Steel & Tube 2018 Annual Financial Results
29 August 2018
STU / NZX ANNOUNCEMENT
Level 7, IBM Building, 25 Victoria Street, Petone 5012, PO Box 30543, Lower Hutt 5040
P 04 570 5000 F 04 570 2453 www.steelandtube.co.nz
STEEL & TUBE FY18 FULL YEAR RESULTS
•
FY18 results slightly ahead of the guidance given on 23 May 2018, due to an improving trading
performance in the last three months of the financial year, early benefits from business
transformation initiatives and non-trading adjustments being slightly less than forecast.
•
Normalised operating earnings (EBIT) of $16.5 million, excluding $53.8 million of non-trading
costs and impairments and a $1.1 million benefit from reduced software amortisation costs due
to the delay in implementing the new ERP system.
•
Including these items, EBIT was a loss of $(36.2) million, a $1.8 million uplift on guidance.
•
Net Loss After Tax of $(32.1) million, in line with expectations.
•
Since the half year, legacy issues have been addressed and a company-wide programme has
been initiated to drive long term sustainable earnings improvement.
•
An $80.9 million capital raising is currently underway to strengthen the balance sheet.
•
As previously advised, no final dividend will be paid for FY18.
Steel & Tube Full Year Results for the 12 months ended 30 June 2018
Steel & Tube Holdings Limited (NZX: STU) has announced results slightly ahead of guidance for the
year ended 30 June 2018 (FY18), due to an improving trading performance in the last three months
of the financial year, early benefits from business transformation initiatives and non-trading impacts
being slightly less than forecast.
In late calendar 2017 and following a refresh of the Board and Management, Steel & Tube embarked
on an extensive company-wide programme to drive long-term sustainable earnings improvement. As
part of this process, a detailed review was undertaken and a number of legacy issues were
discovered, materially impacting FY18 expected earnings, as communicated to the market on 23
May 2018.
These issues have now been addressed and the initiatives being implemented as part of Steel &
Tube’s ‘Project Strive’ business transformation programme are delivering early results. The
improving sales trend seen in the last three months of FY18 has continued into the current financial
year.
For the FY18 year, Steel & Tube reported sales revenue of $495.8 million, with slightly lower year on
year sales reflecting the short term impact of implementation issues with the new ERP system,
alongside highly competitive trading conditions in some businesses.
Operating earnings (EBIT
i
) were a loss of $(36.2) million including non-trading costs and impairments
of $(53.8) million.
Excluding non-trading costs, impairments and a $1.1m benefit from reduced software amortisation
costs (not included in May 2018 earnings guidance), normalised operating earnings were $16.5
million. A net loss after tax of $(32.1) million was reported for the FY18 year.
Steel & Tube has initiated an $80.9 million capital raising to strengthen the balance sheet, provide
financial flexibility to execute its business transformation initiatives and achieve longer term
strategic objectives. The capital raised will be used to pay down debt and, following completion,
gearing is expected to be approximately 1.15x normalised EBITDA. The capital structure policy has
been reset to operate with net debt of less than 2.0x normalised EBITDA.
While no final dividend will be paid for FY18, the company expects to resume dividend payments in
FY19 consistent with its stated policy of paying 60-80% of normalised NPAT.
CEO of Steel & Tube, Mark Malpass, commented: “We are now beginning the journey to significantly
improve operating and financial performance. The organisation has been restructured to improve
capabilities and efficiency, and capture synergies from acquisitions. In addition, Steel & Tube’s
property footprint continues to evolve to remove duplication and improve customer service.
Following completion of the capital raise, we will have a strengthened balance sheet and will be well
positioned to execute our business transformation initiatives.”
Distribution
In FY18, the Distribution division generated $288.3 million revenue and normalised operating
earnings of $5.9 million. Including non-trading adjustments of $(18.7) million, operating earnings
were a loss of $(12.8) million.
Performance was materially impacted by the ERP system implementation issues which affected
deliveries and customer service. These issues have now been resolved. The majority of the non-
trading adjustments for Distribution related to inventory impairments following extensive stock
takes across the group and a detailed review, in addition to business rationalisation costs.
Many of Steel & Tube’s ‘Project Strive’ business transformation initiatives - such as the introduction
of Sales and Operations Planning, streamlining of duplicated sites, a focus on efficiencies and
improvements in inventory management - will directly benefit the Distribution division in the coming
year and are already having a positive effect. The core focus on customer service and delivery
performance is driving sales, a number of large project wins in late FY18 are now coming online and
further efficiency initiatives are expected to deliver additional savings in FY19.
Infrastructure
The Infrastructure division generated $207.5 million in revenue and normalised operating earnings
of $15.2 million. Including non-trading adjustments of $(21.3) million (mainly comprising the
impairment on the Plastics business as well as inventory impairments), operating earnings for
Infrastructure were a loss of $(6.1) million.
Despite the challenges faced, sales improved versus the prior year. Significant improvements have
been made to the Reinforcing business, repositioning it as a leader in quality products and service.
The roll-forming businesses also improved during the year as issues with the new ERP
implementation were overcome. CFDL retained its strong performance levels and delivered a good
result, albeit with some softening in the South Island market. While the Plastics business performed
well as existing contracts were completed, the reliance on large projects became apparent, with
losses incurred in the second half of the year. As previously advised, a strategic decision has been
made to exit this business due to a downturn in the long term outlook for the irrigation market,
along with a need for further capital investment in the business.
The focus for the coming year is on building the customer base and delivering further manufacturing
and operating efficiencies. Positive wins are already being seen on the majority of projects, along
with a significant lift in manufacturing efficiencies.
Outlook
Steel & Tube has a detailed strategic plan in place, driven by four pillars: Safety and Quality,
Operational and Supply Chain Excellence; Strong Customer Focus; and Our People. Significant
progress is being made on Project Strive business transformation initiatives which will have a
positive benefit in the current financial year.
The company has a balanced exposure across the rural, manufacturing and construction sectors,
with consistent demand and activity forecast in all sectors over the next few years.
Steel & Tube has provided EBIT guidance for FY19 of at least $25.0 million and expects to achieve a
normalised EBIT of $35 million to $40 million in the next three years.
Chair of Steel & Tube, Susan Paterson, said: “The 2018 financial year has been about resolving legacy
issues and resetting the business, and Steel & Tube is now in a much stronger position. We remain
focused on our goal of being the leading provider of steel products and solutions in New Zealand and
are confident we have the right strategy and management team to achieve this goal.”
ENDS
The FY18 results presentation is available for viewing at
https://www.nzx.com/companies/STU/announcements.
For further information please contact:
Mark Malpass
Steel & Tube CEO
Tel: +64 27 777 0327
Email: mark.malpass@steelandtube.co.nz
Jackie Ellis
Media and communications
Tel: +64 27 246 2505
Email: jackie@ellisandco.co.nz
i
Operating earnings is Earnings Before Interest and Tax (EBIT). FY18 normalised operating earnings is EBIT excluding non-
trading adjustments of $(53.8)m and a $1.1m benefit from reduced software amortisation costs due to the ERP
implementation delay.
---
STEEL AND TUBE HOLDINGS LIMITED
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Reporting Period 12 months to 30 June 2018
Previous Reporting Period 12 months to 30 June 2017
Non-GAAP financial information
Steel and Tube uses several non-GAAP measures when discussing financial performance. These include normalised
EBIT and normalised NPAT. Management believes that these measures provide useful information on the underlying
performance of Steel & Tube’s business. They may be used internally to evaluate performance, analyse trends and
allocate resources. 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 non-GAAP measures to GAAP measures are
detailed below.
FY18 Result FY17 Result Movement %
Revenue from Ordinary Activities 495,806 511,400 (3%)
GAAP: Net (Loss)/Profit After Tax (32,050) 20,040 (260%)
Add Back: Unusual Transactions/Non-Trading Adjustments 53,787 (442)
Tax Impact of Above (12,780) 124
Normalised Net Profit After Tax (non-GAAP) 7,825 19,722 (58%)
GAAP: (Loss)/Earnings before interest and tax (EBIT) (36,187) 31,629 (214%)
Add Back Unusual Transactions/Non Trading Adjustments 53,787 (442)
Normalised EBIT (non-GAAP) 17,600 31,187 (43.6%)
Deduct: Change in ERP IT System Amortisation Start Date (1,132) -
Normalised EBIT comparable to May 2018 Earnings Guidance (non-GAAP) 16,468 31,187 (47.2%)
Net Tangible Assets per Security $1.27 $1.60
Dividend No final dividend payable for 2018
Steel & Tube reports it’s normalised EBIT as $16.5m for FY2018. This is directly comparable to the earnings guidance
issued on 23 May 2018, which forecast normalised EBIT of $16m. Subsequent to this announcement, the
amortisation start date for the new ERP system was amended. This reduced amortisation expenditure by $1.1m in
comparison to that included in the May 2018 forecast. Further details on the unusual transactions/non-trading
adjustments are included in the investor presentation and audited financial statements for the year ended 30 June
2018.
Definitions:
• EBIT: This means earnings before interest and tax and is calculated as profit for the period before net finance costs and
tax.
• Normalised EBIT: This means EBIT after normalisation adjustments.
• Normalised Net Profit after Tax: This means Net Profit after Tax after normalisation adjustments net of tax
• Normalisation adjustments: These are transactions that are unusual by size or nature in a particular accounting
period. Excluding these transactions can assist users in forming a view of the underlying performance of the Group.
Unusual transactions can be as a result of specific events or circumstances or major acquisitions, disposals or
divestments that are not expected to occur frequently.
---
Steel & Tube Holdings Limited
Financial Review 2018
Financial Review
CONTENTS
23 Financial Statements 2018
25 Statement of Profit or Loss and
Other Comprehensive Income
26 Statement of Changes in Equity
27 Balance Sheet
28 Statement of Cash Flows
29 Notes to the Financial Statements
29 Section A – Performance
34 Section B – Working Capital
39 Section C – Fixed Capital
47 Section D – Funding
51 Section E – Other
61 Independent Auditor’s Report
68 General Information
68 Governance
74 Remuneration
78 Disclosures
84 Directory
22
STEEL & TUBE ANNUAL REPORT 2018
The accompanying notes form part of these financial statements.
23
FINANCIAL
STATEMENTS
Financial Statements 2018
The financial report for Steel & Tube includes these
sections:
Financial Statements
Performance
Working Capital
Fixed Capital
Funding
Other
Significant matters in the financial year:
The Group has been impacted by a number of items,
considered to be non-trading in nature, during the
financial year ended 30 June 2018.
Enterprise Resource Planning System
The implementation of a new Enterprise Resource Planning
(ERP) system went live on 2 October 2017. While the new
ERP system is now operational, issues with its
implementation across the Group hampered business
operations and resulted in lost business. The Group 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 Group forward. Refer to note C2.
The roll-forming business within the Infrastructure
operating segment and the core Distribution businesses, in
particular, were impacted by the ERP implementation
issues. Refer to note A4.
S & T Plastics Closure
During the year, the Group carried out an extensive review
of the S & T Plastics business resulting in a decision to exit
the business. The Board considered that the narrow market
segment the business operates in, further capital
investment required in the business and a less favourable
outlook for the irrigation market to be key factors in the
decision to exit the business. The Board, having regard to
optimising value for shareholders, considered that the
Group would realise better value for shareholders by
exiting the plastics business. The business and/or its assets
are currently being marketed for sale. The assets related to
S & T Plastics have been presented as held for sale following
the decision to dispose of the business. The sale and close-
down of the business is expected to be completed by
December 2018. Costs associated with the impairment of
assets to fair value less costs to sell and the exit of the
plastics business totalled $10.8m in the 2018 financial year.
Refer to note C4.
Business Reorganisation
Management also commissioned an independent
consultant to undertake reviews of the operations of the
Distribution and Infrastructure businesses in 2018. This led
to decisions to restructure and re-organise certain parts of
these businesses. These changes resulted in the Group
incurring approximately $6m of expenditure. The Board
considers these costs to be non-trading as they relate to
business reorganisation activities and will not be repeated
in future years.
Intangible Asset Impairment
The Group undertook value-in-use calculations for each
Cash Generating Unit (CGU) that recognised Goodwill for
the year ended 30 June 2018. A decline in performance
over recent years in the Hurricane Wire and Distribution
CGU’s resulted in the value-in-use calculations showing a
lower value than the recoverable amount of assets within
those CGU’s. This led to an impairment of Goodwill of $10.1
million. Management has commenced a business
transformation project and consider that the financial
performance of both CGU’s can be improved.
The Group also reviewed capital spend associated with the
implementation of the ERP system and assessed that costs
totalling $2 million no longer provided economic benefit to
the Group and were therefore impaired. Refer to note C2.
Inventory Impairment
During the year ended 30 June 2018, Management
completed a detailed review of inventory holdings, aided
by the implementation of the new ERP system. The new
system assisted Management with improved visibility of
inventory and the Group also completed detailed stock
counts during May & June 2018. Following this detailed
review and stock counts, Management identified that the
carrying value of certain inventory items exceeded the net
realisable value. This was primarily for stock items greater
than twelve months old. Together with other aged stock
impairments and valuation write-downs, the Group
impaired approximately $15.3m of inventory value during
the year. Following completion of detailed stock counts,
the Group wrote-off approximately $8.7m of inventory
which was no longer on hand. Management believe that
the new IT system, together with improved stock count
controls will ensure there is no further material write-
downs of inventory. Refer to note B1.
The accompanying notes form part of these financial statements.
24
STEEL & TUBE ANNUAL REPORT 2018
Significant accounting policies which are
relevant to the understanding of the financial
statements are provided throughout the
report in boxes outlined in red.
KEY POLICY
Critical accounting estimates and judgements
Preparation of these financial statements requires the
exercise of judgements that affect the application of
accounting policies, the reported amounts of assets and
liabilities, and income and expenses.
Estimates and judgements are continually evaluated, based
on historical experience and other factors, including
expectations of future events that are believed to be
reasonable under the circumstances. The Group makes
estimates and assumptions about the future. Actual results
may differ from these estimates.
The estimates and assumptions that have
a significant risk of causing a material
adjustment to the carrying value of assets and
liabilities within the next financial year are
highlighted throughout the report in boxes
shaded in red.
KEY JUDGEMENT
General information
Steel & Tube Holdings Limited (the Company or Steel &
Tube) is registered under the Companies Act 1993 and is a
FMC Reporting Entity under the Financial Markets Conduct
Act 2013. The Company is a limited liability company
incorporated and domiciled in New Zealand. The Group
comprises Steel & Tube Holdings Limited and its
subsidiaries.
The Group’s principal activities relate to the distribution
and processing of steel, plastic and related products.
The registered office of the Company is Level 7, 25 Victoria
Street, Petone, Lower Hutt 5012, New Zealand.
These financial statements have been prepared:
– In accordance with New Zealand Generally Accepted
Accounting Practice (NZ GAAP), for which Steel & Tube is
a for-profit entity
– To comply with New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and with
International Financial Reporting Standards (IFRS)
– In accordance with the requirements of Part 7 of the
Financial Markets Conduct Act 2013 and the NZX Main
Board Listing Rules
– In New Zealand dollars (which is the Company’s and
subsidiaries’ functional currency and the Group’s
presentation currency) and rounded to the nearest
thousand dollars
– Under the historical cost convention, as modified by the
revaluation of certain assets as identified in specific
accounting policies.
– Following the implementation of a new ERP system
during the period, certain comparative information has
been reclassified to align with current year presentation.
The changes to the comparatives are shown below:
As
previously
statedAdjustments*
Revised
Financial
statements
$000s$000s$000s
Cost of sales(380,226)(4,674)(384,900)
Interest expense(3,091)(537)(3,628)
Operating expenses(101,758)5,211 (96,547)
*Adjustments
1 $4.67m adjustment from operating expenses to cost of
sales to restate the salaries & wages payments that are
directly associated with delivering revenue.
2 $0.54m in line fees for the Company’s term loans were
reclassified from operating expenses to interest
expenses to better reflect the nature of the expense.
3. Intangibles - Software has been combined with licenses
and comparatives changed in note C2.
The accompanying notes form part of these financial statements.
25
FINANCIAL
STATEMENTS
Group
2018 2017
Notes$000 $000
Sales revenue495,806 511, 4 0 0
Other operating income994 1,676
Cost of salesA3(398,399)(3 8 4,9 0 0)
Operating expensesA3(115,924)(96,547)
Operating (loss) / earnings before other gains and financing costs( 17, 5 2 3)31,629
Impairment of property, plant and equipment and intangiblesC1/C2( 2 0 ,10 0) -
Other gains1,436 -
(Loss) / Earnings before interest and tax(3 6 ,18 7 ) 31,629
Interest income53 51
Interest expense(4,68 4)(3,628)
(Loss) / Profit before tax(4 0,818)28,052
Tax credit / (expense)A58,768 (8,012)
(Loss) / Profit for the year attributable to owners of the Company(32,050)20,040
Items that may subsequently be reclassified to profit or loss
Other comprehensive income / (loss) - hedging reserve2 ,13 6 (762)
Items that may not subsequently be reclassified to profit or loss
Other comprehensive income - revaluation reserve960 35,713
Other comprehensive income / (loss) - deferred tax on revaluation reserve1,922 (2,908)
Total comprehensive (loss) / income(27,032)52,083
Basic (loss) / earnings per share (cents)A2(35.8)22.4
Diluted (loss) / earnings per share (cents)A2(35.8)22.3
Statement of Profit or Loss and Other Comprehensive Income
FOR THE YEAR ENDED 30 JUNE 2018
The accompanying notes form part of these financial statements.
26
STEEL & TUBE ANNUAL REPORT 2018
Statement of Changes in Equity
FOR THE YEAR ENDED 30 JUNE 2018
Share
capital
Retained
earnings
Hedging
reserve
Revaluation
reserve
Treasury
shares
Share-
based
payments
Total
equity
Notes$000 $000 $000 $000 $000 $000 $000
Group
Balance at 1 July 20167 7, 7 5 6 105,657 (431) - (3,50 0)763 18 0,245
Comprehensive income
Profit after tax - 20,040 - - - - 20,040
Other comprehensive (loss) / income
Hedging reserve (net of tax) - - (762) - - - (762)
Asset revaluation (gross) - - - 35,713 - - 35,713
Deferred tax on above
- - - (2,908) - - (2 ,9 0 8)
Total comprehensive income - 20,040 (762)32,805 - - 52,083
Transactions with owners
Dividends paidA2 - ( 2 0 ,1 4 5 ) - - - - ( 2 0 ,1 4 5 )
Proceeds from partly paid sharesD348 - - - - - 48
Options vested during the year - - - - - (170)(170)
Issue / (purchase) of own shares - net of
transaction costs
D3
- - - - 69 - 69
Balance at 30 June 2017
7 7, 8 0 4 105,552 ( 1,19 3)32,805 (3,431)593 2 12 ,13 0
Comprehensive income
(Loss) after tax - (32,050) - - - - (32,050)
Other comprehensive (loss) / income
Hedging reserve (net of tax) - - 2 ,13 6 - - - 2 ,13 6
Deferred tax on asset sale - - - 2,191 - - 2 ,19 1
Asset revaluation (gross) - - - 960 - - 960
Deferred tax on asset revaluation
- - - (269) - - (269)
Total comprehensive income - (32,050)2,136 2,882 - - (27,032)
Transfer on sale of property - 29,178 - (29,178) - - -
Transactions with owners
Dividends paidA2 - (12 ,6 62) - - - - (12 ,6 62)
Proceeds from partly paid sharesD341 - - - - - 41
Options vested during the year
- - - - - (400)(400)
Issue / (purchase) of own shares - net of
transaction costs
D3
- - - - 535 - 535
Balance at 30 June 2018
77,845 90,018 943 6,509 (2,896)193 172,612
The accompanying notes form part of these financial statements.
27
FINANCIAL
STATEMENTS
Balance Sheet
AS AT 30 JUNE 2018
Group
20182017
Notes$000 $000
Current assets
Cash and cash equivalentsE65,584 6,517
Trade and other receivablesB29 9,181 93,489
InventoriesB1116,047 143,064
Income tax refund5,165 218
Derivative financial instrumentsE61,271 2
Assets held for saleC4
1,639 -
228,887 243,290
Non-current assets
Deferred taxA56,488 -
Property, plant and equipmentC152,739 102,589
IntangiblesC2
5 7, 4 2 3 66,848
116,650 169,437
Total assets
345,537412,727
Current liabilities
Trade and other payablesB349,8 67 5 4 , 3 61
ProvisionsE29,215 3,534
Derivative financial instrumentsE6
17 1,714
59,099 59,609
Non-current liabilities
Trade and other payablesB32,108 2,212
BorrowingsD110 9,935 133,374
Deferred taxA5 - 4 ,15 7
ProvisionsE2
1,783 1,245
113,826140,988
Equity
Share capitalD3 7 7, 8 4 5 7 7, 8 0 4
Retained earnings9 0,018 105,552
Other reserves
4,749 28,774
17 2 ,612 2 12 ,13 0
Total equity and liabilities
345,537 412,727
These financial statements and the accompanying notes were authorised by the Board on 28 August 2018.
For the Board
Susan Paterson Anne Urlwin
Chair Director
The accompanying notes form part of these financial statements.
28
STEEL & TUBE ANNUAL REPORT 2018
Statement of Cash Flows
FOR THE YEAR ENDED 30 JUNE 2018
Group
2018 2017
Notes$000 $000
Cash flows from operating activities
Customer receipts4 89,6 8 6 512 ,9 7 9
Interest receipts53 51
Payments to suppliers and employees(478,601)(480,329)
Income tax payments(5,620)(8, 231)
Interest payments
(4 ,19 5)(3,628)
Net cash inflow from operating activities1,323 20,842
Cash flows from / (to) investing activities
Property, plant and equipment disposal proceeds52,768 221
Payment for new business purchase (net of cash acquired) - (13,761)
Property, plant and equipment and intangible asset purchases
(18,96 4)(18,518)
Net cash inflow / (outflow) from investing activities33,804 (32,058)
Cash flows (to) / from financing activities
Proceeds from partly paid sharesD3 41 48
Issue / (purchase) of Treasury shares - 69
Net proceeds from / (repayment of ) borrowingsD2(23,439)35,474
Dividends paidA2
(12 ,6 62)( 2 0 ,1 4 5 )
Net cash (outflow) / inflow from financing activities(36,060)15,4 4 6
Net (decrease) / increase in cash and cash equivalentsD2(933)4,230
Cash and cash equivalents at the beginning of the year
6,517 2,287
Cash and cash equivalents at the end of the year
5,584 6,517
Represented by:
Cash and cash equivalents
5,584 6,517
5,584 6,517
Reconciliation of (loss) / profit after tax to cash flows from operating activities
(Loss) / profit after tax(32,050)20,040
Non-cash adjustments:
Depreciation and amortisation8,060 7, 6 8 1
Deferred tax(9,572)905
Impairment of property, plant, equipment and intangibles2 0 ,10 0 -
Other(400) -
Gain on items classified as investing activities:
(Gain)/Loss on property, plant and equipment disposals
(1,436) -
(15, 298)28,626
Movements in working capital:
Income tax(4,947) (808)
Inventories27,017 ( 13 ,19 4)
Trade and other receivables(5,692)(111)
Trade and other payables
2436,329
Net cash inflow from operating activities
1,323 20,842
2929
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
Section A - Performance
This section focuses on the Group’s financial performance and returns provided to Shareholders.
A1: Business Performance
During 2018, Steel & Tube introduced a comprehensive change programme targeting improved business
performance and also carried out an extensive review of business operations. The review resulted in a decision to
exit S & T Plastics business, a write-down of inventory values, impairment of intangible assets, rationalisation of
Distribution and Reinforcing operations and completion of further organisational restructuring.
The non-trading costs associated with the review, offset by some upside from the sale of two properties were
$53.8m and these have directly impacted EBIT performance in 2018.
The Group was also impacted by issues related to the implementation of the new ERP system that went live on
2nd October. The implementation issues hampered business operations, mainly in the roll-forming and core
distribution businesses, and resulted in lost business. The Group worked closely with its IT suppliers to rectify the
issues and are confident that this new platform is the right one to take the Company forward.
A2: Dividends and Earnings per Share
On 7 August 2018 the Board announced a capital raising and declared that, as a result, a final, full year dividend
would not be declared (2017: 7.0 cents per share or $6.34m).
Final Dividend Paid: 2017: 7.0 cents per share (2016: 13.5 cents)
Interim Dividend Paid: 2018: 7.0 cents per share (2017: 9.0 cents)
25,000
20,000
15,000
10,000
5,000
0
201620172018
Dividends Paid ($000s)
Dividends Paid and Earnings per Share
Dividends paid are fully imputed. The Group is entitled to a tax credit for supplementary dividends paid to overseas
shareholders of $0.25m (2017: $0.34m).
Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average
number of fully paid shares less treasury shares.
Diluted earnings per share includes partly paid shares (refer Note D3) and represents the Company’s earnings per
share if convertible shares were exercised. The weighted average number of shares is adjusted by the number of
outstanding rights to executive shares that are deemed to vest at their future vesting dates.
NOTES – SECTION A
PERFORMANCE
30
STEEL & TUBE ANNUAL REPORT 2018
30
STEEL & TUBE ANNUAL REPORT 2018
(Loss) / Earnings per share (EPS)
2018 2017
$000 $000
(Loss) / profit after tax(32,050)20,040
Weighted average number of shares for basic EPS 89,596 8 9,427
Weighted average number of shares for diluted EPS N/A 90,028
Basic (loss) / earnings per share (cents)(35.8)22.4
Diluted (loss) / earnings per share (cents)(35.8)22.3
The impact of unvested share options on the Group’s diluted EPS is anti-dilutive. As a result, basic and diluted EPS
are the same for 2018.
A3: Expenses
2018 2017
Included in operating activities:
$000 $000
Inventories expensed in cost of sales3 49,973 358,665
Inventory written down / impairment24,005 25
Bad and doubtful debts2,855 1, 0 61
Depreciation and amortisation8,060 7, 6 8 1
Directors' fees478 349
Donations8 29
Employee benefits76,646 67,067
Defined contribution plans 1,625 1,495
Information Technology Expenses6,058 3,542
Foreign exchange gains(2,105)(1,781)
Operating leases17,109 15,190
Onerous leases1,999 -
Other expenses
27,612 28,124
Total cost of sales and operating expenses
514,323 481,447
Inventory as sold is expensed as cost of sales. Adjustments between Inventory cost and net realisable value are
included in cost of sales. Adjustments to receivables are included in other operating expenses.
Depreciation related to equipment used to manufacture products is included in cost of sales. Other depreciation
is included in operating expenses.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases are charged to profit or loss on a straight-line basis
over the term of the lease.
3131
NOTES – SECTION A
PERFORMANCE
A4: Operating Segments
Following a change to the operating structure of the Group during the reporting period, the reportable
operating segments have been revised to align with the new structure. Previously the Group had one reportable
segment. The Group has realigned its operating structure whereby there are now two clear Operating Divisions.
The Group’s internal financial reporting has changed to align with this new structure. The CEO, assessed to be the
Group’s Chief Operating Decision Maker (CODM), now receives separate financial reports for the two Operating
Divisions. As a result it has been determined that the Group has two reportable segments being the Distribution
and Infrastructure Divisions. The Group has made the decision that the seven operating segments that form part
of the reporting to the CEO can be aggregated into the two reporting segments. Reportable segments have
been determined by having regard to the nature of products, services and processes the various business units
undertake to service customers. The Group has a diverse range of customers from various industries, with no
single customer contributing more than 10% of the Group’s revenue. Within each segment there are the same
customers and similar sales channels.
The Group derives its revenue from the distribution and processing of steel, plastics and allied products. Within
the Distribution business the majority of product is traded and sales staff are tasked to know the full range
of products. Within the infrastructure business product is predominantly steel product which is bought and
processed/manufactured in warehouse facilities for project/contract customers.
The CEO uses EBIT as a measure to assess the performance of segments. The segment information provided to
the CODM for the year ended 30 June 2018 is as follows:
DistributionInfrastructure*
Other/
Elimination
Reconciled
to Group
$000 $000 $000 $000
2018
Revenue from external customers288,299 207,507 - 495,806
Amortisation and depreciation1,943 3,776 2,341 8,060
Impairment of property, plant, equipment and intangibles(4,391)(13,682)(2,027)(20,100)
Segment EBIT (12,752)(6,112)(17,323)(36,187)
Interest (net)(4,631)
Reconciled to Group Loss Before Tax
(40,818)
Total assets195,101 111,942 38,494 345,537
Total liabilities3 0 ,15 0 3 8 ,9 26 103,8 49 172 ,925
2017
Revenue from external customers305,675 205,725 - 511, 4 0 0
Amortisation and depreciation1,998 3,335 2,348 7,681
Segment EBIT17,041 18,767 (4,179)31,629
Interest (net)(3,577)
Reconciled to Group Profit Before Tax
28,052
Total assets190,969 125,274 96,484 412,727
Total liabilities22,702 33,340 144,555 200,597
* Included in Infrastructure division is S & T Plastics. Following the Board approved decision in May 2018 to exit
the Plastics business the sale process is underway. Management has undertaken an evaluation of the expected
realisable value and costs associated with closing down the business as disclosed in note C4.
32
STEEL & TUBE ANNUAL REPORT 2018
32
STEEL & TUBE ANNUAL REPORT 2018
Interest income and expense are not allocated to segments, as this type of activity is driven by the central
treasury function, which manages the cash position of the Group.
Sales between segments are eliminated on consolidation. The amounts provided to the CODM with respect to
segment revenue and segment assets are measured in a manner consistent with that of the financial statements.
Segment assets are allocated based on the operations of the segment and the physical location of the asset.
Following the change in operating structure it is the intent of Management to record certain supplier transactions
in applicable operating segments and in the information presented to the CEO. This change has been implemented
from 1 July 2018. The Group’s internal reporting provided to the CODM is aligned with this change.
A5: Income and Deferred Tax
Income tax comprises both current and deferred tax.
All entities in the Group are part of the same income tax group.
Current tax is the expected tax payable on the taxable income for the period, using current tax rates,
and any adjustment required to tax payable in respect of prior periods.
Deferred tax is recognised in respect of temporary differences arising between the tax base of assets
and liabilities and their carrying amounts in the financial statements. Deferred tax assets are only
recognised to the extent that it is probable future taxable profits will offset temporary differences. Tax
rates used are those that have been enacted or substantially enacted at balance date and which are
expected to apply when the deferred tax asset or liability crystalises.
Deferred tax is not provided if it arises from the following differences:
- goodwill not deductible for tax purposes
- initial recognition of assets and liabilities in a transaction other than a business combination that
affects neither accounting or taxable profit and
- investment in subsidiaries where the timing of the reversal of the temporary difference is controlled
by the Group to the extent that they will probably not reverse in the foreseeable future.
KEY POLICY
Income and deferred tax
2018 2017
$000 $000
(Loss) / profit before tax(4 0,818)28,052
Non-assessable income(2 ,076)(425)
Non-deductible expenditure
11, 581 988
(31,313)2 8 , 615
Tax (credit) / expense at 28% (8,768)8,012
Represented by:
Current tax804 7,107
Deferred tax
(9,572)905
(8,768)8,012
Tax Losses
Steel & Tube has recognised tax losses available to carry forward of $4.9m (2017: Nil). A deferred tax asset has
been recognised for these losses as they are expected to be realised within the foreseeable future.
3333
NOTES – SECTION A
PERFORMANCE
Deferred tax assets and liabilities
The table below shows the movement in the deferred tax balances that are recognised at the beginning and end
of the period.
Opening
balance
Acquired
in business
combination
Recognised
in income
Recognised
in equity
Closing
balance
$000 $000 $000 $000 $000
Group 2018
Property, plant and equipment(7,852) - 4,185 1,922 (1,745)
Employee benefits1,872 - (679) - 1,19 3
Provisions1,74 0 - 4,269 - 6,009
Cash flow hedging reserve499 - - (849)(350)
Customer relationship(113) - 113 - -
Customer contracts(225) - 225 - -
Licenses(78) - 78 - -
Net tax loss to carry forward
- -1,381 - 1,381
(4 ,157) -9,572 1,073 6,488
Group 2017
Property, plant and equipment(3,485) - (1,459)(2 ,9 0 8)( 7, 8 5 2 )
Employee benefits1,670 - 202 - 1,872
Provisions1,612 - 128 - 1,740
Cash flow hedging reserve183 - - 316 499
Customer relationship(14 0) - 27 - (113)
Customer contracts - (414)189 - (225)
Licenses
- (8 6)8 - (78)
(160)(500)(905)(2,592)(4,157)
20182017
$000 $000
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax liabilities(2,095)(9,339)
Deferred tax assets
8,583 5 ,18 2
Deferred tax asset / (liabilities) (net)
6,488 ( 4 ,15 7 )
Imputation credits available at year end were $2.6m (2017: $9.6m).
34
STEEL & TUBE ANNUAL REPORT 2018
34
STEEL & TUBE ANNUAL REPORT 2018
This section contains details of the short term operating assets and liabilities required to service the Group’s
Distribution branches and Processing sites.
B1: Inventories
Inventories are stated at the lower of cost and net realisable value, with cost determined on a
moving average cost basis or standard cost basis. Costs include expenditure incurred in acquiring
the inventories and bringing them to their existing location and condition. Net realisable value is
the estimated selling price in the ordinary course of business less the estimated costs of completion,
and selling expenses. The cost of manufactured/fabricated finished inventories includes a share of
overheads based on normal operating capacity.
KEY POLICY
Key judgement
Inventory impairment
The Group undertook an assessment of its inventory holdings to identify slow moving and aged
inventory. Inventory was considered aged if it had not had a sale for more than 12 months. Inventory
was considered slow moving if the Group held greater than 12 months’ worth of sales of the stock.
Upon identification of this inventory the Group conducted an assessment to determine whether the
net realisable value (NRV) of the inventory was greater than the inventory cost. NRV is mostly based
on scrap value and a reasonable change in NRV of impaired inventory wouldn’t have a material impact
on the provision. At 30 June 2018, for $8.8m (at cost value) of inventory, the Group determined that
NRV was lower than cost. An impairment provision of $8.4m was recognised in cost of sales to reduce
the carrying value of this inventory. This is in addition to the impairment expense of $6.9m recognised
earlier in the year. Judgement was required in the determination if the aged inventory can sell and
hence whether inventory should be impaired.
Inventory Existence
The Group implemented a new ERP system during the year. While the system is now operational, issues
with its implementation across the Group were greater than anticipated. Following implementation,
and to gain greater confidence in the financial position of the Group, Management decided that a
full wall-to-wall inventory count should be conducted for the parts of the Group impacted by the
ERP implementation. This was a departure from the Group’s inventory count policy which requires
inventory be counted on a cycle count basis. The counts were conducted prior to balance date. Due
to the number of locations and volume of inventory Stock Keeping Units (SKUs) to be counted, the
inventory counts were not all conducted at the same date. The count programme was conducted in
May and June 2018. While significant judgement was not involved in conducting the inventory counts
it did require significant levels of effort. The counts also identified that $8.7 million of inventory did not
exist. The Group recognised an inventory write off within costs of sales for this inventory.
KEY JUDGEMENT
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
Section B - Working Capital
3535
NOTES – SECTION B
WORKING CAPITAL
The Group holds inventories valued at $116.0 million (2017: $143.1 million).
Provision for write-down
Finished goods at realisable value
Inventories ($000s)
2018
$116,047
2017
$143,064
150,000
120,000
90,000
60,000
30,000
0
143,064
(648)
(8,388)
The Group is exposed to foreign exchange risk arising mainly from overseas purchases of inventory. In
accordance with its Treasury Policy, all confirmed overseas purchase orders are fully hedged using forward
foreign exchange contracts where payment is made in a foreign currency. The Group qualifies for hedge
accounting. The effective portion of the changes in fair value is recognised in other comprehensive income and
accumulated in reserves in equity as described in section E10.
As at balance date foreign exchange contracts recorded as assets were $1.27m (2017: $0.002m) and as liabilities
were $0.017m (2017: $1.7m). The notional value of foreign exchange contracts in place as at 30 June 2018 totalled
$37.7m (2017: $40.6m). The fair value of the foreign currency forward exchange contracts is as shown on the
Balance Sheet. Refer to section E6 for fair value hierarchy determination.
If the NZ dollar had weakened/strengthened by 5% against foreign currencies (primarily US dollar) at balance
date, there would be no impact on profit or loss, as the Group qualifies for hedge accounting and all hedges are
100% effective at balance date. The effect would be to equity + $1.9m if NZ dollar strengthened by 5% and - $2.1m
if the NZ dollar weakened by 5% (2017: + $1.8m /- $2.1m respectively).
116,047
36
STEEL & TUBE ANNUAL REPORT 2018
36
STEEL & TUBE ANNUAL REPORT 2018
B2: Trade and Other Receivables
Trade receivables at 30 June 2018 are $87.9m (2017: $88.4m) and are recognised initially at fair value and
subsequently at amortised cost less any provision for impairment. The carrying value of trade and other
receivables are equivalent to their fair value.
Trade receivables past due were revised to include aged debts greater than 60 days to align with the Group’s
payment terms. Comparative balances have been restated on the same basis.
No one customer accounts for more than 2% of trade receivables at 30 June 2018 and 30 June 2017.
At 30 June 2018 trade receivables of $11.3m (2017: $6.1m) were over 60 days due. These relate to a number of
independent customers for whom there is no recent history of default.
The aging profile of these customers is shown below.
Prepayments and sundry receivables
Provision for impairment
Past due
Current due
14,213
5,572
(2,980)
(438)
11,336
6,093
76,612
82,262
2018
$99,181
2017
$93,489
Trade and Other Receivables ($000s)
2018
2017
5,000
4,000
3,000
2,000
1,000
0
Within
1 month
2,654
1,613
4,089
Within
1 to 3 months
Beyond
3 months
Past due but not impaired ($000s)
731
273
4,651
3737
NOTES – SECTION B
WORKING CAPITAL
Provision for impairment
At 30 June 2018 an impairment provision of $3.0m (2017: $0.4m) was held. The impairment provision comprised
assessment of recovery across a number of customers. The provision is based on objective evidence that indicates
that the customers will not be able to pay their debts when due, these include significant financial difficulties of
customers and the probability of entering receivership or bankruptcy.
The Group is exposed to the risk of customers being unable to pay their debts as they fall due. The maximum
exposure is the total value of these balances. Customers who trade on credit terms are subject to credit
verification procedures and credit limits are set for each customer. The Group’s credit policy is monitored
regularly. In some circumstances security over assets may be obtained from trade debtors to mitigate the risk
of default. There are no significant concentrations of credit risk in the current or prior years. Due to their short
maturities the carrying value of trade and other receivables is considered to approximate their fair values.
The Group also has credit risk in respect of financial institutions that hold the Group’s cash. These institutions
have credit rating of AA-.
1,061
(2,038)
438
2,980
30-Jun-16
30-Jun-18
30-Jun-17
RecognisedRecognised
Written off as
uncollectable
Written off as
uncollectable
Provision for impairment ($000s)
1,415
3,500
3,000
2,500
2,000
1,500
1,000
500
0
(313)2,855
38
STEEL & TUBE ANNUAL REPORT 2018
38
STEEL & TUBE ANNUAL REPORT 2018
B3: Trade and Other Payables
Trade and other payables comprise $49.9m (2017: $54.4m) payable within a year and $2.1m (2017: $2.2m) payable
beyond 12 months.
The carrying amounts of the above items are equivalent to their fair values. Trade payables denominated in a
foreign currency are not material in the current or comparative year.
Included in the prior year’s balance was a contingent consideration liability recognised on acquisition of CFDL .
The contingent consideration was payable if financial milestones were met in the 2018 and 2019 financial years. A
full and final settlement agreement was reached with the previous owners of CFDL in 2018, resulting in $0.7m of
the remaining provision being released to the profit or loss.
Trade and other payables ($000s)
34,148
9, 7 0 0
6,019
2,108
2018
Lease incentives (Non-Current)
Employee benefits
Accrued expenses
Trade payables
35,958
12,777
5,626
2,212
2017
Current: $49,867
Non current: $2,108
Current: $54,361
Non current: $2,212
3939
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
Section C - Fixed Capital
This section includes details of the Group’s long term assets including tangible and intangible assets and related capital
commitments.
During the year the Group sold its properties at Stonedon Drive, Auckland and Blenheim Road, Christchurch. The
properties were sold for $32.6m and $21.1m respectively. The Group recognised a gain on sale of $1.5m within Other
Income in the Statement of Profit or Loss and Other Comprehensive Income. The gain on sale is after the recognition
of a make good aggregate provision of $1.5m and associated costs to sell. $29.2m was transferred from the Asset
Revaluation Reserve to Retained Earnings associated with the sold buildings.
C1: Property, Plant and Equipment
Plant and equipment are stated at cost less accumulated depreciation with the exception of land and
buildings and capital work in progress. Land and buildings are stated at fair value, and capital work
in progress is stated at cost less impairment. Assets are tested annually for indicators of impairment
and adjusted if required.
Depreciation is charged on a straight-line basis over the estimated useful lives of the assets, with the
exception of land and capital work in progress, which are not depreciated. This allocates the cost
or fair value amount of an asset, less any residual value, over its estimated remaining useful life. The
residual values and useful lives are reviewed annually.
The estimated useful lives are as follows:
Buildings 50 years
Plant and machinery and motor vehicles 3 - 20 years
Furniture, fittings and equipment 2 - 10 years
Land and buildings are recognised at fair value based on valuations by external independent valuers,
less subsequent depreciation for buildings. Valuations are undertaken when there is evidence
that the carrying value of the property is materially different to fair value. A revaluation surplus is
credited to other reserves in shareholder’s equity.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and
are included in profit or loss. When revalued assets are sold, it is the Group’s policy to transfer any
amounts included in other reserves in respect of those assets to retained earnings.
KEY POLICY
NOTES – SECTION C
FIXED CAPITAL
40
STEEL & TUBE ANNUAL REPORT 2018
40
STEEL & TUBE ANNUAL REPORT 2018
Land &
buildings
at fair value
Plant,
machinery
& vehicles
at cost
Furniture,
fittings &
equipment
at costTotal
$000 $000 $000 $000
2018
Opening cost5 7, 5 19 102,853 24,440 18 4,812
Opening accumulated depreciation - (61,7 76)(20,4 47)(82 ,223)
Opening net book value5 7, 5 19 41,077 3,9 93 102,589
Additions 7,17 0 6 , 3 61 1,731 15, 262
Land and building revaluations:
Increase to revaluation reserve 960 - - 960
Disposals(49,915)(471)(22)(50,4 08)
Impairments* - ( 7, 8 0 2)(171)( 7,9 7 3)
Transfer to assets held for sale * - (1,30 0)(339)(1,639)
Depreciation(359)(3,818)(1,875)(6,052)
Closing net book value15,375 34,047 3,317 52,739
Comprised of:
Cost or fair value15,375 85,885 18,301 119, 5 61
Accumulated depreciation - (51,838)(14,98 4)(6 6,822)
Property, plant and equipment15,375 34,047 3,317 52,739
2017
Opening cost28,897 94,554 23,427 146,878
Opening accumulated depreciation(8,454)(5 8 , 3 61)(18,50 6)(85,321)
Opening net book value20,4 43 3 6 ,19 3 4,9 21 61, 55 7
Net additions through business combinations - 6 61 47 708
Additions 1,762 7,807 1,025 10,594
Disposals - (169)(59)(228)
Land and building revaluations:
Increase to revaluation reserve35,713 - - 35,713
Decrease to income statement - - - -
Depreciation(399)(3,415)(1,9 41)(5,755)
Closing net book value5 7, 5 19 41,077 3,9 9 3 102,589
Comprised of:
Cost or fair value 57,519 102,853 24,440 184,812
Accumulated depreciation - (61,776)(20,447)(82,223)
57,519 41,077 3,993 102,589
Included within the plant, property and equipment categories is capital work in progress totalling $5.2m (2017:
$3.3m). Capital work in progress was tested for indicators of impairment. No impairment indicators were
identified.
At 30 June 2018 had land and buildings been carried at historical cost less accumulated depreciation their
carrying amount would have been approximately $8.7m (2017: $21.8m).
*Refer note C4
4141
NOTES – SECTION C
FIXED CAPITAL
Valuation of land and buildings:
The Group undertook a fair value assessment of land and buildings owned by the Group at 30 June 2018. The
fair value of these land and buildings was determined based on the market comparable approach that reflects
transaction prices for similar properties adjusted for identifiable differences including land use, economic
conditions, zoning and location, quality and condition. They are categorised as Level 3 of the fair value hierarchy
as unobservable inputs (as described in NZ IFRS 13). The valuations were prepared by independent and qualified
registered valuers and are based on:
– Land and buildings - relevant general and economic factors such as recent sales, leasing transactions of
comparable properties, and seismic strengthening costs.
The significant unobservable inputs are described in section E8.
The previous independent valuation of these land and buildings was performed in June 2017.
C2: Intangibles
Goodwill
Software &
LicencesOtherTotal
$000 $000 $000 $000
2018
Opening cost
4 7,17 1
24,464 2,522
74 ,15 7
Opening accumulated amortisation - (6,4 0 6)(9 03)( 7, 3 0 9)
Opening net book value4 7,17 1 18,058 1, 619 66,848
Additions - 4,710 - 4,710
Amortisation charge - (1,19 8)(810)(2,008)
Impairment(10,10 0)(2,027) - (12 ,127)
Closing net book value3 7, 0 7 1 19,543 809 5 7, 4 2 3
Comprised of:
Cost4 7,17 1 24,832 2,522 74,525
Accumulated amortisation - (3,262)(1,713)(4,975)
Impairment(10,10 0)(2,027) - (12 ,127)
Closing net book value
3 7, 0 7 1 19,543 809 5 7, 4 2 3
2017
Opening cost35,458 16,533 736 52,727
Opening accumulated amortisation - (5, 251)(132)(5,383)
Opening net book value35,458 11, 2 8 2 604 4 7, 3 4 4
Net additions through business combinations11,7 13 - 1,786 13,49 9
Additions - 7,9 3 1 - 7,9 3 1
Amortisation charge - (1,155)(7 71)(1,9 26)
Closing net book value4 7,17 1 18,058 1, 619 66,848
Comprised of:
Cost4 7,17 1 24,464 2,522 74 ,15 7
Accumulated amortisation - (6,406)(903)(7,309)
47,171 18,058 1,619 66,848
42
STEEL & TUBE ANNUAL REPORT 2018
42
STEEL & TUBE ANNUAL REPORT 2018
Included within the intangibles categories is work in progress totalling $2.7m (2017: $15.1m). Other intangibles
comprises customer relationships and customer contracts arising from business combinations.
Included within the software and licence category is the Group’s ERP system, Microsoft Dynamics AX. This
asset accounts for $18.3m (2017: $11.8m) of the intangible asset balance and includes internally generated costs
of $4.4m. Following initial go-live on 2 October 2017, the Group experienced significant issues that severely
impacted on business performance. Substantial additional work was required to deliver a functional system that
was fit for purpose and met business needs. The Group considered these additional costs, together with the
delays in project delivery and associated budget overspend, and concluded that the carrying value required
impairment. The Group reviewed all capitalised project spend and assessed that costs totalling $2.0m no longer
provided ongoing economic benefit to the Group and should be impaired. An impairment expense of $2.0m was
recognised in the Statement of Profit or Loss and Other Comprehensive Income within impairment of fixed and
intangible assets.
Due to the issues that had to be rectified, the commencement date for amortisation of the ERP intangible was
delayed to 1 June 2018. The software will be amortised over the next 10 years to 2028.
Goodwill is recognised on a business combination and represents the excess of the acquisition cost over
the fair value of the acquired net assets. Goodwill is allocated to cash-generating units, tested annually
for impairment, or more frequently if events or circumstances indicate it may be impaired, and is carried
at cost less accumulated impairment losses.
Computer software and licences are capitalised on the basis of costs incurred to acquire and use the
specific licences and are amortised on a straight-line basis over their estimated useful lives of 3 to 10
years. Computer software and licence amortisation charges are included in other operating expenses.
Customer relationships and customer contracts are capitalised at fair value on acquisition date and
are amortised on a straight-line basis over their estimated useful lives of 10 and 2 years respectively.
Amortisation charges are included in other operating expenses.
Costs associated with maintaining software programmes are recognised as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique
software products controlled by the Company are recognised as intangible assets when the following
criteria are met:
- it is technically feasible to complete the software so that it will be available for use
- management intends to complete the software and use or sell it
- there is an ability to use or sell the software
- it can be demonstrated how the software will generate probable future economic benefits
- adequate technical, financial and other resources to complete the development and to use or sell
the software are available, and
- the expenditure attributable to the software during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software include employee costs and an
appropriate portion of relevant overheads.
Capitalised development costs are recorded as intangible assets and amortised from the point at which
the asset is ready for use.
KEY POLICY
4343
NOTES – SECTION C
FIXED CAPITAL
KEY JUDGEMENT
Key judgement - Impairment test on CGUs:
The Group has undertaken value-in-use calculations for each cash generating unit (CGU) that
recognises goodwill. A value-in-use (VIU) calculation is a valuation based on forecast cash flows. These
cash flows are discounted back to present value to estimate a value for the CGU. If the VIU exceeds the
carrying value of the assets within the CGU no impairment is recognised.
A number of judgements have been made in respect to the assumptions used in the valuations. The key
assumptions are summarised below:
ASSUMPTION20182017
Discount Rate (post tax)8.5% - 10.4%7.1% - 10.3%
The Group engaged an independent expert to
assess the Group’s post-tax weighted average
cost of capital. A premium was applied to
smaller CGU’s. These post-tax discount
rates were applied to post-tax cash flows.
Through back solving the pre-tax WACC was
calculated.
Discount Rate (pre tax)11.3% - 13.9%9.9% - 14.3%
Terminal Growth Rate1.50%1.50%
Forecast Period5 Years5 YearsBoard approved budget used for 2019
Forecast Period Cash Flow
Growth Rate
3.4% - 4.0%2.50%
In addition to the above growth rate the Group included cash flows expected from performance
improvement projects. Cash flows expected from these projects have been included as part of
the Board approved FY19 budget, upon which the VIU calculations were based. However, for the
Distribution and Wire CGU’s, expected performance improvement has also been estimated for the
remaining forecast period. The Group is committed to these performance projects and has already
commenced implementation as supported by the recognition of restructuring initiatives. See note E2.
A summary of the impairment recognised is included below:
CGU
IMPAIRMENT
RECOGNISED
RECOVERABLE
AMOUNTRELATED SEGMENT
Hurricane Wire Products$5.7m$13.1mInfrastructure
Distribution$4.4m$102.4mDistribution
The table below illustrates the sensitivity of the impairment assessment to adverse changes in key
assumptions:
ASSUMPTIONCHANGE
ADDITIONAL GOODWILL IMPAIRMENT
HURRICANE
WIRE
PRODUCTS
DISTRIBUTION
(1)MSLCFDLROOFING
Discount Rate1%$1.4mNilNilNilNil
Terminal Growth Rate(1%)$1.0mNilNilNilNil
Decrease in forecast cash flows(10%)$0.7mNilNilNilNil
(1) The Group is of the opinion should adverse changes in key assumptions occur, the Distribution CGU
carrying value would be supported by its fair value less cost to dispose.
Any impairment of Goodwill allocated to a Cash Generating Unit (CGU) is determined based on the
present value of future CGU cash flows.
The Board exercises judgement in confirming the carrying value of Goodwill, considering a wide range
of inputs including the state of the steel sector and market movements.
44
STEEL & TUBE ANNUAL REPORT 2018
44
STEEL & TUBE ANNUAL REPORT 2018
Intangible assets with indefinite useful lives and intangibles not yet available for use are not subject
to amortisation. This applies to both goodwill and software under development.
The Group tests annually for impairment of these intangibles, or when events or circumstances
indicate the carrying value may not be recoverable.
An impairment loss is recognised for the excess of the carrying value of an asset or cash-generating
unit over its recoverable amount and is charged to profit or loss.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. For
the purpose of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows.
KEY POLICY
Based on the calculations completed, the impacts of impairment as at 30 June 2018 are as follows:
Following recent under-performance in certain parts of the Group, the Board has determined that the carrying
value of goodwill associated with the Distribution and Wire CGU’s is impaired.
Hurricane Wire Products
The Hurricane Wire brand is a long standing brand in the New Zealand wire market. The financial performance of
this CGU has however declined in recent years. Management considers this to be attributable to a lack of focus on
brand management and marketing. Management has commenced a business transformation project and consider
that the financial performance of this CGU can be improved and that the Hurricane wire brand can continue to
be a leading market provider of wire products. In assessing the value in use of this CGU, Management has taken a
prudent assessment of expected future financial performance. Applying a pre-tax discount rate of 13.9%, the value in
use is lower than the carrying value of the CGU’s assets, including goodwill by $5.7 million. Accordingly Management
has written down the carrying value of goodwill for this CGU by $5.7 million.
Distribution
The financial performance of the Distribution CGU has declined in recent years and in 2018 was impacted by the
poor implementation of the Company’s new ERP system, which has contributed to the financial loss this year. During
the 2018 financial year Management has implemented a business transformation programme, which is expected
to result in improved financial performance. However, as a number of these initiatives are in their early stages of
implementation the Group has not yet realised the full financial improvement benefits from them. As a result,
Management has taken a prudent approach to forecast cash flows for this CGU. Applying a pre tax discount rate of
13.0%, the value in use is lower than the carrying amount of assets in this CGU (including goodwill) by approximately
$4.4m. Management has therefore written down the carrying value of the CGU assets by impairing the goodwill of
$4.4m associated with this CGU.
15,602
11,713
4,046
5,710
2018
$ 3 7, 0 7 1
15,602
11,713
4,046
4,391
11,419
2017
$ 4 7,1 7 1
Carrying Value of Goodwill ($000s)
Hurricane Wire Products
Distribution
Roofing Products
Manufacturing Suppliers Limited
Composite Floor Decks Limited
2017
$ 4 7,1 7 1
4545
NOTES – SECTION C
FIXED CAPITAL
The goodwill in Distribution previously reported as $4.9m is made up of acquisition of various businesses over
time including DJ Agencies ($0.5m) which has now been reclassified to Roofing products to align with the new
reporting segment structure.
Roofing Products, Manufacturing Suppliers Limited, and Composite Floor Decks Limited
Based on the calculation and pre-tax discount rate sensitivity analysis, there is no indication of impairment for the
CGUs as at 30 June 2018.
Assessment of CGUs without goodwill
In assessing the CGUs without goodwill indicators of impairment such as the CGU’s current and future
performance, asset make up of the CGU and market condiditons were taken into consideration. Through the
assessment, it was determined there is no impairment of the CGUs without Goodwill as at 30 June 2018.
C3: Commitments
The Group occupies a number of warehouse and office premises under operating leases. The leases have varying
terms and renewal rights.
The Group has an operating lease agreement for the majority of its vehicle fleet. The lease agreement has varying
terms and renewal rights for each vehicle.
Capital commitments
The Group has contractual commitments of $2.6m (2017: $7.4m) for property fitout and purchase of plant and
equipment.
C4: Assets Held for Sale
During the year, the Group carried out an extensive review of S & T Plastics business resulting in a decision by the
Board to exit the business. The business and/or its assets are currently being marketed for sale. Management
consider the likely outcome to be a sale of individual assets, therefore has been classified as assets held for sale
and not a discontinued operation. The property, plant and equipment related to S & T Plastics have been impaired
to their fair value less costs to sell (FVLCTS) and presented as held for sale.
2018
2017
80,000
60,000
40,000
20,000
0
Lease commitments on non-cancellable leases ($000s)
Within
1 year
17,489
13,663
48,682
31,079
68,737
31,515
Within
1 to 5 years
Beyond
5 years
46
STEEL & TUBE ANNUAL REPORT 2018
46
STEEL & TUBE ANNUAL REPORT 2018
Carrying
value at ImpairmentFVLCTS
30 June 2018 30 June 201830 June 2018
$000 $000 $000
Property, plant and equipment held for sale
9, 612 ( 7,973) 1,639
Total
9, 612 ( 7,9 7 3)1,639
In addition to the impairment of assets, the Group has recognised the following provisions within the
Infrastructure operating segment to exit S & T Plastics.
30 June 2018
Provision for Business Rationalisation$000
Onerous Lease 814
Closedown and Site Remediation
2,062
Total
2,876
Current
2,248
Non-Current 628
Non-current assets are classified as assets held for sale and carried at the lower of carrying amount
and fair value less costs to sell if their carrying amount is recovered principally through a sale
transaction rather than through continuing use. The assets are not depreciated or amortised while
they are classified as held for sale. Any impairment loss on initial classification and subsequent
measurement is recognised as an expense. Any subsequent increase in fair value less costs to sell
(not exceeding the accumulated impairment loss that has been previously recognised) is recognised
in profit or loss.
KEY POLICY
Key judgements:
In accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations, the
assets and liabilities held for sale were written down to their fair value less costs to sell.
The FVLCTS is based on Management’s judgement of expected realisable values from disposing
and/or selling the assets. Considering the circumstances associated with the sale process
management has assumed a forced sale scenario in determining the FVLCTS. This judgement is
supported by an assessment from an independent plant and machinery valuer who undertook
a site visit and review of the assets. He concluded that the assets could be sold for between
$1.5m and $1.7m, consistent with Management’s estimate. Management has also taken into
consideration offers to purchase certain assets received post balance date. Judgements in
determining the FVLCTS have been made based on unobservable inputs (as described by IFRS 13)
and are therefore classified as level 3 in the fair value hierarchy.
The Provision for Onerous Leases for the remaining lease term on the main factory site and the
laboratory was partially offset by Management’s assessment that a future sub-lease may be
possible. The provision was discounted back to net present value.
The Closedown and Remediation provision includes Management’s assessment of the cost of
disposing of inventory, removing equipment and general close-down activities. It also includes
an estimate of the cost for site remediation of the main factory site which is based on an
independent estimate of the likely cost to return the site to paddock conditions.
KEY JUDGEMENT
4747
This section includes details of the Group’s cash, borrowings and capital reserves which provide funds for current and
future activities.
D1: Borrowings
20182017
$000 $000
Term loans - non current 10 9,935133,374
Credit facilities arranged with the banks can be drawn at any time, subject to meeting the Group’s General
Security Arrangement conditions over the assets of the Group.
The Group is exposed to interest rate risk through its term loans which are drawn down under the Group’s bank
debt facilities at variable interest rates.
At balance date, if bank interest rates had been 100 basis points higher/lower with all other variables held
constant, it would change post-tax profit/equity for the year by $0.8m lower/higher (2017: $0.9m).
The Group has committed bank borrowing facilities at balance date of $147m (2017: $157m). The total available
facilities were reduced by $10m following the settlement from the sale of the Group’s Blenheim Road property for
$21.1m in June 2018. These credit facilities were refinanced in June 2018 and all facilities have an expiry date of 31
October 2019 (30 June 2017: $78.5m, 31 October 2019 and $78.5m, 31 October 2021). The refinanced agreements
were treated as a modification of the liability.
Borrowings are recognised initially at fair value and net of transaction costs incurred. Borrowings
are subsequently stated at amortised cost and any difference between the net proceeds and
redemption value is recognised in profit or loss over the period of the borrowings using the effective
interest method. The movement in borrowings shown in the Statement of Cash Flows is the net
of repayments and drawdowns of borrowings. Borrowings are classified as current liabilities if
settlement is within 12 months.
Waiver for Expected Breach of Bank Facility Covenant
The Group is required to comply with a number of covenants and undertakings under the General
Security Arrangement for the credit facilities. The Group expected it would breach one of these
requirements, being the earnings before interest and tax (“EBIT”) to interest cover ratio as at 30 June
2018. The Group is required to maintain EBIT of at least 2.25x its interest costs on an annual basis,
measured as at 31 December and 30 June. Due to the non-trading costs impacting on the reported
financial results for 2018, the Group expected it would not be in compliance with this covenant at 30
June 2018. The Group obtained a waiver from the facility providers for this expected breach as at 30
June 2018 through to 30 June 2019. Other than the expected breach of the EBIT to interest cover ratio
as at 30 June 2018, for which a waiver was provided, the Group has fully complied with credit facility
covenants and undertakings during the year (2017: fully complied).
The Group is required to comply with certain financial covenants that relate to asset cover, gearing,
earnings before interest and tax and tangible net worth. Management has completed a detailed
assessment of compliance with these covenants and expects to comply fully. In addition and
subsequent to Balance Date, the Group has recently announced a capital raise, which will result in
significantly lower gearing and substantial additional covenant headroom.
KEY POLICY
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
Section D – Funding
NOTES – SECTION D
FUNDING
48
STEEL & TUBE ANNUAL REPORT 2018
48
STEEL & TUBE ANNUAL REPORT 2018
The Group manages its liquidity risk by maintaining availability of sufficient cash and funding via an adequate
amount of committed credit facilities. Owing to the nature of the underlying business, the Group aims to
maintain funding flexibility through committed credit lines. The Group monitors actual and forecast cash flows on
a regular basis and rearranges credit facilities where appropriate.
The table below analyses the Group’s financial liabilities and derivative financial instruments into maturity
groupings based on the remaining period from balance date to the contractual maturity date. The amounts
disclosed are the contractual undiscounted cash flows.
Average6 months 6 to 121 to 3Carrying
Interestor lessmonthsyearsTotalValue
rate$000$000$000$000$000
Group 2018
Borrowings3.77% 2 ,114 2,031 110,9 9 2 115 ,13 7 109,935
Trade payables & accruals 48,922 - - 48,922 48,922
Cash flow hedging of derivatives:
Outflow 36,027 1,676 - 3 7, 7 0 3
Inflow(3 7, 2 6 2)(1,695) - (38,957)
Group 2017
Borrowings2.86% 2,001 1,9 23 133, 26 4 13 7,18 8 133,374
Trade payables & accruals50,616 - - 50,616 50,616
Cash flow hedging of derivatives:
Outflow40,608 29 - 40,637
Inflow(38,898)(27) - (3 8 ,9 2 5)
D2: Net debt reconciliation
Cash and cash
equivalents
Borrowings
repayable
after one yearTotal
$000 $000 $000
Net debt as at 1 July 20176,517 (133,374)(126,857)
Cash flows
(933)23,439 22,506
Net debt as at 30 June 2018
5,584 (109,935)(10 4,351)
Net debt as at 1 July 20162,287 ( 9 7,9 0 0 )(95, 613)
Cash flows
4,230 (35,474)(31,24 4)
Net debt as at 30 June 2017
6,517 (133,374)(126,857)
The Group’s current bank loans are based on variable rates.
4949
NOTES – SECTION D
FUNDING
D3: Share Capital
The Group’s capital includes share capital, treasury shares, debt, reserves and retained earnings. The objectives
for managing capital are to safeguard the Group’s ability to continue as a going concern, to provide returns and
benefits for Shareholders and other stakeholders and to maintain a strong capital base for investor, creditor and
market confidence. The Group may adjust the dividends paid to Shareholders, return capital to Shareholders,
issue new shares or sell assets to maintain or adjust its capital structure.
Capital Structure Policy Targets
During the year ended 30 June 2018, the Group adopted formal capital structure targets as follows:
1. Net Debt:EBITDA less than 2.75x
The Group is targeting net debt to be less than 2.75x EBITDA. The Group has set this target to be achieved but
as at 30 June 2018 has not met the target. Net Debt:EBITDA excluding non-trading items as at 30 June 2018 is
4.3x. This ratio is higher than target as the Group has increased borrowings to fund acquisitive growth since 2014.
However EBITDA has not grown, resulting in a higher than target ratio. The Board considers the current ratio to
be higher than it should be. Post balance date the Group announced a fully underwritten placement and pro-rata
rights offer to raise $80.9 million. Following the successful execution of this capital raise the Board will revise that
target Net Debt : EBITDA ratio down to 2.0x and expects full compliance with the revised ratio.
2. Gearing ratio less than 30 – 35%
The target ratio is to be at or less than 30% and never more than 35%. The Group’s gearing ratio is calculated
as net debt divided by the sum of total equity and net debt, where net debt is total borrowings less cash and
cash equivalent assets. The policies in respect of capital management and allocation are reviewed regularly by
the Board. The gearing ratio for this year is 38% (2017: 43%) and is below the benchmark of 55% in the Group’s
General Security Agreement. Whilst the Group is operating well within the General Security Arrangement
requirements, the Board consider this level of gearing to be higher than it should be. The Group expects to be
in line with the target ratio following completion of the post balance date capital raise.
3. Dividend pay-out of between 60% - 80% of Net Earnings (NPAT) adjusted for any significant
non-trading items
There has been no material change in the management of capital during the year.
2018 2017 2018 2017
$000 $000 SharesShares
Fully paid:
Balance at the beginning of the year77,803 7 7, 7 5 5 90,588,026 90,578,026
Proceeds from partly paid shares
41 48 20,000 10,000
Balance at the end of the year
7 7, 8 4 4 7 7, 8 0 3 90,608,026 90,588,026
Partly paid:
Balance at the beginning of the year1 1 45,000 55,000
Transfer to fully paid shares
- - (20,000)(10,000)
Balance at the end of the year1 1 25,000 45,000
Total balance at the end of the year
77,845 77,804 90,633,026 90,633,026
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STEEL & TUBE ANNUAL REPORT 2018
50
STEEL & TUBE ANNUAL REPORT 2018
The holders of ordinary shares are entitled to receive dividends declared from time to time and to one vote
per share at meetings of the Company. Ordinary shares issued and partly paid to one cent shares in the Senior
Executives’ Share Scheme 1993 do not have dividend or voting entitlements until the shares are paid in full but
qualify for bonus and cash issues.
Ordinary shares are classified as equity. Where any controlled entities purchase Company shares that have not
been allocated, the consideration paid and directly attributable costs are deducted from equity and classified as
treasury shares.
Treasury shares
2018 2017 2018 2017
$000 $000 SharesShares
Balance at the beginning of the year3,431 3,500 1,150,787 1,1 0 9, 7 2 1
Purchases - 592 - 270,000
Used in share schemes
(535)(6 61)( 17 7,9 3 8)(228,934)
Balance at the end of the year
2,896 3,431 972,849 1,150,787
Treasury shares are unallocated Company shares held by the Trustees of share-based schemes and are
recognised as a reduction in shareholders’ funds of the Group. There were no Treasury shares purchased during
the year (2017: Weighted Average price of shares purchased $2.19).
5151
Notes to the Financial Statements
FOR THE YEAR ENDED 30 JUNE 2018
Section E – Other
This section contains additional notes and disclosures which do not form part of the primary sections but which are
required to comply with financial reporting standards.
• Financial risk management
• Provisions
• Contingent liabilities
• Auditor remuneration
• Related party and share based plans
• Financial instruments
• Financial assets
• Land and buildings
• Subsequent events
• Other accounting policies
E1: Financial Risk Management
The Group is exposed to financial risk: market risk, credit risk and liquidity risk.
The Group’s Treasury Policy is approved by the Board and is reviewed annually. The Treasury Policy establishes
principles and risk tolerance levels to guide management in carrying out risk management activities to minimise
potential adverse effects on the financial performance of the Group. Compliance with policy is monitored and
reviewed on a monthly basis.
Detail relevant to the following risks are covered in relevant sections:
Foreign exchange risk (a market risk) Inventories B1
Interest rate risk (a market risk) Borrowings D1
Credit risk Trade & other receivables B2
Liquidity risk Borrowings D1
E2: Provisions
Restructure
provision
Onerous Contract
and Contract
Dispute Provision
Onerous Lease
and Make Good
Provision
Commerce
Commission
ProvisionTotal
$000 $000 $000 $000 $000
Opening balance - 2,634 1,245 900 4,779
Additions4,740 844 3,371 300 9, 2 55
Used
- (2,344)(692) - (3,036)
Closing balance
4,74 0 1,13 4 3,924 1,20 0 10,9 98
Current4,112 1,134 2,769 1,200 9, 215
Non Current628 - 1,15 5 - 1,783
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event. This occurs when it is probable that a cost will be incurred to settle the obligation
and a reliable estimate can be made of that obligation. Where material, provisions are determined by
discounting the expected cash flows at a pre-tax rate that reflects current market assessments of the
time value of money. Where discounting is used, the increase in the provision due to the passage of
time is recognised as an expense.
KEY POLICY
NOTES – SECTION E
OTHER
52
STEEL & TUBE ANNUAL REPORT 2018
52
STEEL & TUBE ANNUAL REPORT 2018
– Make-good obligations on existing tenanted properties, including Stonedon Drive remediation work agreed
as part of the sale and purchase agreement, estimated at $1.5m. Actual payment dates and costs will be known
once each lease reaches its expiry date.
– Onerous Contract and Contract Dispute Provision is an estimate of the costs of customer claims for faulty or
defective products supplied and an assessment of the shortfall between costs and future revenue on certain
projects where the Group is committed to providing a service within the next 12 months for which the costs
will exceed the revenue.
– Restructure and Rationalisation Provision. The Group has undertaken a review of the business and commenced
a restructure in a number of areas. A provision has been recognised where staff have been notified of
redundancy or where a valid expectation of redundancy has been created. Included within this provision
are costs associated with the closure of S & T Plastics including onerous lease provision. Refer note C4 for
details.
– Provision for Commerce Commission Fine
In December 2016 the Commence Commission announced that it had completed its investigation in relation
to several companies, and that it intended to prosecute three companies under the Fair Trading Act, including
Steel & Tube. The Commission’s prosecution of Steel & Tube relates to the inadvertent use of a testing
laboratory’s logo on test certificates, and application of testing methodologies. Following a Group wide
review, quality resources have been strengthened and quality management processes have been and continue
to be enhanced.
In August 2017 Steel & Tube pleaded guilty to those charges. On 25th May 2018, the sentencing hearing
occurred in the Auckland District Court. The judge has reserved his decision and therefore a sentence was not
given.
A provision for estimated fines, penalties and costs in relation to this prosecution and their expected recovery
under the Group’s insurance policies has been provided for in the Group’s financial statements. It is expected
that the sentencing will occur within the next 12 months.
E3: Contingent Liabilities
Indemnities given to the Company’s trading banks in respect of performance bonds were $2.7m (2017: $2.5m) at
balance date and were transacted in the ordinary course of business.
Key judgements:
– The Provision for Onerous Leases is for the remaining lease term on the properties that have
been vacated as part of the Group’s change programme. The provision is partially offset by
Management’s assessment that a future sub-lease may be possible on some of the properties
with longer than 12 month lease terms remaining. If the Group’s assumptions on time required
to sub-let the properties increased by three months and the expected sub-lease rentals were
10% less, the provisions would increase by $0.1m.
KEY JUDGEMENT
5353
NOTES – SECTION E
OTHER
E4: Auditor Remuneration
20182017
$000 $000
Fees paid to PwC
– annual audit & half year review 337 304
– direct expenses associated with performance of the audit
(eg. reimbursement of travel and accommodation costs)
18 5
– tax compliance: annual tax return 25 24
– other assurance services related to the Company's ERP system 10 106
– other 3 2
– tax advisory services in relation to the Company's Executive Share Scheme 41 -
– facilitation of an IFRS 15 workshop
7 -
441 441
E5: Related Party and Share Based Plans
The Group has related party relationships with its controlled entities and with key management personnel.
The subsidiaries in the Group are:
20182017
SubsidiariesPrincipal ActivityHoldingHolding
Steel & Tube New Zealand LimitedNon-trading100%100%
Composite Floor Decks Holdings LimitedNon-trading100%100%
Studwelders LimitedNon-trading100%100%
S&T Stainless LimitedStainless Distributor100%100%
Manufacturing Suppliers LimitedFastenings Distributor100%100%
S & T Plastics LimitedPipe Manufacturer100%100%
Composite Floor Decks LimitedFloor Decking Installer100%100%
Transactions with Key Management Personnel
2018
2018 for
Comparison2017
$000 $000 $000
Short-term benefits 2,591 3,544 3,717
Termination Benefits 972 1,087 -
Share-based benefits
270 312 688
3,833 4,943 4,405
Following a change to the operating structure of the Group during the reporting period, there are now two clear
Operating Divisions. As a result the executive leadership structure has also changed. The 2018 Key Management
Personnel numbers have been prepared based on the new executive structure with a comparison provided based
on the previous executive structure.
The Key Management Personnel are the Non Executive Directors and Executive Management. Included in short-
term benefits are Directors’ fees of $477,500 (2017: $349,125).
54
STEEL & TUBE ANNUAL REPORT 2018
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STEEL & TUBE ANNUAL REPORT 2018
Executive Share Plan 2003
The Executive Share Plan offered key personnel an opportunity to subscribe for rights to Company shares, as
directed by the Board. Vesting of the rights occurs upon achieving Board-approved targets, based on total
shareholder returns, after a minimum of three years to a maximum of five years from grant date and vest as
equity. The rights to shares are equity settled.
Whilst no further Rights will be issued relative to the Executive Share Plan 2003, it will continue to operate until
such time as the prior years’ Rights that have been granted are either vested and exercised, forfeited or lapse, in
accordance with that plans rules.
Executive Share Plan 2017
In February 2018 a new Executive share plan was approved by the Board. The performance period for the new
scheme runs for 3 years and comprises two performance conditions (50% each) as follows:
a) The Benchmark Comparator (BC) ranks the Company’s Total Shareholder Return (TSR) relative to the TSR of
the NZX 50 Index securities.
– Where the Company TSR equals the 50th percentile TSR of the Index Companies over the Performance
Period, 50% of (BC) Performance Rights will vest.
– Where the Company TSR equals or exceeds the 75th percentile TSR of the Index Companies over the
Performance Period, 100% of (BC) Performance Rights will vest.
– Where the Company’s TSR over the Performance Period exceeds the 50th percentile TSR of the Index
Companies but does not reach the 75th percentile, then between 50% and 100% of the (BC) Performance
Rights, will vest as determined on a linear pro rata basis.
b) The Absolute Comparator (AC) ranks the Company’s TSR relative to the Company’s Cost of Equity (CoE) plus a
premium of 2% annualised and compounding.
– Where the Company TSR is less than or equal CoE no (AC) Performance Rights will be vested
– Where the Company TSR is greater than CoE but less than (CoE) + 2%, 50% of (AC) Performance Rights will vest
– Where the Company TSR is equal to or greater than CoE + 2%, 100% of (AC) Performance Rights will vest
Performance Rights are only able to be exercised after completion of the three year performance period,
providing and only to the extent that the performance conditions have been satisfied. Any Benchmark and
Absolute Comparator Performance Rights that do not vest at the Measurement Date will lapse.
5555
NOTES – SECTION E
OTHER
At July 2017 1,102,558 rights to shares were outstanding. Rights outstanding, granted or forfeited carry no exercise
price. During the year the following movements of rights to shares occurred in accordance with the rules of the
share plan:
No. of Rights
Available
2018
No. of Rights
Available
2017
Opening Balance1,102,558 1,074,218
New Shares Granted371,366 483,624
Rights Forfeited(728,765)(226,347)
Rights Exercised
( 17 7,9 3 8)(228,937)
Total
567,221 1,102,558
Rights Performance Conditions
Start Dates
Expiry date
Issue date
fair value
Total Rights
Issued
Rights
available
30 June 2018
Rights
available
30 June 2017
1 July 2013 - Tranche 1130/06/2018 $ 3 .1 0 303,740 5,355 118 ,9 4 6
1 July 2014 - Tranche 1230/06/2019 $2.85 288,711 10,623 23 6 ,9 26
1 July 2015 - Tranche 1330/06/2020 $2.66 343,441 40,200 2 8 7, 3 0 3
1 July 2016 - Tranche 1430/06/2021 $2.21 475,596 139,677 459,3 8 3
1 September 2017 - Tranche 11/09/2020 $2.09
371,366 371,366 -
Total
1,782,854 567,221 1,102,558
The fair value of rights is determined using a Monte Carlo share price simulation model. The significant inputs
into the model for shares granted during the period were the market share price at grant date, an exercise price
of zero (as shares are issued to the employees at nil consideration on vesting), volatility of 26.3%, expected
option life of between 1 and 3 years and an annual risk free interest rate of 1.95%. Volatility has been calculated
based on the annualised volatility for the three years prior to the rights issue.
The Board appoints a Trustee to administer the 2003 plan. Any rights not vested after the expiry of
five years are cancelled. The cost associated with this plan is measured at fair value at grant date and
is recognised as an expense in profit or loss over the vesting period, with a corresponding entry to
the reserve in equity. Shares purchased in this plan are recognised as treasury shares until they are
distributed.
KEY POLICY
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STEEL & TUBE ANNUAL REPORT 2018
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STEEL & TUBE ANNUAL REPORT 2018
E6: Financial Instruments
Loans and
receivables
Derivatives
for hedging
Liabilities at
amortised cost
Group 2018
Cash and cash equivalents 5,584 - -
Trade and other receivables excluding prepayments 88,235 - -
Derivative financial instruments (1)
- 1,271 -
Total financial assets
93,819 1,271 -
Borrowings - - 10 9,935
Trade and other payables - - 4 4 , 615
Derivative financial instruments (1)
- 17 -
Total financial liabilities
- 17 15 4,550
Group 2017
Cash and cash equivalents 6,517 - -
Trade and other receivables excluding prepayments 8 7,9 17 - -
Derivative financial instruments (1)
- 2 -
Total financial assets
94,434 2 -
Borrowings - - 133,374
Trade and other payables - - 52,580
Derivative financial instruments (1)
- 1,714 -
Total financial liabilities
- 1,714 18 5,95 4
(1) Derivative financial instruments are measured at fair value calculated using forward exchange rates that are
quoted in an active market (Level 2 of the fair value hierarchy).
E7: Financial Assets
The Group classifies its financial assets as loans and receivables and at fair value through profit or loss
(derivatives). Adjustments to fair value are recognised through profit or loss, which includes derivatives held
for hedging. The classification within profit or loss depends on the purpose for which the assets were acquired.
Management determines the classification of the assets at the initial recognition and re-evaluates the designation
at each reporting date.
Purchases and sales of financial assets are recognised on the date the Group has committed to the transaction.
De-recognition of financial assets occurs when the rights to receive cash flows have expired or the Group has
transferred substantially all the risks and rewards of ownership
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for those with maturities greater than 12
months after the end of the reporting period, these are classified as non-current assets. The Group’s loans and
receivables comprise trade and other receivables and cash and cash equivalents. They are recognised initially at
fair value and subsequently at amortised cost less any impairment.
5757
NOTES – SECTION E
OTHER
E8: Land and Buildings
This note provides information on the key inputs used in determining the fair value of land & buildings. The
Group has measured its land & buildings at fair value. These are Level 3 on the fair value hierarchy.
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the
reporting period. There were no transfers between any levels during the year.
The movements in level 3 items during the period are shown in the table in section C1.
The following table summarises the quantitative information about the significant unobservable inputs used in
recurring level 3 fair value measurements. The relationship of all these unobservable inputs to fair value is that the
higher they are, the lower the fair value.
DescriptionUnobservable inputs
Range of inputs
[from valuation reports]
2018
Range of inputs
[from valuation reports]
2017
Owned land & buildingsDiscount rate7.25% – 9.84%7.13% - 9.69%
Terminal yield7.50% – 9.0%6.25% - 9.25%
Capitalisation rate7.0% – 8.50%6.0% - 8.75%
E9: Subsequent events
On 7 August 2018 the Board announced a fully underwritten capital raise of $80.9m by way of an upfront
placement of $20.8m to eligible institutional investors and a pro-rata Rights Offer to eligible shareholders for
$60.1m. This will allow the Group to execute its business transformation initiatives and achieve its longer term
strategic objectives. On 10 August 2018, the upfront placement was successfully transacted.
E10: Other Accounting Policies
Basis of consolidation
The Group applies the acquisition method to account for business combinations. The Group financial statements
comprise the financial statements of Steel & Tube Holdings Limited and its controlled entities (subsidiaries)
(ref Note E5). The financial statements of subsidiaries are prepared for the same reporting period as the parent
company, using consistent accounting policies.
The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement
with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
Subsidiaries are consolidated from the date on which control is transferred to the Group and deconsolidated
from the date control ceases.
Consideration transferred is the fair value of assets transferred, liabilities incurred to the former owners of the
acquiree and equity interests issued by the Group. Consideration transferred also includes the fair value of any
asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities
(including contingent liabilities) assumed in a business combination are measured initially at their fair values at
acquisition date.
All inter-company transactions and balances between Group companies are eliminated.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate at the date of the transaction.
Gains and losses resulting from the settlement of such transactions and from translation of monetary assets and
liabilities at balance date are recognised in profit or loss except when deferred in equity as qualifying cash flow
hedges.
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Revenue recognition
Revenue comprises the fair value of sales of goods net of Goods and Services Tax, and discounts and after
elimination of sales within the Group. Revenue is recognised when the significant risks and rewards of ownership
have been transferred to the customer or when the services have been performed.
Accounts payable policy
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
Derivatives - Cash flow hedge
The Group uses derivative financial instruments to hedge its exposure to foreign exchange risks and interest
risk arising from operational, financing and investing activities. In accordance with its Treasury Policy, the Group
does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are
recognised initially at fair value on the date a derivative contract is entered into. Subsequent to initial recognition,
derivatives are re-measured at fair value.
The Group designates certain derivatives as hedges of a highly probable forecast transaction (cash flow hedge).
The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recognised in
equity. The gain or loss on the ineffective portion is recognised in profit or loss in other gains/(losses).
When the hedged item is a non-financial asset (for example, inventory or property, plant and equipment) the
amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other
cases the amount recognised in equity is transferred to profit or loss in the same period the hedged item is
recognised in the Statement of Profit or Loss and Other Comprehensive Income. If the hedging instrument no
longer meets the criteria for hedge accounting, expires, is sold, terminated or is exercised, any cumulative gain
or loss previously recognised in equity remains in equity until the forecast transaction is ultimately recognised in
profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss reported in
equity is immediately transferred to profit or loss within other gains/(losses).
Derivative financial instruments are classified as current assets if expected to be settled within 12 months;
otherwise, they are classified as non-current.
Impairment of non-financial assets:
Assets that have indefinite useful lives that are not subject to amortisation and intangible assets not yet available
for use are tested annually for impairment. Assets (including intangibles and property, plant and equipment)
subject to amortisation and depreciation are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value, less costs to sell and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
Adoption status of relevant new financial reporting standards and interpretations
There are no new standards or amendments to standards applicable to the Group for the year ended 30 June
2018 other than the adoption of the amendments to IAS 7, see note D2.
Certain new accounting standards, amendments and interpretations of existing standards have been published
that are not mandatory for the year ended 30 June 2018 and have not been early adopted by the Group. These
will be applied by the Group in the mandatory periods listed below. The key items applicable to the Group are:
5959
NOTES – SECTION E
OTHER
NZ IFRS 9: Financial Instruments (Effective date: periods beginning on or after 1 January 2018)
NZ IFRS 9: Financial Instruments addresses the classification, measurement and derecognition of financial assets
and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial
assets.
This standard takes effect from 1 July 2018 and the expected impact relates largely to financial assets and the
expected credit loss associated with those assets. The main impact for Steel and Tube will be on the impairment
calculation for trade receivables. The Group is currently using a provision matrix where trade receivables are
grouped based on past-due basis.
The new impairment model per the standard requires the recognition of impairment provisions based on
expected credit losses (ECL) rather than only incurred credit losses as is the case under NZ IAS 39. This requires
receivables to be grouped based on different customer attributes and different historical loss patterns.
The model is then updated with current and forward looking estimates. The Group is still in the process of
analysing historical credit loss information and forward-looking information in order to assess the impact,
if any, on the impairment provisions in the year of adoption.
There will be no impact on the Group’s accounting for financial liabilities, as the new requirements only affect
the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does
not have such liabilities. The derecognition rules have been transferred from NZ IAS 39 Financial Instruments:
Recognition and Measurement and have not been changed.
The new hedging accounting rules will align the accounting for hedging instruments more closely with the
Group’s practices. The Group’s hedging is restricted to cash flow hedges for purchases of inventory. The Group’s
current practice is to recognise the accumulated gains or losses on the hedged transaction against the carrying
value of the inventory which is the prescribed practice under NZ IFRS 9.
NZ IFRS 15: Revenue from Contracts with Customers (Effective date: periods beginning on or after 1 January 2018)
This standard addresses recognition of revenue. It replaces the current revenue recognition guidance in NZ
IAS 18 Revenue and NZ IAS 11 Construction Contracts. The new standard is based on the principal that revenue
is recognised when control of a good and service transfers to a customer. The standards permits either a full
retrospective or a modified retrospective approach for the adoption.
During the current financial period, the Group began the assessment of the potential impact of NZ IFRS 15. Work
focused on segregating the different revenue streams that exist within the business. The majority of revenue
is made up of product sales with some contract revenue (approximately 16% of total revenue) through the
Reinforcing and CFDL divisions.
The following matters are relevant to the Group under NZ IFRS 15:
• Treatment of contract modifications for CFDL and Reinforcing division in determining whether to combine the
contract.
• For contracts which involve the supply and installation of materials in the CFDL and Reinforcing divisions,
whether the supply is a separate performance obligation as it may impact the timing, measurement and
classification of revenue recognised.
• A customers’ right of return in determining revenue to be recognised and how this should be accounted for.
• The treatment of volume rebates provided to customers.
Further work is required to assess the impact of contract modifications on revenue recognition.
The Group will take the modified retrospective approach for the transition.
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STEEL & TUBE ANNUAL REPORT 2018
NZ IFRS 16: Leases (Effective date: periods beginning on or after 1 January 2019)
NZ IFRS 16: Leases replaces the current guidance in NZ IAS 17. Under NZ IFRS 16, a contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. Under NZ IAS 17, a lessee was required to make a distinction between a finance lease (on balance
sheet) and an operating lease (off balance sheet). NZ IFRS 16 now requires a lessee to recognise a lease liability
reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The income statement
will also be impacted by the recognition of an interest expense and a depreciation expense and the removal of
the current rental expense.
This standard will affect primarily the accounting for the Group’s operating leases. As at the reporting date, the
Group has non-cancellable operating lease commitments of $134.9m (refer to note C3). On adoption, NZ IFRS 16
will have a significant impact on the Group’s balance sheet and on specific line items on the income statement.
Management’s process to date highlights that the potential impact based on current lease arrangements is
expected to be material, with impacts on the following line items:
Balance sheet:
• Recognition of a right to use asset;
• Recognition of a lease liability; and
• Adjustment in opening retained earnings.
Income statement:
• Decrease in operating leases expense;
• Increase in depreciation and amortisation expense; and
• Increase in finance costs (interest expense).
The impact on each of these line items is expected to be significant. The accounting standard change will not
impact the cash flow of the Group.
The Group is currently undertaking a restructure of the business, including the rationalisation of the Group’s lease
portfolio. Until the outcome of this rationalisation is clear, it is not possible to provide a reliable indicative impact
of the new standard on the Group’s financial statements.
The standard is effective for the Group for the year ending 30 June 2020. Early adoption is permitted however
the Group intends to adopt NZ IFRS 16 on its effective date. The Group intends to adopt the simplified transition
approach under NZ IFRS 16 in the year ending 30 June 2020 and will not restate comparative amounts for the
period prior to first adoption.
6161
PricewaterhouseCoopers, PwC Centre, 10 Waterloo Quay, PO Box 243, Wellington 6140, New Zealand
T: +64 4 462 7000, F: , pwc.co.nz
Independent Auditors’ Report
to the shareholders of Steel & Tube Holdings Limited
The financial statements comprise:
the balance sheet as at 30 June 2018;
the statement of profit or loss and other comprehensive income for the year then ended;
the statement of changes in equity for the year then ended;
the statement of cash flows for the year then ended; and
the notes to the financial statements, which include significant accounting policies.
Our opinion
In our opinion, the financial statements of Steel & Tube Holdings Limited (the Company), including its
subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as
at 30 June 2018, its financial performance and its cash flows for the year then ended in accordance
with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and
International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
NZ) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in theAuditor’s responsibilities for the audit of the financial statementssection of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised)
Code of Ethics for Assurance Practitioners(PES 1) issued by the New Zealand Auditing and Assurance
Standards Board and the International Ethics Standards Board for Accountants’Code of Ethics for
Professional Accountants(IESBA Code), and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our firm carries out other services for the Group in the areas of tax compliance services, other
assurance services related to the Company’s ERP replacement project, tax advisory services in relation
to the Company’s Executive Share Scheme and the facilitation of an IFRS 15 workshop. The provision
of these other services has not impaired our independence as auditor of the Group.
INDEPENDENT
AUDITORS REPORT
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STEEL & TUBE ANNUAL REPORT 2018
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STEEL & TUBE ANNUAL REPORT 2018
PricewaterhouseCoopers, PwC Centre, 10 Waterloo Quay, PO Box 243, Wellington 6140, New Zealand
T: +64 4 462 7000, F: , pwc.co.nz
Independent Auditors’ Report
to the shareholders of Steel & Tube Holdings Limited
The financial statements comprise:
the balance sheet as at 30 June 2018;
the statement of profit or loss and other comprehensive income for the year then ended;
the statement of changes in equity for the year then ended;
the statement of cash flows for the year then ended; and
the notes to the financial statements, which include significant accounting policies.
Our opinion
In our opinion, the financial statements of Steel & Tube Holdings Limited (the Company), including its
subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as
at 30 June 2018, its financial performance and its cash flows for the year then ended in accordance
with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and
International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
NZ) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in theAuditor’s responsibilities for the audit of the financial statementssection of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised)
Code of Ethics for Assurance Practitioners(PES 1) issued by the New Zealand Auditing and Assurance
Standards Board and the International Ethics Standards Board for Accountants’Code of Ethics for
Professional Accountants(IESBA Code), and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our firm carries out other services for the Group in the areas of tax compliance services, other
assurance services related to the Company’s ERP replacement project, tax advisory services in relation
to the Company’s Executive Share Scheme and the facilitation of an IFRS 15 workshop. The provision
of these other services has not impaired our independence as auditor of the Group.
6363
INDEPENDENT
AUDITORS REPORT
Key audit matterHow our audit addressed the key audit matter
Impairment testing of the Group’s assets
The risk that the Group’s assets may be materially
impaired is considered a Key Audit Matter, due to:
the existence of indicators of impairment
the high level of management judgment
required to:
-determine the Cash Generating Units
(CGUs) to test for impairment, and
-estimate the future results of the business
and the discount rate used to determine
the value-in-use (VIU) of the CGUs.
To assess whether an impairment of the Group’s
assets exists, the Group has:
determined the lowest grouping of assets that
generate independent cash flows, known as a
CGU
allocated the Group’s assets to the CGUs, and
considered for each CGU whether indicators of
impairment exist.
Where an indicator of impairment exists, or where
the CGU contained goodwill, the Group has
prepared discounted cash flow valuations on a VIU
basis. A Group wide VIU impairment test was also
performed.
The Group included forecast cash flow
improvements from implemented performance
improvement projects in both the S&T
Distribution and S&T Wire CGU VIU calculations.
The Group concluded that:
goodwill associated with the S&T Distribution
and Wire CGUs was impaired by $10.1 million
in total, and
the calculations performed supported the
carrying value of all other assets.
Disclosure of the Group’s impairment assessment
is contained in note C2.
Determination of CGUs and allocation of assets to CGUs
We performed procedures to evaluate and challenge the
Group’s determination of CGUs. This included:
reviewing internal management reporting to assess the
level at which the Group monitors performance
comparing CGUs to our knowledge and understanding
of the Group’s operations
ensuring that CGUs were no larger than operating
segments, and
reconciling assets allocated to CGUs to those totals
within the general ledger.
Assessment of indicators of impairment
For CGUs not containing goodwill, we considered and
challenged the Group’s assessment of whether indicators of
impairment existed. This included assessing internal and
external information, including factors such as the
performance of the CGU against budget and prior year.
Calculating the recoverable amount
For each CGU that contained goodwill, or had an indicator
of impairment we assessed the appropriateness of the VIU
calculation. We:
tested the mathematical accuracy of the valuation model
assessed forecast cash flows by comparing them to
historical information, available industry information,
and agreeing cash flows to Board approved budgets
considered the reasonableness of the Group’s discount
rate by comparison to a discount rate developed by our
internal valuation expert, and
assessed the Group’s forecasting accuracy by comparing
historical forecasts to actual results.
For two CGUs, the Group included cash flows attributable to
performance improvement initiatives. We confirmed that
management were committed to the implementation of
these plans through:
obtaining external consultants’ reports identifying
improvement opportunities
reviewing project management and reporting tools to
track the status and benefits realised from the
initiatives, and
testing transactions associated with the improvement
initiatives, including restructuring provisions.
Because of the subjectivity involved in valuing CGUs, there
is a range of values, which can be considered reasonable
whenevaluatingthecarryingvalueofaCGU.Basedonthe
above procedures there were no matters to report.
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STEEL & TUBE ANNUAL REPORT 2018
Key audit matterHow our audit addressed the key audit matter
Closure of S&T Plastics
Significant management judgment was involved in
the estimation of the fair value less cost to sell
(FVLCTS or net realisable value) of S&T Plastics’
assets. For this reason, and considering the
significance of the impairment, we determined the
valuation of S&T Plastics’ assets to be a Key Audit
Matter.
The Group decided to close the S&T Plastics CGU.
The Group recognised an impairment expense of
$8.0 million to bring the assets of the CGU to their
net realisable value. In determining the extent of
impairment, the Group has made judgments in
respect of:
the likely method of asset disposal, for
instance through a managed sales process or
scrapping, and
estimating the net realisable value of the
assets.
The Group has engaged a broker to pursue a sale of
S&T Plastics’ assets.
The Group used its knowledge of the plastics
market, and offers received to purchase certain
assets, to assess the estimated net realisable value
of the assets.
In addition, the Group obtained an independent
appraisal of the valuation of S&T Plastics’ assets to
compare with their assessment.
Refer to note C4 for further disclosure.
To assess the appropriateness of the Group’s judgment as to
the method of disposal we have:
inquired of management, inside and outside of the
finance function, to understand and corroborate
management’s assumptions, and
reviewed management’s assessment of the likely sale
method.
In considering the reasonableness of management’s estimate
of net realisable value we have:
obtained the independent appraiser’s report and
compared it to management’s estimated net realisable
value
compared asset values to purchase offers received post
balance date, and
discussed indicative offers received for S&T Plastics’
assets with the Group appointed sales broker.
Because of the subjectivity involved in determining the likely
method of disposal and estimating the net realisable value,
there is a range of values that can be considered reasonable.
Based on the above procedures there were no matters to
report.
Existence of inventory at business units affected
by the new Enterprise Resource Planning (ERP)
system implementation
As explained in note B1, in October 2017 the Group
implemented an ERP solution across the core
Distribution and Roll-forming business units (the
‘Business Units’) and encountered a number of
implementation issues. These issues have affected
business operations.
In response, the Group sought increased
confidence over the existence of its inventory
holdings by conducting wall-to-wall inventory
counts at the Business Units. The counts occurred
at all sites at different times in May and June 2018.
This represented a change from the Group’s policy
of conducting cycle counts across the year.
We performed a number of procedures to address the
heightened risk that inventory did not exist. These
procedures included attending inventory counts at an
increased number of locations to assess the appropriateness
of the Group’s count procedures, the accuracy of counting,
and the accuracy of recording of adjustments.
We determined which count locations to attend based on
our assessment of risk, including:
the volume and value of inventory held at locations, and
the extent of past compliance with the Group’s cycle
count programme.
We also tested the reconciliation of the inventory counted to
the quantity recorded in the inventory sub-ledger.
6565
INDEPENDENT
AUDITORS REPORT
Key audit matterHow our audit addressed the key audit matter
Existence of inventory at business units affected
by the new Enterprise Resource Planning (ERP)
system implementation (continued)
We assessed there is an increased risk over
existence of inventory and identified this as a Key
Audit Matter. The factors which lead us to this
assessment included:
the implementation of a new ERP system
across the Business Units
the high volume and value of inventory held by
the Business Units, and
the large number of inventory locations.
To assess whether materially all inventory had been counted
during the year, we compared reports detailing inventory
counted to the inventory listing at 30 June 2018.
We tested a sample of inventory movements between the
inventory counts dates in May and June 2018 and the 30
June 2018 balance date to supporting documentation.
Based on the above procedures there were no matters to
report.
Assessment of the net realisable value (NRV) of
inventory
The Group has inventory of $116 million as at 30
June 2018, with $8.8 million held at NRV.
The Group is required to hold inventory at the
lower of cost and NRV. This is a Key Audit Matter
as significant management judgment is required to
determine the NRV of aged and slow moving
inventory, given its limited sales history.
The Group identified the following inventory
categories for which an adjustment to the carrying
value was required, comprising inventory:
with no or limited sales transactions within the
previous 12 months (slow moving)
where current holdings exceed 12 months sales
(excessive), and
for which there is no longer demand due to
changes in customer requirements (obsolete).
The Group’s estimate of NRV considered:
the most recent achieved sales price for each
Stock Keeping Unit (SKU)
current scrap metal recovery rates. These were
based on quotes obtained from scrap
merchants which indicated the scrap value was
not material, and
internal sales manager’s judgment of the
current realisable value for each SKU.
As described in section B1 of the financial
statements, the Group’s consideration of inventory
valuation resulted in an $8.4 million inventory
impairment provision.
We assessed the completeness and accuracy of the inventory
categories that management had identified for impairment
consideration. This included undertaking procedures to
assess the accuracy of reports used by management,
including recalculating the aging of inventory on a sample
basis.
We assessed the reasonableness of the Group’s estimate of
NRV by performing the following procedures:
inspected the scrap value quotations obtained by
management
inquired of supply chain personnel to understand and
corroborate the assumptions applied in estimating
inventory provisions, and
assessed the accuracy of previous NRV estimates by
comparing the Group’s estimate of NRV to the actual
realised sales price.
Where the Group assessed that a provision was not required
for the inventory included in the slow moving, obsolete and
excessive categories, we obtained, on a sample basis,
evidence to support or challenge this assessment. Evidence
obtained included:
invoices detailing recent sales transaction prices, and /
or
inquiry of supply chain and sales personnel to
understand the demand for the inventory SKU.
Based on the above procedures there were no matters to
report.
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STEEL & TUBE ANNUAL REPORT 2018
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STEEL & TUBE ANNUAL REPORT 2018
Key audit matterHow our audit addressed the key audit matter
Forecast compliance with banking covenants
As detailed in note D1, the Group expected to
breach one of its financial banking covenants in
the year. The Group received a waiver from the
banks and the parties also agreed to amend their
banking arrangements. We have therefore deemed
forecast compliance with amended banking
covenants to be a key audit matter.
The Group has assessed forecast compliance with
these covenants by:
preparing a phased budget for Fy19. This
budget has been approved by the Board
using the budget to calculate covenant
compliance at each forecast compliance date,
and
assessing forecasting risk by considering the
headroom available for each covenant at each
compliance date.
The Group has determined that it expects to
comply with all covenants. In addition, the Group
has recently announced a capital raise, which will
result in significantly lower gearing and
substantial additional covenant headroom
available.
We obtained an understanding of the relevant covenants
and any conditions included in the amended banking
facility agreements.
We obtained the Group’s forecast compliance assessment
and:
agreed the FY19 phased budget to that approved by the
Board
recalculated compliance with financial covenants at each
compliance date, and
performed sensitivity analysis to assess the level of
forecasting risk.
Separately, we considered the status of the capital raise and
its positive impact on available headroom.
We have no matters to report.
6767
Information other than the financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the financial statements does not cover the
other information included in the annual report and we do not, express any form of assurance conclusion on the
other information.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have
performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard
.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the financial
statements in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs NZ and ISAs will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the External
Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that
we might state those matters which we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we
have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Kevin Brown.
For and on behalf of:
Chartered AccountantsWellington
28 August 2018
INDEPENDENT
AUDITORS REPORT
2
STRONGER IN EVERYWAY
steelandtube.co.nz
---
STEEL & TUBE HOLDINGS LIMITED
FY18 ANNUAL RESULTS PRESENTATION
29 August 2018
1
FY18 FINANCIAL SUMMARY
No change from unaudited results announced 7 August 2018
Revenues impacted by issues with ERP system
implementation affecting customer service
$53.8m of non-trading impacts from legacy
issues recognised in FY18 following detailed
review
Normalised EBIT slightly ahead of earnings
guidance of $16.0m
No FY18 final dividend –plan to resume FY19
interim
Change programme underway and benefits are
being recognised
2
FY18FY17
Revenue$495.8m$511.4m
EBIT$(36.2)m$31.6m
Normalised EBIT$16.5m$31.2m
NPAT$(32.0)m$20.0m
Normalised
NPAT
$7.8m$19.7m
Final Dividend-7 cps
FY18 KEY EVENTS
OPERATIONAL KEY EVENTS
Refreshed Board and Management team
Deployment of new ERP (Enterprise Resource
Planning) IT system -implementation issues in
FY18, now resolved
Company-wide review from late 2017.
Initiated change programme
Business aligned into Distribution and
Infrastructure divisions
Commenced ‘Project Strive’-business
transformation initiatives
Opened two new facilities in Christchurch
Announced planned exit from S&T Plastics
3
FINANCIAL EVENTS
Revised guidance resetting the business, 23 May
2018
Results slightly ahead of guidance -Revenue
$495.8 million, Earnings Before Interest and Tax
(EBIT) $(36.2) million, Normalised EBIT $16.5
million , Net Loss $(32.1) million
Post financial year-end -initiated expected $80.9
million capital raising to strengthen the balance
sheet and provide financial flexibility to execute
business transformation initiatives and achieve
longer term strategic objectives
FY19 GREENSHOOTS
Early benefits already being seen from Project
Strive business transformation initiatives; positive
sales trajectory seen in last quarter of FY18 has
continued into FY19
1) Earnings Before Interest and Tax (EBIT). FY18 normalised earnings is EBIT excluding non-trading adjustments of $53.8m and a $1.1m timing
benefit from reduced software amortisation costs due to the ERP implementation delay.
(1)
OUR BUSINESS
Value chain positionSteel & Tube locations
Secondary
processing of New
Zealand primary
processed
products
Distribution
Secondary
Processing
Primary
processing
Secondary
processing of
imported primary
processed
products
Mining
Primary processing
-Primary processing of steel in New Zealand is by
BlueScope and PacificSteel
Distribution of
primary
processed
products (Some
customers prefer
to process
themselves)
Direct importation of some secondary
processed products to distribute
Distribution of secondary
products to end customer
Installation of secondary
products for end customer
Steel & Tube core business
AUCKLAND
8 SITES
HAMILTON
2 SITES
NEW PLYMOUTH
1 SITE
NELSON
1 SITE
CHRISTCHURCH & TIMARU
9 SITES
DUNEDIN & INVERCARGILL
3 SITES
BLENHEIM
1 SITE
TAURANGA & ROTORUA
3 SITES
NAPIER & GISBORNE
4 SITES
PALMERSTON NORTH
2 SITES
WELLINGTON
4 SITES
Nationwide footprint with 40
sites from Whangarei to
Invercargill
Strong heritage and longevity
having operated in the New
Zealand market for more than
65 years
Modern processing and
manufacturing capabilities
Imports
from small number of pre
-
qualified Asian
suppliers
4
WHANGAREI
2 SITES
DISTRIBUTION CENTRES
40 LOCATIONS
15,000+ CUSTOMERS
~1,000 STAFF
SECONDARY MANUFACTURING
Processing and distributing New Zealand’s most comprehensive range of processed steel
Comprehensive range of structural steel, bar and plate
products, and hollow steel sections to meet the requirements
of demanding new building designs
Pipes, valves and fittings for New Zealand’s petrochemical,
power generation, mining, irrigation, fire protection, building
services, water and wastewater industries
High-quality lifting, loading and lashing equipment, services
and solutions. Also offers design, testing and certification
services to ensure safety and compliance
Manufacturer and distributor of reinforcing,
fencing, wire, gates and nail products for use
in primary industries and rural construction sector
Diverse range of metal fastening solutions
for construction, manufacturing, general
engineering and fabrication sectors
Stainless steel products, including coil, sheet, plate, pipe,
hygienic tube and associated fittings as well as a variety of
structural bar, handrail and architectural products
OUR BUSINESS DIVISIONS
DistributionInfrastructure
(1)
STEEL
STAINLESS STEEL
PIPING SYSTEMS
CHAIN & RIGGING
RURAL PRODUCTS
FASTENINGS
Manufacturer and supplier of profile metal roofing,
cladding and rainwater products to provide a range
of roofing thicknesses, materials and finishes
Galvanised, aluminised, enamelled and Colorsteel
sheet/coil solutions for the manufacturing,
construction, steel framing and sheetmetal sectors
HST Steel Purlins, Girts and Tophats are high strength
lipped profile sections which are supplied punched
and cut to a specified length as required
ComFlor® is the new
generation in composite
steel floor decking systems
Market leading technical expertise in
installation of floor decking systems and
sole distributor of S&T Comflor® in NZ
CFDL
ROOFING
COIL PROCESSING
PURLINS
COMFLOR®
Products are sourced from preferred steel mills and distributed
through Steel & Tube’s national network of branches
FY18:
-~58% of revenue
Products are processed before sale and typically on a contract or
project basis, including onsite installation services
FY18:
-~42% of revenue
5
Composite Floor Decks Ltd.
Fabricated reinforcing steel meshes, bars, ties, piles,
beams and columns for the building and construction
industry, as well as engineered reinforcing solutions
REINFORCING
Roll
-
forming
REO / CFDL
1)Excludes S&T Plastics which Steel & Tube plans to exit following its strategic review.
STRATEGIC INITIATIVES
6
Our goal is to be the leader in buying, selling,
processing and placing steel products in New Zealand
PRIORITY FOCUS: PEOPLE, QUALITY, HEALTH & SAFETY
7
Board Quality, Safety and Environment
Committee
Strengthened quality and safety
function within the company, direct
report to the CEO
Monthly stewardship covering lead and
lag indicator performance, Lost Time
Incidents (LTIs) and Medical Treatment
Incidents (MTIs), high potential risk
incidents and non-conformance
reviews
Improvement in lag indicators over
FY18
Strong Health & Safety engagement
WorkSafebased programmeon the
power of Speaking Up
Robust return to work programme
following Christmas break
0
2
4
6
8
10
JulAugSeptOctNovDecJanFebMarAprMayJun
S&T EMPLOYEE LAG INDICATOR 12 MONTH
MOVING AVERAGE FREQUENCY RATES
LTIFRMTIFR
ENGAGED AND PROACTIVE WORKFORCE
•Regular internal communications to ensure clarity
of purpose
•Excellence Awards to recogniseand celebrate
contributions and achievements
•June 2018 Workplace Engagement Survey (70%)
CHANGE PROGRAMME
Change Programme and Operational Reset
Initiated
Susan Paterson and Mark Malpass’ appointments to the Board
represents the beginning of Steel & Tube’s movement towards
refreshed leadership, strategy and direction
Late calendar 2017 extensive
company-wide review by Board and
Management
Right sizing of inventory, facilities and staff
Integration of M&A and rationalisation of Distribution &
Reinforcing facilities
Refreshed Leadership
Detailed Organisational
Review
FebMarAprMayJunJulAugSepOctNovDecJanFeb
Susan Paterson appointed to
the Board. Appointed Chair
effective Feb-17
Mark Malpass
appointed to the
Board
MarAprMay
Mark Malpass
appointed CEO
Steve Reindler appointed to the Board
Chris Ellis appointed to the Board
20172018
Mark Malpass steps down from
Board -appointed Interim CEO
Jun
New Christchurch coil processing facility
opened
New purpose built distribution centre
in Christchurch
8
Business formally aligned into two divisions -
Infrastructure and Distribution
ComCom charges filed against
S&T in relation to historical
issues
New Dunedin facility
opened
Deployment of new ERP
system
Change programme initiated
Greg Smith
announced as CFO
(effective Oct-17)
Company wide stock takes
undertaken
Review of legacy issues
complete
Marc Hainen appointed as GM Distribution
Embarked on an extensive company-wide reset to drive long-term sustainable earnings
improvement in late-2017
PROJECT STRIVE
Business Transformation Initiatives
9
Commitment
to safety and
quality
Disciplinedcompany-wide
practices
Customer promise
Reputation
Put the
Customer at
the heart of
our business
Sales disciplines
CFDL / C&R new products
Point of difference
Operational
and supply
chain
excellence
Pricing & margin growth
Inventory practices
Operational excellence
(Roofing & Reinforcing)
Freight route & recoveries
Acquisitionintegrations /
external warehousing
Steel purchasing
Supporting a
winning team
Retain& attract talent
FY19FY20FY21
E-Commerce and digital platforms
Key Value Drivers
Product investment growth
FY18
Sales account alignment, management and sales excellence programme
Traceability enhancements including barcode scanning
Third party audits of steel mills
Group-wide update to ISO 9001:2015
Call centre activation
Customer loyalty and value growth
Supply Chain improvements
Leverage procurement scale
Facility footprint consolidations
Freight efficiencies
Operational excellence and efficiency
Providing a rewarding workplace
Ongoing employee engagement development programme
Product investment growth
FY18 NON-TRADING IMPACT
As previously announced, the detailed organisational review uncovered a number of legacy
issues and unusual transactions, materially impacting FY18 earnings
FY18P EBIT ImpactDescription
Inventory write-downs
$(24.0)m
New ERP increased visibility of inventory management
Extensive stock takes confirmed extent of aged / obsolete inventory
Aged inventory value adjustments of $15.3m and stock take write-offs of $8.7m
Exit from S&T plastics and
associated impairment
$(10.9)m
Downturnin irrigation market and further capex requirements identified
Sale of assets deemed to be best solution for shareholders
Impairment of intangible
assets and ERP system
$(12.1)m
Review of carrying value of intangible assets identified need for impairment
Partial write-downof investment in ERP system
Rationalisation of
Distribution and
Reinforcing
$(2.7)m
Costs incurred to rationalise property footprint to remove unnecessary
duplication, lower operating costs and improve customer service
Costs incurred to rationalise and re-organise manufacturing operations and
delivery logistics to improve efficiency
Independent reviews of operating structure to streamline and improve operations
Organisational
restructuring
$(3.3)m
Improving capabilities, removing duplication and inefficiencies
Capturing synergies from acquisitions
Other
$(0.8)m
Includes increased doubtful debts and contract disputes provisions following
detailed review, offset by net gain on sale of properties and settlement of
acquisition earn-out payments
Total
$(53.8)m
As a direct result of the write-downs and impairments, Steel & Tube expectedtobreach a banking covenant at
30 June 2018 –a waiver was obtained from the banks on 29 June 2018
10
EARNINGS BEFORE INTEREST AND TAX (EBIT)
Revenues impacted in FY18 by issues with ERP system implementation affecting customer service
$53.8m of non-trading impacts recognised as part of clearing up legacy issues
Management are now addressing issues to improve customer service and stock availability
11
$31.1m
$31.2m
$16.5m
$17.6m
-$36.2m
-$0.4m
+$0.5m
-$9.3m
-$1.5m
+$1.8m
-$0.7m
-$1.1m
-$1.0m
-$3.0m
+$1.1m
-$24.0m
-$10.9m
-$12.1m
-$2.7m
-$3.3m
-$0.8m
(40.0)
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
EBIT (NZ$m)
EBIT BRIDGE FROM FY17 TO FY18
EBIT
Normalised EBIT
EBIT changes
1) S&T reports its FY18 Normalised EBIT as $16.5m. FY18 normalised earnings before interest and tax is EBIT excluding non-trading adjustments of $53.8m
and a $1.1m timing benefit from reduced software amortisation costs due to the ERP implementation delay .
FY18 balance sheet reflects
inventory and intangible asset
write downs, exit of S&T Plastics,
and property sales
Net debt reduction benefited
from sales of Stonedon Drive and
Blenheim Road properties
Excluding property sales, net
debt increased, reflecting the
impacts of lower revenues,
capital investments in FY18 and
working capital
A clear focus is on improving the
Group’s working capital position
Capital raise expected proceeds
($80.9m gross) will be applied to
repaying borrowings
BALANCE SHEET
12
$MillionsFY18FY17
Inventories116.0143.1
Debtors99.293.5
Trade and other Creditors(49.9)(54.4)
Working Capital 165.4182.2
Cash and cash equivalents5.66.5
Property, plant and equipment52.7102.6
Intangibles57.466.8
Other14.60.2
Total Assets345.5412.7
Borrowings109.9133.4
Other13.112.9
Total Liabilities172.9200.6
Shareholders Equity172.6212.1
CAPITAL EXPENDITURE
13
Acquisitions totalling$80 million over a
four-year period
S&T Stainless (FY14)
MSL (FY16)
S&T Plastics (FY16)
CFDL (FY17)
Capex funded through a mix of debt
and operating cashflow
FY18 end of a high capital investment
programme over the last two years on
plant & equipment, property and new
IT system
Expected to return to lower levels of
‘normal business capex’ on plant and
equipment, H&S improvements,
efficiency projects, digital capabilities
and leveraging technology investment
to date
0
10
20
30
40
50
60
FY14FY15FY16FY17FY18
$Millions
CAPITAL INVESTMENT
Plant & EquipmentSoftwareLand & BuildingAcquisitions
S&T revised annual capital structure targets
Net debt to net debt + equity within
target range of < 30% -35%
Net debt to EBITDA < 2.0x
Post capital raise S&T expects to operate
within these targets
Dividend
No Final Dividend for FY18, plan to
commence dividends FY19 Interim, in
line with Dividend Policy
Dividend Policy -dividend payoutratio
target of between 60% and 80% of
‘normalised’ net earnings adjusted for
any material non-trading 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
FY187Nil
CAPITAL STRUCTURE POLICY
1)Updated from 2.75x, as announced 7 August 2018
2)FY18 Normalised EBITDA is adjusted for a full year’s impact of the additional operating leases in relation to the sale of Stonedon Drive and
Blenheim Road
Capital MetricsFY18FY17
Net Debt: Net Debt + Equity37.7%37.4%
Net Debt: EBITDA
(2)
4.63.3
14
(1)
Revenue impacted significantly
from ERP implementation as well
as volume and margin pressures;
this was partially offset by
additional CFDL revenue and a
number of large projects for S&T
Plastics in the first half of the year
OPERATING SEGMENTS
0
100
200
300
400
500
600
FY17FY18
$ Millions
DIVISION REVENUE
Infrastructure
Distribution
(30)
(20)
(10)
-
10
20
30
40
FY17FY18
$ Millions
DIVISION EBIT
Infrastructure
Infrastructure Normalised
Distribution
Distribution Normalised
15
EBIT impacted from ERP
implementation and significant
non-trading items recognisedin
FY18
DISTRIBUTION
16
Distribution’s performance was materially impacted by ERP
implementation issues, which are now resolved
The majority of non-trading costs consisted of impairment of
inventory following extensive stock takes and detailed
review, as well as business rationalisation costs
Opened new Distribution Centre in Christchurch
Project Strive –identified business transformation initiatives
Customer service and driving sales
Sales and Operations Planning (S&OP)
Streamlining duplicated sites
Inventory management efficiencies and
improvements
Benefits of business transformation initiatives are having a
positive effect. Number of large project wins in late FY18 are
now coming online. Further efficiency initiatives expected to
deliver additional savings in FY19
$5.9m
28%
NORMALISED EBIT*
$288.3m
58%
REVENUE
*FY18 normalised earnings is EBIT excluding non-trading adjustments of $5.9m. Including non-trading adjustments of $(18.7)m, earnings were a
loss of $(12.8)m.
INFRASTRUCTURE
17
Non-trading adjustments including the impairment of
Plastics and inventory
Reinforcing repositioned as a leader in quality products and
service
Roll-forming overcame ERP implementation issues
CFDL retained strong performance albeit with some
softening in the South Island market
Opened new coil processing hub in Christchurch
Project Strive -initiatives identified and underway
Building customer base
Delivering further manufacturing and operating
efficiencies
Positive wins are being seen on majority of projects
along with a lift in manufacturing efficiencies
$15.2m
72%
NORMALISED EBIT*
$207.5m
42%
REVENUE
*FY18 normalised earnings is EBIT excluding non-trading adjustments of $15.2m. Including non-trading adjustments of $(21.3)m, earnings were a
loss of $(6.1)m.
OPERATINGOUTLOOK
18
Construction
Exposure to infrastructure, commercial (non-
residential) and residential construction
A highly competitive market with the North
Island experiencing high demand
Construction expected to drive reinforcing,
piping, roll-forming and structural steel revenue
Manufacturing
The manufacturing sector expected to remain
stable with significant opportunities in the food
subsector
Demand expected to drive growth in plates,
coils, sections and fasteners
Rural sector
Driving demand for stainless steels
OPERATING SECTORS
Well balanced across construction, manufacturing and rural sectors
19
Sales data, based on June YTD figures
Growth from the prior year of 10% in non-residential
consents and 7.9% in new dwellings; North Island’s
main centres and the regions driving demand
The National Construction Pipeline 2018 report
forecast is for consistent building and construction
activity in the next few years with stronger growth
expected toward the end of the five year period
Total construction is expected to grow steadily to a
forecast high of $41.4 billion in 2023
Residential building value is expected to hold steady
in the next few years before increasing to a forecast
high at $26.6 billion in 2023
Non-residential building value is forecast to peak in
2019 at $8.4 billion
Infrastructure is forecast to remain relatively
unchanged, increasing marginally to $7.3 billion in
2023
CONSTRUCTION SECTOR
Forecast is for solid long-term growth
20
1)Source: Statistics New Zealand June 2018 Report
2)Source: BRANZ / Pacifecon
ALL CONSTRUCTION NATIONALLY
(By Activity Type) (2)
NZ$
(Billions
) (rolling year
)
5
10
15
AucklandWaikatoWellingtonOther NI
Regions
CanterburyOther SI
Regions
North IslandSouth Island
Thousands
BUILDING CONSENTS BY REGION(1)
(2014 -2018 Annual)
Global Steel Market Trend
Global crude steel production
increased by 5.2% to 1.729b tonnes
during 2018
China’s increased output of 5.7% over
the year which was mainly consumed
domestically
East Asian steel prices continued the
upward trend but flattened out in the
second half of the year, although
softening New Zealand dollar putting
pressure on domestic prices
OPERATING ENVIRONMENT
21
600
700
800
900
20142015201620172018
Tonnes Million
GLOBAL CRUDE STEEL ANNUAL PRODUCTION (1)
ChinaRest of World
200
300
400
500
600
700
800
Jun-2014
Sep-2014
Dec-2014
Mar-2015
Jun-2015
Sep-2015
Dec-2015
Mar-2016
Jun-2016
Sep-2016
Dec-2016
Mar-2017
Jun-2017
Sep-2017
Dec-2017
Mar-2018
Jun-2018
$/
Tn
EAST ASIAN STEEL USD PRICES (2)
HRCRebarBeam
1)Source: World Steel Association
2)Source: S&P Global Platts
DistributionInfrastructure
POSITIVE IMPACT OF INITIATIVES NOW BEING SEEN
Steel & Tube has begun to see positive results from the implementation of its change
programme –specifically increasing both volumes and sales
22
Distribution (combined Heritage Distribution, Stainless and
Fasteners)
Roll-forming (Roofing, Coil Processing, Purlins, Comflor) and
Reo/CFDL
300
540
Mar-18Apr-18May-18Jun-18Jul-18
Average Tonnes (Rolling Fortnight)
Distribution volumes (tonnes)
Prior Yr TrendCurrent Trend
1,180
1,250
Mar-18Apr-18May-18Jun-18Jul-18
Average Sales (Rolling Fortnight)
Distribution Sales
Prior Yr TrendCurrent Trend
750
950
Mar-18Apr-18May-18Jun-18Jul-18
Average Sales (Rolling Fortnight)
Infrastructure Sales
Prior Yr TrendCurrent Trend
210
280
Mar-18Apr-18May-18Jun-18Jul-18
Average Tonnes (Rolling Fortnight)
Infrastructure volumes (tonnes)
Prior Yr TrendCurrent Trend
FY19 OUTLOOK
FY19 EBIT guidance of $25m
23
Legacy issues behind us and major financial restructuring completed
Beginning journey to significantly improved operating and financial performance
Recent increases in volumes are encouraging as ERP stabilised and focus has shifted to servicing customers
Structural changes through Strive programme gaining momentum
Operating cost reductions forecast to realign with sales
Safety and quality disciplines underpinning supply chain and operational excellence
$16.5m
$17.6m
$25.0m
+$1.1m
+$8.2m
-$2.9m
-$1.9m
+$4.3m
-$0.2m
-
5.0
10.0
15.0
20.0
25.0
30.0
FY18 Normalised
EBIT
Benefit from
timing of ERP
amortization
FY18 Adjusted
Normalised EBIT
Strive/ ERP
Recovery
Salaries &
Wages
Rent &
Operating Lease
Other
Expenditures
DepreciationBudget FY19F
EBIT
EBIT (
NZ$m
)
EBIT BRIDGE FROM FY18 TO FY19F
$25m
$35-40m
+$5m
+$15m
+$6m
-$4m
-$4-5m
-$4-7m
-
10.0
20.0
30.0
40.0
50.0
60.0
FY19F EBITMarket activityStriveERP recoveryExpense
inflation
Other change
costs
HeadwindsFY21F EBIT
EBIT (NZ$m)
EBIT BRIDGE FROM FY19F TO FY21F
MEDIUM TERM OBJECTIVES
Normalised EBIT of $35m to $40m expected in the next three years
24
Commitment to quality and customer service
Leverage technology to harness sales and cost saving opportunities
Improve working capital through disciplined practices and enhanced visibility
Recognise and nurture a talented workforce
(40)
(30)
(20)
(10)
-
10
20
30
40
FY14FY15FY16FY17FY18FY18N
$Millions
EARNINGS BEFORE INTEREST AND
TAX (EBIT)
400
440
480
520
560
FY14FY15FY16FY17FY18
$Millions
REVENUE
1.FY16 NPAT includes $6.3m gain on property sale
2.FY18N EBIT and NPAT normalised excluding non-trading impact $(53.8m)
(40)
(30)
(20)
(10)
-
10
20
30
FY14FY15FY16FY17FY18FY18N
$Millions
NET PROFIT AFTER TAX
APPENDIX: FULL YEAR PERFORMANCE
(20)
(10)
-
10
20
30
FY14FY15FY16FY17FY18
$Millions
OPERATING CASHFLOW
1
APPENDIX: FY18 HALF YEAR PERFORMANCE
2
H2 Normalised EBIT of $1.7m was $13.1m lower than
H1 Normalised EBIT of $14.8m
Shortfall largely due to impact of ERP implementation
issues in the third quarter, losses made by S&T Plastics
in H2 reflecting the project nature of the business, and
some weakening in the South Island market
H2 Operating cashflowwas also affected by these
issues and improving working capital management is a
key focus for FY19
Fourth quarter saw improving sales and volumes as
the ERP implementation issues were resolved
0
20
1HY2HY
$Millions
NORMALISED EBIT 2018 H1 vs H2
NON-GAAP FINANCIAL INFORMATION
2
8
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
Year ended 30 June2018 ($’000)
FY18FY17
GAAP: (Loss)/Earnings before Interest and Tax (EBIT)(36,187)31,629
Add Back Unusual Transactions/Non-Trading Adjustments:
Inventory write-downs and write-offs (Note B1)24,005 -
Exit from S&T Plastics (Note C4)10,849 -
Impairment of Intangible assets (Note C2)12,127 -
Business Rationalisation2,727 -
Organisational Restructuring3,317 -
Other unusual costs762 -
One-off payment by subsidiary vendor-(442)
Normalised EBIT –non-GAAP17,600 31,187
Unexpected benefit from timing of ERP IT system amortisation(1,132)-
Normalised EBIT comparable to May 2018 Earnings Guidance –non-GAAP16,468 31,187
Note references included in the table above are to specific notes in the Financial Statements.More detailed disclosure is
included in the Financial Statements and Note Disclosures.
Non-GAAP financial information: Steel & Tube uses several non-GAAP measures when discussing financial performance.
These include normalisedEBIT and working capital. Management believes that these measures provide useful information on
the underlying performance of Steel & Tube’s business. They may be used internally to evaluate performance, analysetrends
and allocate resources. Non-GAAP financial measures should not be viewed in isolation nor considered as a substitute for
measures reported in accordance with NZ IFRS.
Non-trading adjustments/Unusual transactions: The financial results for FY18 include a number of unusual transactions,
considered to be non-trading in either their nature or size. These transactions are excluded from normalisedearnings. The
following reconciliation is intended to assist readers understand how the earnings reported in the Financial Statements for the
year ended 30 June 2018 reconcile to normalisedearnings. Non-trading adjustments of $(53.8) million were included in the
FY18 results
Steel & Tube’s unaudited reconciliations of non-GAAP measures to GAAP measures for the financial year ended 30 June 2018
are detailed below.
3
GLOSSARY OF TERMS
2
9
Business rationalisation: Includes business change costs incurred to rationalise Steel & Tube’s property footprint including
onerous leases, rationalisation and re-organisation of manufacturing operations and delivery logistics operations, and costs
incurred in reviewing and streamlining operations. These costs are included in Note E2 to the Financial Statements.
Organisational restructuring: Includes the costs incurred to improve capabilities, remove duplication and inefficiencies and
capture synergies from acquisitions. These costs are included in Note E2 to the Financial Statements.
Unusual Costs: Primarily these are business rationalisation and organisational restructuring costs. Other unusual costs
include significant doubtful debt and contract disputes provisions, offset by a net gain on sale of properties and settlement
of acquisition earn out payments. Other unusual costs are included in Notes B2, B3, E2 and Section C to the Financial
Statements.
Revenue: FY18 sales revenue of $495.8 million, was slightly lower year on year sales reflecting the short term impact of
ERP implementation issues, alongside highly competitive trading conditions in some businesses.
EBIT: This means (loss) / earnings before interest and tax and is calculated as profit for the period before net finance costs
and tax. FY18 EBIT was impacted by a number of non-trading adjustments totalling$(53.8) million, as shown in the table
above.
Normalised EBIT: This means EBIT after normalisationadjustments. Steel & Tube reports its normalised EBIT as $16.5m for
FY2018. This is directly comparable to the earnings guidance issued on 23 May 2018, which forecast normalised EBIT of
$16m. Subsequent to this announcement, the amortisation start date for the new ERP system was amended. This reduced
amortisation expenditure by $1.1m in comparison to that included in the May 2018 forecast.
NormalisedNet Profit after Tax: This means Net Profit after Tax after normalisationadjustments net of tax
Working Capital:This means the net position after current liabilities are deducted from current assets. The major
individual components of working capital for the Group are Inventories, Trade and other receivables and Trade and other
payables. How the Group manages these has an impact on operating cashflowand borrowings.
4
DISCLAIMER
3
0
This presentation has been prepared by Steel & Tube Holdings Limited (Steel & Tube) and supplements our full year results announcement dated
29 August 2018. The information in this presentation is of a general nature only and should not be read in isolation. It shouldbe read subject to
and in conjunction with the additional information in that announcement and other material which we have released to NZX. This material is
available on our website, www.steelandtube.co.nz.
There is no offer or investment advice in this presentation. This presentation is for information purposes only. It is not anoffer of securities, or a
proposal or invitation to make any such offer. It is not investment advice or a securities recommendation, and does not take into account any
person’s individual circumstances or objectives. Every investor should make an independent assessment of Steel & Tube on the basis of expert
financial advice.
Forward looking statements are inherently fallible. This presentation may contain forward looking statements and projections.These reflect our
current expectations, based on what we think are reasonable assumptions. Information about the future, by its nature, involves inherent risks and
uncertainties. Accordingly, nothing in this presentation is a promise or representation as to our future financial performance or any future matter.
Except as required by law or NZX or ASX listing rules, we are not obliged to update this presentation after its release –even if things change
materially.
Non-GAAP financial information. This presentation includes non-GAAP financial measures. This information has been included on the basis that
Steel & Tube management and directors consider that this non-GAAP information assists readers to understand the key drivers of Steel & Tube’s
performance which are not disclosed as GAAP measures in Steel & Tube’s financial statements.
Distribution of this presentation (including electronically) may be restricted by law. You should observe all such restrictions which may apply in
your jurisdiction.
Disclaimer. To the maximum extent permitted by law, Steel & Tube and its related companies and their respective directors, employees and
representatives will not be liable (whether in tort (including negligence) or otherwise) to you or any other person in relation to this presentation,
including any error in it.
5
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