Steel & Tube Holdings Limited – briefing document

STEEL & TUBE
HOLDINGS LIMITED
HY18 Interim Results
Presentation
For the Six Months to 31
December 2017
23 February 2018

BECOMING A MODERN AND
INNOVATIVE COMPANY
Providing Strength to New Zealand
Steel & Tube is New Zealand’s leading steel solutions provider,
helping customers build what the country needs.
Our aspiration is to be a supply chain participant of scale,
delivering superior value to our customers.

OUR
BUSINESS
Steel & Tube is aligned into two
divisions to better meet our
customers’ needs

Alignment of strategy, structure and people
•
Structure to provide clear line of sight for improved
accountability
•
Leverage geographical presence & comprehensive
product offering
•
Unlock integration benefits from acquired
businesses
•
Improving our ability to execute change
Customer Focus
•
Organise the businesses around our customers
•
Deliver products and solutions that meet our
customers’ needs
•
Improve sales effectiveness and lower costs to serve
CHANGE PROGRAMME UNDERWAY
Supply Chain
•
Improve availability & delivery performance
•
Consolidate and remove duplication
•
Increase production capacity and site productivity
Procurement
•
Leverage scale to reduce steel sourcing costs
Technology
•
Leverage technology to become more agile,
responsive and connected

CHANGE PROGRAMME:
KEY INITIATIVES IN HY18
•Refreshed Board with appointment of two new directors -Steve
Reindlerand Chris Ellis – and the retirement of Dean Pritchard
•New organisational structure and leadership team including
divisional GMs, CFO and CEO
•Change programme initiated and progressing well
•Right sizing: Inventory, facilities, staffing
•Deployment of new ERP System (Microsoft AX)
•Balance sheet strengthened and alignment with capital metrics
•Improvement in health, safety, environment and quality systems
•Improved earnings from change programme expected to flow
into FY19 and FY20
•Post-period end: Mark Malpassconfirmed as CEO, as of 22
February 2018

HALF YEAR RESULTS
SUMMARY
•Operating earnings consistent with the guidance
provided to the market at the ASM in November 2017.
•Operating earnings (EBIT) for the six months of $6.7m
(HY17: $16.1m).
•Result reflects short term impact of working capital
review and restructuring activities
•Includes full six months of earnings from CFDL (prior
period included 2 months following acquisition in 2016)
•Balance sheet strengthened with net debt reduced to
$95.5m mainly due to divestment of the StonedonDrive
property and ongoing focus on working capital
•Improvement in operating cashflow due to focus on
working capital management
•Confirmed interim dividend of 7.0 cents per share
Revenue$267.9m
EBIT $6.7m
Normalised EBIT $12.9m
N PAT $3.8m
Interim dividend 7 cps

EARNINGS BEFORE INTEREST AND TAX (EBIT)
•Operating earnings (EBIT) of $6.7m for
the six month period was $9.4m lower
than HY17 ($16.1m).
•HY18 includes significant non-trading
costs relating to a working capital
review ($5.5m) and restructuring
activities ($2.6m) and additional
earnings from HY17 CFDL acquisition
•Result also reflects the impact of
increased depreciation and
amortisation costs and margin
pressures arising from increased costs
of supply
•On track to deliver previous guidance
of FY18 EBIT being materially
consistent with FY17 EBIT ($31.1m),
excluding non-trading inventory and
restructuring costs
$16.1m$15.6m
$6.7m

BREAKDOWN OF COSTS
•HY18 includes additional four months
of expenses from CFDL
•$2.6m non-trading costs relating to
restructuring activities
•Increased depreciation and
amortisation costs from recent capital
investment programme and HY17
acquisition
•Other costs include costs associated
with the change programme (site
consolidation expenses), recruitment
and IT support costs. These are being
offset by lower legal and M&A costs

OPERATING SEGMENTS
0
50
100
150
200
250
300
HY17HY18
$Millions
DIVISION REVENUE
Infrastructure
Distribution
0
5
10
15
20
HY17HY18
$Millions
DIVISION EBIT
Infra Normalised
Infrastructure
Dist Normalised
Distribution
REVENUE:
Boosted by CFDL acquisition and a
number of large irrigation projects
for Plastics; partially offset by lower
volumes and margin pressures in
core Distribution and Reinforcing
businesses.
EBIT:
Decline in trading EBIT reflects
volume and margin pressures in
core Distribution and Reinforcing
businesses.

•Ongoing focus on working capital
•HY18 includes $5.5m write down of aged
inventory to net realisable value following
a substantial review of inventory holdings
•Excluding provision for write-down,
inventories reduced by approximately
$9.6m since June 2017 and further
reductions are targeted
•Net debt has reduced by 25% to $95.5m,
mainly due to divestment of the Stonedon
Drive property and an ongoing focus on
improving the Group’s working capital
position
$M
HY18FY17
Inventory
127.9143.0
Debtors
88.893.5
Trade and other Creditors
(47.3)(54.4)
Working Capital
169.4182.1
Cash and Cash Equivalents
1.16.5
Property, Plant, Equipment
78.1102.6
Intangibles
67.866.8
Total Assets
363.9412.7
Borrowings
96.7133.4
Other
7.012.8
Total Liabilities
151.0200.6
Shareholders Equity
212.9212.1
Gearing (Net Debt: Net Debt+ Equity)
31.0%37.4%
BALANCE SHEET

CAPITAL STRUCTURE
POLICY
On track to achieve annual targets (on
a normalised basis)
Annual Capital Structure Targets:
Net debt to net debt + equity within
target range of < 30% -35%
Net debt to EBITDA to be < 2.75 times
A dividend payoutratio target of
between 60% and 80% of ‘normalised’
net earnings adjusted for any material
non-ordinary items and subject to
relevant factors at the time including
working capital and opportunities for
growth
*FY16 dividend reflects gain on sale of Bowden Road
DIVIDENDS PER SHARE
Cents per shareInterimFinal
FY1479
FY15910
FY16913.5*
FY1797
FY187
HY18 Interim dividend of 7 cents per share to be
paid on 29 March 2018

-5
0
5
10
15
20
25
30
FY14FY15FY16FY17HY18
$Millions
OPERATING CASHFLOW
0
5
10
15
20
25
30
35
40
FY14FY15FY16FY17HY18
$Millions
EARNINGS BEFORE INTEREST AND TAX (EBIT)
FIVE YEAR SNAPSHOT
0
100
200
300
400
500
600
FY14FY15FY16FY17HY18
$Millions
REVENUE
1.FY16 NPAT includes $6.3m gain on property sale
2.HY18 EBIT and NPAT includes $5.5m working
capital and $2.6m restructuring adjustments
0
5
10
15
20
25
FY14FY15FY16FY17HY18
$Millions
NET PROFIT AFTER TAX
Revenue up 5% driven by
recent acquisitions
HY18 EBIT and NPAT results
include non-trading costs
relating to working capital
review ($5.5m) and
restructuring activities
($2.6m)
Operating cashflow improved
with focus on working capital
management

OPERATING
REVIEW
Operating Environment
Distribution
Infrastructure
License to Operate

OPERATING ENVIRONMENT
•Global demand for steel remains high
•Reduced capacity in China combined with Chinese domestic demand has seen steel
exports reduce and firming of steel prices
•Highly competitive steel market in New Zealand was slow to respond to cost
increases
•Most local participants, including Steel & Tube increased prices in November 2017
•These price increases, combined with further increases expected in March, are likely
to have a positive impact on margins in the second half
Global Steel
Pricing
•Steel & Tube remains the number one or two provider in most segments in the steel
market
Market Share
•Main contractors continue to push risk down the supply chain to sub contractors and
suppliers
•While this should drive prices up, prices are constrained by the highly competitive
nature of the industry
Contracting
Market

TRADING ENVIRONMENT
Global Steel Market
•Global steel output increased by 2.8% to 1.675 b tonnes
during 2017
•Increased output was largely absorbed in Asia
•East Asian steel prices have risen over the year
•Prices for iron ore and coking coal have remained firm, driven
by increased demand for raw materials
•Steel scrap prices have followed finished steel prices

TRADING ENVIRONMENT
Domestic Market
Regional pricing impacts
•China contributes a significant portion of global steel
exports and dominates exports to Asian countries
•In 2017, China exports down 30% compared to 2016
•Driven by increased demand from domestic markets
•Reducing Chinese exports have increased prices in the
East Asian markets
Local demand
•Steel volumes are increasing
•Construction outlook looks robust
•Manufacturing remains resilient
•Industry is very competitive

DISTRIBUTION
As part of change programme, we commenced a major
review of the supply chain with the objective of improving
the value we add to our customers and reducing our overall
delivered cost.
•New leadership under Marc Hainen
•Improving inventory management:
•Reduction in stock levels – expected to continue
•Aggregation of storage facilities - will result in lower
lease, freight and operating costs into the second half
•Optimising stock availability - increase in core items
expected to drive sales in second half
•Price increases in November 2017 and further price
increases expected in March 2018, are likely to have a
positive impact on margins in second half
Business Performance
•Stainless: Performing well with benefits from
integration of Tata business; secured several
major projects with unique branded/specified
products
•Fastenings: Performance continues to
strengthen with several new product offerings
being launched in 2018
•Traditional distribution: Volumes were softer;
improvements underway to assist growth in
second half
•Chain & Rigging: Continued strong
performance; investments in capacity to drive
growth
Marc Hainen
GM Distribution

INFRASTRUCTURE
Continuing to drive focus on quality standards and
disciplined project management
•New leadership under Ross Pickworth
•Number of significant construction projects now
underway:
•309 Broadway
•277 Broadway
•Several apartment and retail reinforcing jobs in Auckland
•Success in tenders for piling projects
•Two previously identified onerous contracts – completion
expected in March and April 2018 in line with provisions
taken in FY17
•Implementation of ERP system resulted in short term
impact on customer service
Business Performance
•Rollforming: Volumes impacted by ERP
system process change; focus is on customer
service
•CFDL/Comflor: Performing well with a
healthy order book in excess of $20m and a
range of projects underway
•S&T Plastics: Completion of Downers CPW2
project in February 2018. Focus is on
building forward pipeline of projects
•Reinforcing: Contract pricing remains
unsustainably low, with contractors looking
to push low margins down the supply chain
to sub-contractors such as Steel & Tube
Ross Pickworth
GM Infrastructure

LICENCE TO OPERATE
•Safety performance improved compared to
1H17
•Goal of zero harm –number of safety initiatives
underway
•Strengthened back to work procedures
following the summer holiday period
Health, Safety
and Environment
•Company-wide update of ISO 9001 processes
launched in January and expected to be
completed by December 2018
•Continue to strengthen our international
supplier quality audit processes
Quality
Management
Commerce
Commission
•S&T pleaded guilty to charges in regards
to the historical application of logo and
testing methodologies of seismic mesh.
•The Company maintains adequate insurance
cover and provisions in regards to this.

NON-GAAP RECONCILIATION
Reconciliation of GAAP to Non GAAP MeasuresUnauditedUnaudited
$'000December 2017December 2016
GAAP: Operating earnings before other gains and financing costs (EBIT)6,68516,059
Add/(Deduct) back unusual transactions:
Inventory write-down5,518-
Reorganisation and restructuring costs2,605-
Segment EBIT Before Adjustment (as per note 5 Interim Financial
Statements)
14,80816,059
Additional acquisition earnings - CFDL(1,867)-
One-off payment by subsidiary vendor-(442)
Normalised EBIT12,94115,617
Steel & Tube uses several non-GAAP measures when discussing financial performance. These include Earnings
Before Interest and Tax (EBIT), normalised EBIT and working capital. Management believes that these measures
provide useful information on the underlying performance of Steel & Tube’s business. Non-GAAP financial
measures should not be viewed in isolation nor considered as a substitute for measures reported in
accordance with NZ IFRS. Reconciliations of the non-GAAP measures to GAAP measures, can be found on page
21 of Steel & Tube’s Interim Report that is available on the company’s website.

DISCLAIMER
•This presentation has been prepared by Steel & Tube Limited (“STU”).The information in this presentation is of a general nature
only. It is not a complete description of STU.
•This presentation is not a recommendation or offer of financial products for subscription, purchase or sale, or an invitationor
solicitation for such offers.
•This presentation is not intended as investment, financial or other advice and must not be relied on by any prospective investor. It
does not take into account any particular prospective investor’s objectives, financial situation, circumstances or needs, anddoes
not purport to contain all the information that a prospective investor may require. Any person who is considering an investment in
STU securities should obtain independent professional advice prior to making an investment decision, and should make any
investment decision having regard to that person’s own objectives, financial situation, circumstances and needs.
•Past performance information contained in this presentation should not be relied upon (and is not) an indication of future
performance.This presentation may also contain forward looking statements with respect to the financial condition, results of
operations and business, and business strategy of STU. Information about the future, by its nature, involves inherent risks and
uncertainties. Accordingly, nothing in this presentation is a promise or representation as to the future or a promise or
representation that a transaction or outcome referred to in this presentation will proceed or occur on the basis described inthis
presentation. Statements or assumptions in this presentation as to future matters may prove to be incorrect.
•A number of financial measures are used in this presentation and should not be considered in isolation from, or as a substitutefo r,
the information provided in STU’s financial statements available at www.steelandtube.co.nz.
•STU and its related companies and their respective directors, employees and representatives make no representation or warranty
of any nature (including as to accuracy or completeness) in respect of this presentation and will have no liability (including for
negligence) for any errors in or omissions from, or for any loss (whether foreseeable or not) arising in connection with the useof
or reliance on, information in this presentation.