Steel & Tube's shock loss, breach of lending covenants - but has 'turned corner'

Wednesday, 23 May 2018

Steel & Tube chief executive Mark Malpass.

A major restructure and asset write off at Steel & Tube Holdings will breach banking covenants and create a loss of $38 million before tax for the year ending June.

The company is seeking a waiver from its banks, will sell its plastics division, has placed its revamped Christchurch headquarters on the market, and is writing down the value of assets.

Christchurch MP Megan Woods and Steel & Tube chairwoman Susan Peterson at the opening of the company's factory in Blenheim Rd this week.

Chairwoman Susan Paterson described the problems as 'legacy issues which have now been identified and resolved' and the company was looking forward to a return to profitability.

But fully resolving them may still be a little way off - the biggest underlying problem over nine months had been a new technology system slowing manufacturing and sales transactions, requiring additional temporary staffing in the dispatch area, and possible loss of some customers.

The planned sale and leaseback of Steel & Tube's recently refurbished property at 375 Blenheim Rd, Christchurch is part of its 'change programme'.

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The share price has fallen from $2.62 a share 12 months ago to $1.98.

Chief executive Mark Malpass said the plastics division carried out irrigation work, and with the conclusion of the Central Plains Water scheme in Canterbury the work had dried up.

'The market for this work is lumpy. It's not sustainable and we've had to call time,' Malpass said.

The company was exploring market demand for the plastics division, valued in the books at $15m but likely to deliver a small portion of that after costs and debt retirement.

The new management team had completed significant restructuring over the past six months when about 50 people had left the company.

The revenue from trading activities before tax, depreciation and other abnormal items would be approximately $16m, but the 'one-off' non-trading costs and impairments would make up $54m, resulting in the expected loss of approximately $38m before tax, interest and depreciation.

Another review identified the write downs, rationalisation of distribution and reinforcing operations, and further organisational restructuring.

All of this was taking place against a background of highly competitive trading, Malpass said.

'The board is confident that the change programme will drive sustainable improvements in earnings and deliver benefits from 2019 onwards.'

Steel & Tube had previously expected to deliver earnings before interest and tax of $31m excluding non-trading costs. For the half year to December 2017, Steel & Tube reported earnings before tax, interest and depreciation of $6.7m including non-trading costs of $8.1m.

The write downs include $12m off the value of the plastics division and $18m off 'aged' inventories, plus $10m off the carrying value of intangible assets.

'With the technology system now operational and, alongside the restructuring carried out over the last six months, we are turning the corner.'

Any financial penalty relating from the current Commerce Commission court case will be covered by Steel & Tube's insurance, he said.

Meanwhile, Steel and Tube's opening of its Blenheim Rd property, in Christchurch, represented a major renewal programme in Canterbury.

More than 60 staff will work from the 2.4 hectare property, which has undergone a significant refurbishment and upgrade.

Two facilities have been consolidated onto the one site, creating a new distribution hub. The company also recently opened a processing hub in Seymour St in Hornby.