Steel & Tube blames weak economy for four-month loss

Steel & Tube suffered a sharp fall in revenue over the first four months of its financial year. Photo / Supplied

Steel & Tube says it went into an operating loss of $5 million in the first four months of its financial year, with revenue falling sharply over the period due to low demand for steel.

In a trading update, Steel & Tube said the first four months showed the weakness in the New Zealand economic environment seen in the latter half of 2024 had continued to deteriorate and had impacted sales volumes.

“As highlighted by other industry participants, demand for steel has hit recent lows and margin pressure has intensified,” the company said.

“While the timing of recovery remains uncertain, some improvement is expected from mid-2025 as interest rate cuts start to stimulate activity in the construction and manufacturing sectors.”

Revenue for the first four months was down $41.6m on the prior comparative period to $141.7m and normalised earnings before interest and tax was a loss of $5.0m.

“This trend is expected to start to reverse in the new financial year as the cycle turns,” the company said.

Chief executive Mark Malpass said the company continued to carefully manage cash and working capital.

Year-on-year cost reductions were more than offsetting inflation, he said.

“As well as making shorter term adjustments to adapt to the current market challenges, we are focused on emerging from this cycle a stronger business.

“Our balance sheet is strong, with cash of $16.7m [June 2024: $8.7m] and no borrowings at the end of October 2024, which is supported by disciplined inventory management.

“The work we have done over the past two years has created a stronger, streamlined company. Importantly, we have retained sufficient ‘muscle’ in the business to ensure we can move quickly to capture profit expansion opportunities as demand returns.”

Malpass said the company maintained its market share and had more than 13,500 active customers.

“Our previous acquisitions like Kiwi Pipe & Fittings, Fasteners NZ and our group freight business, along with organic aluminium growth, are performing well.”

He said current market conditions were presenting new merger and acquisition opportunities.

Steel & Tube has a $100m debt facility.

Chair Susan Paterson said the timing of an economic recovery remained uncertain, there were some positive themes that should lead to improved activity over the next 12 to 18 months.

“Lower interest rates are expected to stimulate the construction and manufacturing sectors,” she said.

“Longer term, there is a significant need for maintenance and new infrastructure in roading, health, water, climate resilience and renewable energy.

“The Government has a five-year budget of more than $68b and is progressing a number of initiatives under its Fast-Track bill, although we acknowledge that it will take time before project work begins,” Paterson said.

The company’s annual meeting is on November 28.

Steel & Tube’s normalised earnings before interest and tax was $32.1m in the last financial year.

Data out from Stats NZ this week showing production has at least stabilised is welcome news for a depressed construction sector.

Concrete production fell more than 5% in the September quarter compared to last year, but was at least up on the June quarter. In seasonally adjusted terms, the volume of ready-mixed concrete rose 0.4% in the September 2024 quarter.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.