Ann: ADDRESS: STU: Steel & Tube Annual Meeting

• Release Date: 13/11/13 15:03
• Summary: ADDRESS: STU: Steel & Tube Annual Meeting
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					STU
13/11/2013 13:03
ADDRESS

REL: 1303 HRS Steel & Tube Holdings Limited

ADDRESS: STU: Steel & Tube Annual Meeting

Chairman's Address

Good afternoon ladies and gentlemen.

Performance

Steel & Tube continues to perform well despite the relatively flat economic
conditions. At the same time, significant changes have been implemented as
part of the One Company reinvigoration.

The first half of the financial year saw subdued demand in our key sectors of
manufacturing and rural. However, activity levels increased in the
construction sector, led by both residential, and to a lesser extent
commercial activity in Christchurch.  We expected momentum to continue in the
second half year.  This proved true for residential construction, but in most
other sectors, activity levels eased for the majority of the period.

The Group after tax profit for the year is $15.6 million which represents a
19 percent improvement on the previous year.  Steel & Tube's sales of $393
million slipped 3 percent on the previous year, which was entirely due to
lower steel prices as the global steel industry continued to grapple with
subdued demand and excess production.
Operating cash flow remained strong at $27.5 million. That's an increase of
$8.7 million or 47 percent over the previous year.
Management remained focussed on working capital and with the strong cash
flow, Steel & Tube borrowings reduced to $23.6 million, further strengthening
the balance sheet, now with a gearing of 13 percent.

The Board is committed to providing shareholders with a consistent dividend
stream. We declared a final dividend of 8.5 cents per share, which lifted the
full-year dividend to 15 cents per share, an 84 percent pay-out ratio.

The health and safety of all of our employees, contractors and site visitors
continues to be a key priority for the Company.  I am very pleased to report
that organisational changes to health and safety, and greater engagement with
operating staff, saw a significant reduction in the number of Lost Time and
Medical Treatment Incidents.

Similarly, there's positive news on a number of initiatives that build
capability, and strengthen company values and culture. A recent employee
survey showed a significant increase in employee engagement in these
important programmes.

All these achievements continue to be brought about by a Leadership Team that
is fully committed to the One Company journey, under the leadership of
Company Chief Executive Officer, Dave Taylor.  We both remain very supportive
of the transformational change across all aspects of the business.

The Reinvigoration

A huge amount has been achieved under the One Company reinvigoration. Key
building blocks are very clearly now in place across many parts of the
business.  This is leading to business efficiency improvements and also
appears to be increasingly visible to our customers, as evidenced by more
partnerships.

I should note that completion of some aspects of the refreshment will take
time. For example, facility or property consolidations and upgrades depend on
existing lease terms, some of which extend for several years.  Equally,
talent management, succession planning and people development initiatives
tend not to be short term.  Successful implementation requires longer term
thinking, approaches and solutions.

Another key focus is IT infrastructure and IT platforms. These reviews take
considerable resource -- but once they are complete they will be a key
enabler for the business.

I now wish to talk briefly on the divesture by Australian-based Arrium.
Clearly, this was a significant milestone in our 60 years of business.
Arrium, which was formerly known as OneSteel, sold their 50.3 percent
majority shareholding in Steel & Tube on October 9th 2012.  As expected,
Arrium continue to be a key supplier to S&T.

At last year's Annual Meeting I commented that the Board believed the
divestiture was a positive development and in the best interests for Steel &
Tube.  As anticipated, there is now far greater interest in Steel & Tube from
the investment community, including greater share liquidity.  That is
arguably reflected in the current share price. Management have embraced the
independence and the Board approved a refreshed strategy earlier this year,
centred more on developing sustainable earning opportunities.

Board of Directors

Following the Arrium divestiture, Steve Hamer, Chief Executive of OneSteel
Distribution and an Arrium-appointed director, stepped down on October 9th
2012.  So in May this year, I was pleased to announce the appointment of Anne
Urlwin as a new independent Director. Anne is currently Chair of Naylor Love
Enterprises Ltd and holds directorships with Chorus Ltd, Southern Response
Earthquake Ltd, One Path Life (NZ) Ltd.
Anne brings great knowledge and experience to the Board and is before you
today.

In line with our constitution, Dean Pritchard is due for retirement by
rotation.

Our CEO and non-independent managing director, Dave Taylor will reach his 5th
anniversary prior to next year's annual meeting and under NZX listing rules
must stand for re-election.  I am pleased to confirm that both Dean and Dave
have made themselves available for re-election as independent and
non-independent directors.  They are before you today. This will be
addressed later in the proceedings.

Outlook

Finally the outlook - despite some on-going global uncertainties, the New
Zealand economy appears to be tracking relatively well, compared to others.
This is underscored by latest business confidence indices.
Certainly the construction sector is looking positive. Numbers of consents
continue to improve.  The government has indicated substantial expenditure,
both in conjunction with Christchurch City Council on anchor projects, and
for other key infrastructure projects across New Zealand.

Other sectors may not appear to be as bullish as the construction sector, and
manufacturing looks flat, but we do expect to see improvements in volumes.
This is confirmed by the first 4 months of trading of the current financial
year.

The industry remains intensively competitive and Steel & Tube does need to
find a way to improve margins, therefore making re-investment more
attractive.

The Company's now diverse shareholding allows greater freedom to pursue
opportunities in this regard.

Internally, as you have already heard, the company continues to transform,
building a solid platform for growth and improved performance.

It is in very good shape and remains well positioned for the future.

Before handing over to Dave Taylor, for his presentation, on behalf of the
directors I would like to extend our sincere thanks to Dave and all of Steel
& Tube's employees for their continued commitment to the Company and
supporting the changes required for the reinvigoration.

Thank you.

Chief Executive Officer's Address

Thank you Sir John and good afternoon ladies and gentlemen.

Excellent progress has been made throughout Steel & Tube on our One Company
approach. Multiple initiatives continue across several fronts, including
supply chain, facilities consolidation and upgrades, new plant investments,
to name a few and I'll talk more about some of these initiatives later.

With increasing customer understanding of the benefits, we have formed
several new partnerships that will positively impact the current year and
beyond.

Our company culture, values and people development continue to receive much
attention and it is highly satisfying to see increasing employee engagement,
across all areas of the business.

The on-going reinvigoration continues against a backdrop of subdued albeit
slowly improving economic activity, but within an intensely competitive
industry.

Health & Safety

Our passion for the safety of our people, contractors and visitors remains
resolute.

The year has seen us enhance our approach to health and safety with the
realignment of the company HS&E Committee, which comprises all of the Lead
Team. We have also created a new HS&E Operational Sub-Committee, to ensure
new safety initiatives consider operational practicalities, while also aiding
commitment and buy-in.

Pleasingly, the number of Lost Time and Medical Treatment Incidents,
including contractors working at our sites, reduced by 50 and 41 per cent.

Our Killers & Life Savers Programme focuses on workplace activities that have
potential to lead to serious harm, combined with ways to mitigate. This
programme has attracted considerable external interest, and we continue to
share appropriate details with a number of external partners.

People & Culture

Our people remain critical to our success. Creating the right culture and
investing in our people remain key priorities. Our values programme underpins
our culture, supporting the brand and how we interact with our customers. The
next phase of the values programme has just commenced throughout the
organisation.

Investment to improve capabilities continues, with key leadership and
customer-facing initiatives well underway.

We have also just announced our support for the First Foundation, which
awards tertiary level scholarships to students from financially disadvantaged
families. Two young adults, who have a family member working for Steel &
Tube, will be sponsored through their tertiary education. Looking forward we
will award one scholarship each year with priority to employee family
members.

This is an example of how we are looking to support employees in a multitude
of ways and pleasingly, our latest employee survey indicates that all key
engagement and collaboration indices continue to improve.  Similarly our
health and safety survey affirms we are progressing from a proactive to a
mature culture.

One Company

Our One Company transformation continues on multiple fronts and we remain
pleased with the progress.  A number of key elements of the supply-chain
transformation are now in place and are expected to positively impact this
business this year, and beyond.

We are also continuing to invest and looking for new and innovative ways to
create value for both customers and ourselves and some examples are provided
shortly.

As the Chairman indicated, the facilities rationalisation programme will
continue for several more years. You've already heard that multiple
facilities in Nelson and Hamilton have been consolidated into new single site
operations in both locations.  The National Support Centre moved from Lower
Hutt into a purpose-designed single floor location in Petone, underpinning
the One Company culture.

Construction has commenced on a new facility in Palmerston North and plans
are underway for the next tranche of facilities to be consolidated and
upgraded.

Investment in new plant and equipment also continues. Previously, we have
announced leading-edge plate processing equipment in Auckland, to serve the
North Island market and enhancements to wire processing in Christchurch, to
increase our seismic mesh capacity.

In July we commissioned a state-of-the-art dual roll-forming machine for the
Christchurch roofing operation.

In addition, we've recently purchased and commissioned a ladder mesh machine
to produce 120,000 straight and radial mesh ladders for precast concrete
radial liners for Auckland's Waterview tunnels.  This most recent opportunity
saw Steel & Tube demonstrate significant creativity and innovation at the
design stage. We presented a more effective time and cost solution, and won
the 3,500 tonne reinforcing order from the WellConnect consortium.

As the Chairman also alluded to, part of the reinvigoration is now turning to
our IT infrastructure and platforms. Work has begun on upgrading our
telecommunications infrastructure and on outsourcing non-core IT services,
for example the help-desk service which is now provided by an external
agency.

Steel & Tube was New Zealand's first organisation to implement a JD Edwards
Enterprise Resource Planning (ERP) system. Planning is now underway for a new
system that will be a key enabler for the business and provide opportunity
for greater integration with our customers and suppliers.

Trading Environment

From an external perspective, we were encouraged by the first half year, with
Christchurch construction off-setting sluggish activities in other sectors.
Our expectations for the second half were that activity levels would continue
to build. As it turned out, however, three key circumstances transpired to
restrain demand. First, the worst drought in almost 70 years led to caution
and limited investment within farming communities. Second, commercial
construction activity suddenly reduced, possibly due in part to the Mainzeal
collapse which immediately halted 40 or so projects and dented confidence in
the sector, particularly amongst sub-contractors. And third, manufacturing
eased as the Australian economy worsened.

Despite the difficult environment, demand did start to improve towards the
end of the 2012-2013 financial year and has continued into the New Year.

Steel pricing remains challenging. Globally, raw material pricing and
finished steel product pricing is volatile, with excess production and
sluggish demand leading to continued downwards price pressure. Domestically,
the year started with a price increase, which helped first half financials.
But the anticipated second half price increase didn't materialise due to soft
demand both in Asia and domestically, as indicated earlier.

Compared to before the global financial crisis, domestic steel demand is
still down more than 20 percent, and with competition remaining intense,
margins have been impacted.

Outlook and Key Sectors

Looking forward, there are clear signs that both economic sentiment and
activity levels are on the rise.

Within the construction sector, residential building consents for the year
ending September 2013 are up 23.9% by value, though they've eased in recent
months. Non-residential consents have increased by 8.9% for the equivalent
period. Both are led by Christchurch and Auckland, backed by encouraging
signs in other regions. As is normal, there is a lag between consents and
actual building, but we have observed increased activity in Christchurch, and
to a lesser extent, Auckland.

Christchurch presents a significant opportunity over the next few years and
we note that several anchor projects are due to commence in 2014. Elsewhere,
the Government has recently announced several key projects including the
Wellington region's long awaited Northern Corridor roading project, including
Transmission Gully, likely to start in the second half of 2014.

With the level of anticipated construction investment over the next five to
eight years, the Government understandably appears determined to leverage
its' spend and mitigate inflationary pressures.  Through the Ministry of
Business, Innovation and Employment, MBIE, the government is positively
challenging the construction industry and the traditional contracting
processes, to fulfil government objectives, while also hopefully meeting
industry needs.  We are involved in on-going discussions with MBIE and other
agencies and industry associations regarding this issue. The resolution is
yet to be determined but it seems inevitable there will be some changes
within the construction sector.

Looking at the rural sector, the impact of the drought appears to have been
less than some initially feared and buoyant commodity prices have certainly
helped to compensate.  Dairy conversions seem to be continuing with debt
levels remaining at approximately 50 billion dollars, while a number of milk
powder processing projects are planned for the next couple of years.  In
viticulture, following the excellent vintage of 2013, there is renewed sector
confidence and evidence of new investment.

As a result, we are more optimistic about the rural sector than we have been
for some time.

Turning to manufacturing, excluding meat and dairy, seasonally-adjusted
manufacturing volumes continue to remain flat at best. While there is
increased confidence in the sector, metal manufacturing activity levels in
dollar terms for the two quarters to March and June 2013 were the lowest
since the September 2009 quarter.  Similarly, the recent Manufacturers and
Exporters Association Survey of Business Conditions showed total June 2013
sales down by 29.5% on the previous year. We see little to suggest any change
in the short term.

Taking all this into account, we anticipate domestic steel demand will
increase over coming years underpinned by construction activity in
Christchurch and Auckland, and by other key infrastructure initiatives across
the country.

The industry remains intensely competitive and with demand still
significantly down on pre global financial crisis, margins remain low. Also,
given the lag between consent and build, the impact from the improving
construction cycle may be seen more in 2014 -15 and beyond, rather than in
the current financial year.

Globally, economic sentiment is generally slowly improving. But excess steel
production capacity, particularly in China, continues to weigh on the
industry, holding down prices and squeezing margins. The instability of raw
material pricing and exchange rate volatility means domestic pricing is
likely to continue to be competitive and uncertain.

From a company perspective, we remain pleased with the progress of the
various initiatives which we know are positioning us well for the lift in
activity. There are still many aspects of the business to address, however.
Our challenge continues to be to balance shareholder returns in the short to
medium term, and also to allocate the resources to deliver the change
initiatives.

We also remain energised by the 'independence' brought about by Arrium's
divestiture and are keen to explore opportunities.

The start to the new financial year has seen volumes steadily improve but
pricing remaining soft. An October 1 price increase on several distribution
products is improving margins, and we expect the first half to be marginally
ahead of the corresponding period last year.  If construction activity
kicks-in in the second half, as anticipated, we expect results to reflect
this, so long as the construction industry changes referred to earlier don't
undermine the steel supply chain.

Overall Steel & Tube is in good shape, increasingly benefiting from the
reinvigoration changes, and with a very strong balance sheet. Coupled with a
more positive outlook, it seems that the cyclical nature of our business is
moving towards the positive.

Thank you.

Ends
End CA:00243732 For:STU    Type:ADDRESS    Time:2013-11-13 13:03:35