Steel firm feels boom-time strain
Pressures in the construction industry are starting to bite on the earnings of steel company Steel & Tube.
The company, which is embroiled in a court battle with the Commerce Commission over the certification of some of its steel mesh, has booked a full-year profit of $20 million for the year to June 30, down 22 per cent.
However, when a property gain in the previous year was stripped out, the profit was up 3 per cent.
Chief executive Dave Taylor said two factors had weighed on the result: price pressures in its reinforcing steel business; and a manufacturing problem at its S&T Plastics factory.
Taylor said there were ‘‘myriad’’ challenges facing the booming construction industry, which meant some companies were not making the profits people might have expected.
One particular problem was project delays, which hurt Steel & Tube’s working capital, as materials sat in its factories, waiting to be delivered before payment could be made.
‘‘Some of the earnings we expect to come through, particularly in the last couple of months, have not materialised and so that will come through as an upside in the new financial year.’’
Its margins were also being squeezed by ‘‘intense’’ competition which was pushing reinforcing prices to multi-year lows. Two particular reinforcing contracts had proven more complicated than expected, forcing the company to set aside $1m in provisions.
Another cost had been created at its plastics factory, which had produced a lot of costly scrap metal in the course of filling a big order.
Taylor expected the machineryrelated problem would soon be fixed.
More widely, the industry also faced a lot of ‘‘risk transfer’’, as clients made lead contractors responsible for risks and they in turn shifted that risk onto subcontractors, Taylor said.
Resources were ‘‘particularly tight in some parts’’ and there were shortages in tradespeople. All these issues were ‘‘creating a bit of a perfect storm so that means people are perhaps not benefiting to the degree that they potentially could do from this increased activity in the construction sector’’.
Regarding the 29 charges it faces from the Commerce Commission over its testing methods for steel mesh, Taylor said only that the company continued to co-operate with the commission, and that he was confident about the performance of the products.
Over the past four years, Steel & Tube has embarked on an acquisition drive, buying four businesses worth $80m.
Taylor said the company was bedding those acquisitions down, and believed there was opportunity to divest nonstrategic assets in its property portfolio.