STU - Steel & Tube Holdings

[Shareguy]

Snippets from the BusinessDesk article about this basket case

Net debt at June 30 was up 33% to $48m from $36.3m. About $30m was taken on with the acquisition of Perry Metals. Asked what net debt was today, chief financial officer Richard Smyth said its month-end in July was "not too dissimilar" to the $48m already disclosed, and August would also be similar. Forsyth Barr had suggested a capital raise must be imminent and was tipping net debt to be at $57m by June 30.

And this from the brilliant CEO -

Malpass said the outlook was "morose" and it was forecasting that economic conditions may not improve


Sounds ominous -

Yes Crackity. Vulcan say they have increased market share I wonder from whom😉

Mark says economic conditions may not improve so if there's another bad result it's not his fault.

[Arbroath]

Maybe check your facts. Perrys was not written down at all. It's other crap assets they own that got written down. Perrys is outperforming but too small to halt the overall rot...

[Shareguy]

Maybe check your facts. Perrys was not written down at all. It's other crap assets they own that got written down. Perrys is outperforming but too small to halt the overall rot...

Yes you're right my bad. When Nick Calavrias was in charge he righted his mistake and sold off Robert Stones and Metal Spray and gritblast. He said at the time S&T needs to focus on what they do best which was Steel distribution..

[Ferg]

It's a shocker result.  Going concern note from the auditor, low margins, negative operating cashflow, employee costs are up massively.....no wonder they are all smiling in the annual report.

It is uninvestable........for now.

[Shareguy]

Both Craig's and FB say sell.

FB say

While STU remain compliant with its relaxed covenants, its auditor highlighted material going concern uncertainty. Our forecasts assume STU's improvement initiatives bear fruit, but the range of outcomes is wide and the margin for error narrow. We believe the share price is unlikely to move higher until: (1) the balance sheet is addressed; and/or (2) earnings are on a more sustainable footing. UNDERPERFORM.

[Shareguy]

Insert from the call.

Webcast Moderator: Thank you. We have got several webcast questions. First is from Evan Christian, who asks, "Can you comment on Vulcan Steel's performance compared with Steel & Tube in the same tough market?
Mark Malpass, CEO, Steel & Tube Holdings Limited: Yeah. Look, hi, Evan. It is a good question. We do not have a whole lot to go on in terms of Vulcan's disclosures. We do not really know their New Zealand performance. What we have tried to do is pull it apart to the extent we can, and we think very similar performance on a revenue basis. It looks like we are up a little bit more on what we understand to be their New Zealand mix, and volumes are also stronger in terms of our volume growth. It looks like their EBITDA growth is strong in New Zealand, and that is really a function of their. Their mix is quite different from ours. So they have a very large plate processing business operation that they acquired many years ago and have continued to build on that. And so that has given them, I guess, a strong result for their plate processing business.
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It is probably worth me commenting, I think Rohan was starting to ask the question around the plate processing business. We entered into that business in Auckland about four years ago and Christchurch about two years ago, roughly. And what we have learned since we have been in that sector, we actually tried to acquire a very large player in that space, and unfortunately, they had, I guess, vendor's remorse a couple of times as we worked through that process that would have put us in a position to have had a very strong plate processing footprint ourselves.
We decided to organically grow into that business, but we have just found that really the capital requirements to continue growing into that space, as well as the competitor reactions that we have seen over the period that we have been in that, we just felt was not the right approach from a shareholder perspective in terms of use of funds. We have kind of backed away from that sector. But we will, as we continue to rebuild our balance sheet, remain open to acquisition opportunities in that space, obviously down the road. But that is the main difference between Vulcan Steel's performance and our performance, we believe.
Webcast Moderator: Okay. The next question is from Peter Truman. Talking about the ANZ facility, what consideration has been given to undertaking a capital raise to reduce the amount of interest-bearing debt?
Mark Malpass, CEO, Steel & Tube Holdings Limited: Obviously, all things have been considered regarding capital management, as you would expect a board to be stepping through. We do not have any immediate plans to raise incremental capital. The moves that we are making, we believe, shore up our balance sheet. We have got a constructive relationship with our banking partner. Yet we do not believe there is any need to be raising capital in the shorter term.

[Shareguy]

Mark says

Inventory continues to be managed prudently to ensure best use of working capital, with year-end inventory at $111.0m (FY25: $113.6m). The number of SKUs has been reduced, with a shift to higher value, higher demand products and active management of old, obsolete and excess inventory lines.

Customer says

"They run out of A items all the time and have forced me to deal with competitors like Vulcan. I'm in Auckland and I often get deliveries from their branches as far away as Christchurch, because they don't have the stock in Auckland. It must be costing them a fortune as they pay the freight cost. Not good for me though as some times it's damaged so I leave it on the truck. When I order from Vulcan I get my items in one delivery and they don't seem to run out of the important lines". I'm ordering less and less from Stu which is a shame because Stu are much cheaper.....

[Ferg]

I think there is a fundamental issue with how they operate....I say this as a consultant to a former STU customer where we imported coil direct from S Korea instead of buying locally.  We wanted to buy locally but the T&Cs for buying from STU were onerous, and their prices were high.

If we look at p12 of the 2026 annual report there is a section titled "5 minutes with the National Pricing Manager".  I am purposely not using his name because it is not his fault - I imagine he is working with the cards he has been dealt.  Please read that page.  It sounds like the role is central to how STU makes money - a commerical role that sits between demand and supply.

What stands out for me is this quote: "We take a tiered approach that reflects purchasing history, long-term relationships, and volume commitments...".  That was in the context of "What influences pricing decisions?"  {emphasis added  by me}

Imagine rocking up to New World or Pak n Save and looking to buy toothpaste and they won't sell to you unless you first agree to a purchasing commitment for a particular brand, size and flavour for the next 12 months.  That is what it is like.

I reckon they do this to have long production runs for efficiency purposes...they bang out say 120 tonnes of what you want and you commit to buying 10 tonnes per month while they hold it for you.  That is very old school practice and IMO lies at the heart of why they struggle.  I don't know this for a 100% fact - I am surmising and joining dots based on my own experience and that quote above.

[Ferg]

The other thing I didn't like about STU was {IIRC} they were a party to lobbying Government to put in place higher duties on alu-zinc coated steel coming out of South Korea under the guise of "anti dumping" a few years ago...AFAIK they were not dumping their coil onto NZ shores, rather it was a competitive price which was a reflection of SK production volumes and methods.  But this is the old school way of getting Government intervention when you can't compete.

That said, it is a shame we have lost a lot of production capacity in NZ over the years....but with multiple middlemen, overly onerous H&S practices, high minimum wages and a tendency to CYA practices.....it's not really a surprise NZ can't complete with materials coming out of Asia.  Not that I propose a wholesale slashing of minimum wages and elimination of all H&S - but there needs to be a happy medium without so much ass-covering and profiteering.