement cost of steel reduced in the first half of the year, as steel mills internationally faced a market correction following the unsustainable world demand of the previous year.

This put downward pressure on selling prices and margins at a time of declining domestic steel consumption.

Although steel prices recovered in the third quarter and are now again increasing rapidly, any future benefit would be reliant on these price increases remaining in force for the full year ahead, Mr Calavrias said.

Steel & Tube shares last traded on $4.60 and have traded between $3.80 and $5.20 over the last year. The company's shares fell 10c to $4.50 when the sharemarket opened today.

- NZPA