Steel & Tube share price takes big fall

UNDER fire Steel & Tube came off a trading halt yesterday, announcing a more than $50 million downgrade and the breaching of some of its banking covenants.

Steel & Tube is seeking a waiver from its banks for the breaches.

Shares in Steel & Tube, already down more than 20% on a year ago, reopened after the Tuesday trading halt and plunged almost 25% to $1.51, their lowest price in 17 years.

Steel & Tube chief executive Mark Malpass said the company had expected earnings before interest and tax (ebit) for its full year similar to last year’s $31 million, but that has been downgraded to a $38 million ebit loss.

The nontrading costs and impairments estimated at up to $54 million led to the $38 million ebit loss.

‘‘The impact of resolving legacy issues and resetting the company has been greater than anticipated,’’ Mr Malpass said.

Chief financial officer Greg Smith was asked whether, given the share price plunge and loss of market capitalisation, if Steel & Tube would be seeking new equity, and said ‘‘no’’.

Mr Malpass was confident the company would be back in profitability in full year 2019, following savings from its restructuring and with new systems in place.

The impairments and costs included an estimated $12 million loss when Steel & Tube sells, or folds, its plastic irrigation piping division, which had a carry value of between $14 million and $15 million.

The carrying value of intangible assets is expected to be down by $10 million.

Mr Malpass said while the plastics division was performing well three months ago, that was during construction of a large irrigation scheme, but work had since dried up and the division was no longer sustainable.

Following another inventory review, Steel & Tube decided on a further writedown of stock value of about $18 million on top of an earlier, first half, $5.5 million stock writedown.

There was a further $4 million in ‘‘other’’ writeoffs, $2 million out of its reinforcing division and $1.8 million from restructuring.

Mr Smith described the written down stock as ‘‘old inventory items . . . sitting around’’.

The companywide Enterprise Resource Planning system, Steel & Tube’s core IT platform for managing financial and operating performance, was now operational but its implementation had ‘‘hampered business operations and resulted in lost business’’, Mr Malpass said.

He said now the IT system was operational and six months of restructuring was complete ‘‘we are turning the corner’’.

‘‘We’re starting to see improvements and are confident we are on the path to rebuilding Steel & Tube,’’ he said in a statement.

He said because of the writedowns and impairments, forecast earnings were expected to result in breach ‘‘of one or more covenants’’, prompting management to seek a breach waiver from its banks.

Steel & Tube is still before the Commerce Commission over its part in in steel mesh certification issues, and if a financial penalty is imposed, it would be covered by insurance.

ASteel & Tube is scheduled to deliver its full year report on August 31.

❛ The impact of resolving legacy issues and resetting the company has been greater

than anticipated

Steel & Tube chief executive Mark Malpass