Vulcan Steel owns and operates its own trucking fleet. Photo / Supplied
Vulcan Steel’s first contact with the public markets has been exceptionally good, allowing it to boldly enter new territories and make inroads across the Tasman.
But like its namesake in Star Trek, Vulcan has had to deal with adversity, in particular the challenges posed by Covid and the supply chain issues and soaring inflation that followed.
Strong leadership, teamwork and an effective growth strategy has helped break through those barriers and its performance since listing made it a logical choice for this year’s Deloitte Top 200 award for Company of the Year, despite strong competition from fellow finalists Ebos Group and Briscoe Group.
“It’s been an exciting time,” chief executive and managing director Rhys Jones said, reflecting on Vulcan’s dual listing on the NZX and ASX in November 2021.
“Going through the float there were massive challenges with Covid but overall it’s been a fantastic journey for our team.”
Vulcan is a relative newcomer in the steel industry, starting life in 1995 in a garage in East Tamaki, with two trucks and a Portacom. Founded by Peter Wells the company has grown significantly over the past 25 years, both organically and through acquisitions, emerging as a meaningful third player in an industry previously dominated by Steel and Tube and Fletcher Building.
Vulcan is now worth more than $1.1 billion based on its market capitalisation and has around 1500 employees serving almost 12,000 customers across 72 sites in New Zealand and Australia.
Having successfully integrated three major acquisitions between 2014 and 2020, Vulcan announced in July this year the acquisition of Ullrich Aluminium, one of Australasia’s major aluminium product distributors. The buyout, completed in August for $165 million, adds synergies and gives Vulcan the opportunity to expand into the aluminium distribution market with a well-established platform with scale in both countries.
Vulcan’s performance since listing has exceeded expectations.
The most recent financial year saw revenue climb 33 per cent from $732m in 2021 to $973m. Earnings before interest, tax, depreciation and amortisation (ebitda) jumped 68 per cent from $133m to $224m and net profit leapt 91 per cent from $65m to $124m.
Earnings per share of 94.4c was also up by 91 per cent from 49.3c in 2021 and was 117 per cent higher than the 43.5c forecast in the company’s IPO prospectus.
Deloitte judge Neil Paviour-Smith said Vulcan operates as a key link in the value chain between metal producers and end-users, distributing steel and aluminium products to a diversified customer base including those involved in engineering, manufacturing, fabricating, transport, mining and other sectors.
“Vulcan Steel has been thriving as a privately owned steel distribution company for over 20 years, converting to a publicly traded company in November 2021. The company has continued its long record of superior performance for shareholders with total shareholder returns since listing at 32 per cent.
“Although the steel and metals market has been buoyant, helping to lift pricing, Vulcan’s recent performance has been exceptional. They are a long-term New Zealand success story, led by an outstanding and committed leadership team.”
That leadership is exemplified by Rhys Jones, who has 16 years of experience at Vulcan, and an executive team having an average tenure of 10 years.
Jones, himself a finalist in Deloitte’s CEO of the year category this year, joined Vulcan in 2006 having previously held several management positions within the steel industry, including at Fletcher EasySteel NZ, Pacific Steel and Wiremakers. and at Carter Holt Harvey at the time of the Rank Group takeover.
This experience has helped him deal with the recent challenges sweeping the globe. “We look after everyone in the Vulcan team,” Jones said in an interview with the Herald last month.
“Within the Covid period we didn’t lay anyone off and we maintained everyone on full pay. As a whole team we said right we are going to face this challenge together and that has led to a whole lot of loyalty. So, our staff turnover is lower than most companies and that has been a massive benefit to us.”
High inflation is a problem he acknowledges and one not easily solved.
“As an industry it’s been very challenging. The price of our materials has gone up significantly. It’s been a really tough journey for our customers and we are facing that head on. “My personal view is that it’s going to be a very difficult period in the near future with rising inflation.”
What he and the management team have been doing is getting out on the road, visiting sites and staff.
“We call it our principles and ethos. What we try to do is paint a picture of the next year to 18 months so all our employees fully understand what we are facing and what their role is and how as a team we can embrace it.
“So for example in the current situation, we are going to face a productivity challenge where costs are going up and demand could potentially reduce. “So, we are positioning our whole team to understand we have to win new business and focus on being smarter.”
Staff well-being is high on the agenda with Covid affecting a lot of people in a lot of different ways, he said.
“What we try and do is buddy up with people, talk to them and allow people to understand and talk about any issues they have. You have to be far more flexible, allow people to work from home and listen and talk with everyone. It’s about creating an environment where people can speak freely.”
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Jones has been assisted by an experienced board now chaired by Russell Chenu, who was the chief financial officer at James Hardie Industries for a decade until 2013.
Founder Wells is stepping down from the board after 27 years but has said he intends to keep all of his 14 per cent stake in the company when his shares come out of an escrow period next year.
“I’ve got 110 per cent confidence in the management and where the company is headed,” he told the Australian Financial Review in September.
Wells is Vulcan’s largest shareholder through the Takutai Trust, operated by himself and his wife Mary.
The trust, which also has large-scale investments across other industries, is involved in philanthropic ventures, including schools and a Salvation Army adventure camp. It is also a backer of Waiheke Island winery Passage Rock, a tourism and horse trekking business, and the Dunster farm in the North Canterbury region of New Zealand.
Vulcan’s path to a billion-dollar company has been built on a successful growth strategy and its public listing has developed that further.
Wells told the Herald’s Jamie Gray in an interview earlier this year that it was not a “black or white” decision to list the company.
“On balance, it was the next thing to do,” he said. “It has taken a lot of work - more than I had anticipated I might say - but like a lot of things it pays to do it properly.
“We have accomplished it and have come out the other side - so most of that noise has gone now.”
The IPO comprised a A$371.6 million ($386.8m) sell-down by existing shareholders. The shares debuted on the ASX at $7.20 - 10 cents over their A$7.10 offer price – before surging to a high of A$15.74. The stock has since eased back closer to the listing price, but investors have enjoyed strong dividends already. The board declared a final dividend of NZ37.5c a share, bringing the total dividend (excluding pre-listing special distribution) for the 2022 financial year to 65c per share.
Jones said the main thing listing has done is give the company greater visibility in the wider market. That has helped retain talent, provide credibility and attract new opportunities such as the Ullrich acquisition, he said.
“The fact is we were a more credible party to enter into that transaction because we are a known public entity.
“Also we are very big in Australia and so it gives us more leverage to grow quicker over there. “Overall … [the listing] has been very helpful and we are positioning the company for the next 25 years so we need a wider audience to understand us.”
Vulcan has had some tailwinds, despite all the challenges, but it has had to take the opportunities that have arisen.
“Firstly there has been pent-up demand so volumes in the industry have been higher. Secondly, prices have increased,” Jones explained.
“So that’s a tailwind. “But underneath it all, we have been very successful because our business model carries a lot of autonomy with employees, it’s a very flat structure and very customer orientated and that has allowed us to grow our market share right across Australia.
“We are a very diversified business – from mining in Perth to agriculture in central NSW to construction in New Zealand – and that wide variety and wide economic coverage gives us an opportunity which we have done well to exploit.”
Speaking at Vulcan’s annual shareholders’ meeting in October Jones was able to reaffirm the company’s full-year ebitda guidance of NZ$215m to NZ$235m, while noting that the company expected the tricky trading conditions experienced in the first quarter to continue due to the impact of rising interest rates on general economic activity.
Last month Jones told the Herald that the outlook was mixed.
“My sense is that right across Australasia we have a mixed outlook but agriculture and mining looks solid. Construction activity, particularly residential, is going to slow on both sides of the Tasman and I think some business investment in NZ will slow. Aussie business confidence is better though.”
Based on the company’s track record there’s every reason to suggest Jones and his team should be able to successfully navigate their way through the next 12-18 months.
NZX and ASX-listed Ebos Group has been a perennial strong performer, often featured by brokers as one to watch in their annual stock-picking competition.
The company is a leading Australasian marketer, wholesaler and distributor of healthcare, medical and pharmaceutical products, today generating over $10 billion in revenue annually and servicing thousands of customers.
This year the company reported a 21.3 per cent jump in underlying net profit to a record A$228.2 million in the June year, its 100th year of operation. Revenue hit A$10.6 billion - breaking through the A$10b mark for the first time.
Deloitte judge for the Company of the year category Neil Paviour-Smith said Ebos has had an outstanding long-term record of 23 per cent total shareholder returns annually over the past 10 years. The company has featured regularly at the Deloitte Top 200 awards.
“Now into their 100th year, the company reached $10 billion in sales for the first time, up 17 per cent from the year prior, and were one of only a few listed companies returning positive shareholder returns over the past 12 months.
“Ebos is led by an impressive and well-regarded leadership team who have successfully guided the business through a recent acquisition of LifeHealthcare in Australia and managed to sustain performance and growth throughout Covid-19.”
Speaking at the full-year result in August, Ebos chief executive John Cullity said the double-digit revenue and earnings growth reflected a continuation of a strong first half announced in February.
Ebos had made investments throughout the year to position itself for future growth.
“The strength and diversity of our portfolio of businesses is reflected as both our Healthcare and Animal Care segments contributed strongly to the overall result and successfully executed our strategy of pursuing both organic and inorganic growth,” Cullity said.
“Our Healthcare segment benefited from its leading market positions and had strong contributions from each of our Community Pharmacy, TerryWhite Chemmart, Institutional Healthcare and Contract Logistics divisions and businesses.”
Each of the company’s healthcare divisions capitalised on strong market growth opportunities, he said. The company expects another year of profitable growth in 2023.
With a 150-year history in New Zealand, Briscoe Group is known for its two iconic brands: Briscoe Homeware and Rebel Sport. Managing director and major shareholder Rod Duke has carved out a popular niche in New Zealand’s retail space.
The company recently posted an interim profit of $45.6 million in the six months to July 31, following on from its full-year profit of $87.9m for the period ended January 2022. The business increased wage rates for its in-store hourly paid team by 7 per cent from April.
“Briscoe Group has consistently been a top performer in the retail sector, delivering 18 per cent total shareholder return over the past 10 years,” Paviour-Smith said.
“Led by a strong CEO, Rod Duke, Briscoe Group’s strategic focus on people, their store network and supply chain has helped to ease pressures caused by staff shortages, cost increases and supply chain issues.” For the first half revenue from the Briscoes homeware brand increased by 2.7 per cent to $228.7 million, while Rebel Sport sales rose 2.5 per cent to $139.2m.
“Despite Covid-19′s heavy impact on the retail sector, Briscoe has managed to continue its growth trajectory,” Paviour-Smith said.
“Boosted by heightened online sales, its latest sales numbers are up 21 per cent relative to pre-Covid-19 levels and its net profit for the latest period is 61 per cent higher.”
Duke told the Herald the last 12 months had been “horrendous” – referring to Covid-induced lockdowns and staff sickness - but things were looking up.”Really for the staff, for us at head office and in the stores it’s been really nerve-wracking and very trying. But we seem to have got through. No store closures, no staff salary reductions. Everything seems to have come right now.
“The biggest learning for us was online shopping and how to service that customer, who wanted to buy but couldn’t get to the stores. And so having online shopping with an attractive platform and a way in which people can buy easily with speedy delivery options turned out better than it could have been.
Briscoe has managed the supply chain issues well, he said.
“About two years ago we made the decision that we thought the supply chain would be seriously interrupted and we increased our inventory on hand and brought forward a lot of our purchases. “You would have noticed last year and the year before that our average inventories were about 20 per cent over normal. So we pre-bought and so when other folks weren’t able to deliver we could.
“We are now at the point where we are running that 20 per cent down so we are actually in pretty good shape because of that strategy.”
The company is forecasting full-year profit to be ahead of the $87.9m it reported last year.
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