STEEL & TUBE REVISED GUIDANCE FOR FY18

23 May 2018
STU / NZX ANNOUNCEMENT



STEEL & TUBE REVISED GUIDANCE FOR FY18

 Steel & Tube Holdings Limited has updated its guidance for the financial year to 30 June 2018
and now expects normalised EBIT of approximately $16 million, excluding non-trading costs and
impairments of up to $54 million. This will result in an EBIT loss of approximately $(38) million.
 The revised guidance follows an extensive company-wide review of the business by the
refreshed Board and Management team in conjunction with the previously announced change
programme.
 The review has resulted in the planned exit from and associated impairment of S&T’s plastics
business; a further write down of inventory values; a likely impairment of intangible assets;
rationalisation of Distribution and Reinforcing operations; and completion of further
organisational restructuring.
 In addition, as previously advised, the company has been significantly impacted by issues
relating to the implementation of its new ERP system.
 The trading environment remains highly competitive.
 As a result of the write downs and impairments, the forecast earnings for FY18 are expected to
result in a breach of one or more covenants in the Group’s senior debt facilities. Management is
seeking a waiver from its banking partners for any covenant breach.
 The Board is confident that the change programme and restructuring undertaken will drive
sustainable improvements in earnings and deliver benefits from FY19 onwards.
FY18 Results to Reflect Impact of Change Programme and Business Review
Steel & Tube Holdings Limited (NZX: STU) has today provided an update on earnings guidance for the
FY18 financial year ending 30 June 2018.
Steel & Tube had previously expected to deliver FY18 Earnings Before Interest and Tax (EBIT)
consistent with the prior year of $31.0 million excluding non-trading costs. For the half year to 31
December 2017, Steel & Tube reported EBIT of $6.7 million including non-trading costs of $8.1
million.
Since this time, and in conjunction with the previously announced change programme targeting
improved business performance, the company has undertaken an extensive review of business
operations. This has resulted in a decision to exit Steel & Tube’s plastics business; a further write
down of inventory values; a likely impairment of intangible assets; rationalisation of Distribution and
Reinforcing operations; and completion of further organisational restructuring.
In addition, the company has been significantly impacted by further issues related to the
implementation of a new ERP system that went live on 2 October 2017, which represent
approximately two-thirds of the year on year change in normalised EBIT.
The trading environment remains highly competitive however, Steel & Tube’s pricing strategy is
having a positive impact.

As a result of the factors above, the Company now expects normalised EBIT of approximately $16
million, excluding non-trading costs and impairments of up to $54 million. This will result in an EBIT
loss of approximately $(38) million.
A decision on the payment of a final dividend for FY18 will be made in line with the Company’s
dividend policy, when the financial result is finalised.
Chair of Steel & Tube, Susan Paterson said: “As noted at the half year, we have initiated a change
programme and are restructuring the company to drive sustainable improvements in earnings. As
part of the business review, a number of legacy issues have now been identified and resolved. The
new Management team has completed significant restructuring over the last six months and, while
today’s announcement is disappointing, the Board is confident the business is now well placed to
move forward. We have put the past behind us and are focussed on growing our business as a
leading provider of steel products and solutions in New Zealand.”
The commentary below provides further details.
Exit from S&T Plastics
Steel & Tube Plastics specialises in plastic piping for on-farm irrigation and has been a key supplier to
a number of large scale irrigation projects. Management have undertaken a detailed review of this
business. With the downturn in the irrigation market, along with a need for further capital
investment, it has been determined that exit from this business and sale of its assets will provide the
best outcome for shareholders. Management are expecting a net write-down of up to $12 million,
being the difference between the carrying value of net assets and their expected realisable value
and estimated closure costs.
Implementation of ERP system and Business Rationalisation
While the new ERP system is now operational, issues with its implementation across the group have
been far greater than expected. This has hampered business operations and resulted in lost
business. The company has worked closely with its IT suppliers to rectify issues and, while the Board
and Management are disappointed in the execution of this project, they are confident that this new
platform is the right one to take the company forward.
The roll-forming and core distribution businesses, in particular, have been impacted by the ERP
implementation issues.
Pleasingly, sales volumes have started to improve in the affected businesses.
A key component of the change programme has been a decision to rationalise locations and service
customers through core operating hubs. This will enable the company to provide a competitive
service offering to customers with improved service standards. The short-term costs of this and
impaired lease provisions will be recognised in FY18.

Asset Write-down and Impairment
The new ERP system has allowed for improved visibility and disciplines around inventory
management, and the company is actively working to strengthen inventory management practices
and better align inventory with customer requirements. Following a detailed review of inventory on
hand, including extensive stock takes and a further assessment of aged inventory, management has
confirmed a further write down of approximately $18 million is required.
Management have also undertaken a preliminary review of the carrying value of intangible assets
and consider that an impairment of up to $10 million is likely.
Chief Executive Officer, Mark Malpass, said: “The impact of resolving legacy issues and resetting the
company has been greater than anticipated. However, with the ERP system now operational and,
alongside the restructuring carried out over the last six months, we are turning the corner. We have
a well considered change programme underway that has the customer and our supply chain
performance at the heart of our initiatives. We are starting to see improvement and are confident
we are on the path to rebuilding Steel & Tube as a leading provider of steel products and solutions in
New Zealand.”
As a result of the write downs and impairments, the forecast earnings for FY18 are expected to
result in a breach of one or more covenants in the Group’s senior debt facilities. Management is
seeking a waiver from its banking partners for any covenant breach.
As previously advised, it is expected that any financial penalty relating from the current Commerce
Commission court case will be covered by Steel & Tube’s insurance.
Further details will be provided when Steel & Tube releases its FY18 financial results on 31 August
2018.
ENDS
Conference Call
Steel & Tube CEO Mark Malpass and CFO Greg Smith, will host a teleconference call for investors
and analysts at 11.00am NZ time today to provide more detail on this announcement. Dial in details
are set out below.
Passcode: 9774848
New Zealand Tollfree/Freephone 0800 423 970
New Zealand Local +64 (0) 9 9133 622
Australia Tollfree/Freephone 1 800 573 793
For further information please contact:
Mark Malpass
Steel & Tube CEO
Tel: + 64 27 7770327
Mark.malpass@steelandtube.co.nz

Greg Smith
Steel & Tube CFO
Tel: +64 21 755 803
greg.smith@steelandtube.co.nz

Jackie Ellis
Media and communications
Tel: +64 27 246 2505
jackie@ellisandco.co.nz