Directors’ Report
For the Half Year Ended 31 December 2009
Results
The Directors present the unaudited consolidated financial statements for the 2010 half year that were authorised for issue on 11 February 2010. The first-half trading result to 31 December 2009 of $3.2 million after tax was a decrease of $17.6 million when compared with the same period last year.
Sales at $190.6 million were $83.1 million lower than the corresponding period due to the effect of lower demand and reduced steel prices.
Continued focus on inventory levels, debtors management and discretionary expenses has resulted in a $27.3 million positive operating cash flow compared to a negative $8.8 million for the same period last year.
The net tangible assets per share at 31 December 2009 were $1.43 compared to $1.52 at
31 December 2008.
Dividend
Directors have declared a fully-imputed interim dividend of 3.5 cents per share to be paid on 31 March 2010 to holders of fully-paid ordinary shares registered at 12 March 2010. The amount payable is $3.1 million and where applicable a supplementary dividend of 0.6 cents will be paid to non-resident shareholders.
Performance
The Company experienced as expected, soft trading conditions during the first half as the impact of the Global Financial Crisis continued to be felt. Commercial construction approval values declined, while residential approvals increased but off a very low base. Manufacturers have continued to battle with the volatile exchange rate but rural communities have been encouraged by escalating prices for dairy products.
Strong competition for reduced volumes and declining steel prices has squeezed margins. Our customers continued to pursue all opportunities to reduce costs as they also struggled to deal with the impact of the downturn, putting further pressure on margins.
As indicated at the Annual Meeting, this first half was worse than the second half of the last financial year with all sectors of the business deteriorating in volume and profitability. Volume stabilised toward the end of the half year and pricing also steadied. Focus on costs and business improvements have yielded greater savings than initial expectations. Similarly continued focus on debtors and inventory management enabled improvements to be made throughout the first half.
Despite the trading environment, health and safety performance continued to improve with zero lost time incidents and only three medical treatment injuries sustained during the half year.
Outlook
Economic indicators show that the recessionary trading conditions have ended and a period of growth is ahead. The strength and sustainability of any pick up in activity is still uncertain as economic conditions show varying growth rates across our trading partners.
Global steel pricing volatility continues as the industry struggles to balance production with varying demand requirements from the market. This combined with a volatile New Zealand Dollar means domestic steel prices continue to see considerable variations.
Business sentiment and confidence is increasing along with consumer confidence. However, unemployment is expected to increase, and recent uncertainty around the housing market may restrain to some degree, future housing sales and prices. Residential construction permits are increasing although from a low base, driven by increasing positive net migration, low interest rates and a shortage of dwellings. Activity remains subdued in the commercial construction and manufacturing sectors. The rural sector, with the exception of dairy, where increasing milk powder prices are encouraging, is also relatively subdued.
Overall there are early signs that conditions may be slowly improving but the key issue is the uncertainty around the extent and timing of the recovery. The impact of any recovery is likely to have a limited or minimal effect on the Company this financial year. It is expected, however, that the second half of the financial year will produce results ahead of those achieved in the first six months.
In summary, market conditions in the short term are expected to be difficult but will gradually improve as the second half progresses, and the Company with a gearing ratio of 19% is well positioned for any upturn.
For further information, please contact Dave Taylor, Chief Executive Officer, Steel & Tube Holdings Limited on (04) 570-5001.