I'll now like to hand the conference over to Mr. Mark Malpass, CEO. Please go ahead.
Thank you, and welcome to everyone on the call. Here with me today is Richard Smyth, Steel & Tube's CFO. We'll discuss our 2024 financial year results and performance, and then we'll have time for questions at the end. Over the last 12 months, we've successfully navigated the economic down cycle, and we are well-positioned to leverage increased demand when activity returns. The decisions we've taken, we have made in the last 12 months, have positioned us for success. Firstly, we are going into the new financial year with inherent operating leverage and have further reduced costs and structurally grown margins.
Secondly, we've built a robust balance sheet and net cash and no borrowings, which has delivered resilience in difficult times, as well as the ability to continue to pay dividends and given us optionality for organic growth and M&A investments. Lastly, the long-term drivers of activity for our business are favorable. We're pleased to have, excuse me, we're pleased to have delivered a strong financial, 2024 financial year result, despite restrained economic conditions, which significantly dampened activity and flow on demand for steel.
Normalized EBIT was supported by a successful cost-out program and a customer focus on value adds, driving margins. Inventory has carefully been managed to ensure we have customer availability while shifting our product mix towards higher value products. Operating cash flows remain strong, and we have finished the year with net cash of NZD 8.7 million and no borrowings.
We're focused on controlling what we can control, so strengthening our customer relationships and maintaining market share, growing high-value products and services, and expanding our cross-sell opportunities while tightly managing our cost base. These strategies have not only enhanced our customer value proposition, but also improved the business operating leverage, which will drive profitability as the economy recovers. The current economic conditions and long-term trends are providing growth opportunities, and we have the balance sheet strength and flexibility to take advantage of these. We're well positioned for economic recovery, which we anticipate will start to improve in the calendar year 2025 . Our goal to, is to build our share of sales in the growth sectors of manufacturing, infrastructure, commercial, and residential construction, and I'll talk to each of these in the coming slides.
Manufacturing and commercial construction make up the largest percentage of our sales for the 2024 financial year. Manufacturing activity is soft on the back of subdued domestic export demand and domestic demand. While there has been some improvement in the PMI index in July, the manufacturing sector remains in contraction, and the next few months will likely remain challenging. Some positive momentum is expected in the new calendar year. Commercial construction has been weak, with consents down 15% year-on-year to June. This particularly impacts structural steel and reinforcing sales. Ready-mix concrete is a good barometer of construction activity, and volumes were down 11% year-on-year to June.
Interest rates have had a big bearing on activity, and we are hearing from our customers that clients are pushing out projects and re-scoping them to manage the high cost of funding. These projects are expected to come back online as interest rates reduce. As has been well traversed, the residential construction market has cooled, with consents down 26% for the year-ending June. The recovery in this sector will be dependent on continued interest rate cuts and the economic improvement that flows from that. It was pleasing to see the first OCR cut announcement this month. The government's Going for Housing Growth plan should also incentivize housing development as the economy improves.
As one of the last products to be installed in a building project, roofing has performed strongly during the year as construction projects that commenced earlier in the cycle have come to completion. However, there has been a weaker activity in both residential and commercial sectors since early in the 2024 calendar year, which will result in a softer pipeline of forward work. Turning to infrastructure, the slowdown in the economy, in addition to the election of a new government in late 2023 , has had a direct impact on investing in central and local infrastructure over the last year, building on a lower period of significant underinvestment.
That said, the long-term outlook is looking positive, with the new government announcing Fast-track Consenting Bill, of which you'll have seen over the weekend, about 40% of those projects are focused on urban development and 24% on infrastructure. We also saw in May the budget with a NZD 68 billion dollar spend planned over a five-year period, and in July, the prioritization of 17 Roads of National Significance. Now, this chart is a conceptual chart, and you can see our views are noted on the chart on where each of the cycles or sectors are at, in terms of the economic cycle. Based on customer feedback, we believe we are at or near the bottom of the economic cycle in most of our sectors.
Interest rates are a key driver of activity, and as interest rates come down, we expect to see commercial construction projects recommence and manufacturing activity to improve. Infrastructure projects are also expected to come back online as the government plans start to kick in. But due to the size of these projects, they are generally longer term. So Steel & Tube is very well positioned to deliver on this demand when it does return, with improved operating leverage, enabling profit expansion. Our dual pathway strategy is delivering tangible results, and the work that we have done over the last 12 months ensures that our company is poised to maximize demand growth, when the economy does improve.
Strengthening the core involves building on the strong business foundation that we've already established, making life easy for our customers by delivering best-in-class customer solutions and experiences, operational efficiency, and strong financial performance. In a challenging market, we have further strengthened our core business and customer value add, further improving our operating leverage. We are all very focused on our big opportunity to grow share of wallet by cross-selling more of our products to existing customers. Often, customers will purchase from multiple suppliers, and our aim is to be their preferred supplier for a broader range of products. And this is being brought to life through the new product growth that we've brought into the business, better segmentation, and focused sales disciplines and marketing across our customer base.
While this is in the early phases, we have already seen pleasing increase in the percentage of customers buying two or more products. We're focused on improving our operating leverage. We've strengthened our fixed cost base to take more efficiencies out of that and tightly control our variable costs, which enables substantial profit expansion as volumes return. While already a lean and efficient business, we've taken a further NZD 5 million of cost out of our base during the financial year, which has more than offset inflation, and a new cost-out program commenced for the 2025 financial year, with a further NZD 5 million in savings, and what you can see on the right-hand side of this chart is the modeling of volume growth scenarios to demonstrate the current operating leverage that our business has.
The graph shows a significant improvement in earnings or the operational leverage actually starting to flow through as volumes increase. We will grow our business by expanding our offering and investing in new products and services that provide high value to our customers. While our primary focus is organic growth, we remain open to opportunities in adjacent sectors that align with our strategic objectives and provide synergistic benefits.
Strategic growth is about going deeper or wider in high-value areas. For example, products where we have low market share but high margins is where we want to grow. It's all about improving our mix of added-value products versus growing commodity products. We take a systematic approach to our growth initiatives.
We obviously have a range of criteria that include the financials of, you know, ROFE, IRR, NPV, and payback, but also the strategic rationale, which take us into or takes into consideration the fit with our overall business objectives, our ability to operate and add value under Steel & Tube's ownership, the cultural fit, and of course, the various compliance criteria. Over the last two years, we've reviewed 17 companies, and there's about eight of them that are under active consideration. We've successfully grown through M&A, where we've acquired two smaller companies.
We're always on the lookout for industry consolidation options, and we are seeing unprecedented opportunities coming forward. Some of this is due to founders not having succession plans or those succession plans not working out, but there's also no doubt a slow trading environment and a period of high commodity prices has put pressure on firms' balance sheets, working capital, and that's meant more debt for many businesses.
With good cash reserves and no debt, our strong balance sheet directly benefits our shareholders by enabling dividend payments and also increasing long-term value through investment in strategic opportunities. Inventory's been further reduced, and we have had strong cash flows, net cash, and a NZD 100 million facility in place to fund growth and other strategic initiatives. I'll now hand over to Richard Smyth to talk through our financial results in a bit more detail.
Thanks, Mark. The 2024 financial year demonstrated the resilience and strength of our business as we delivered solid results in a challenging environment. While volumes were down, market share was maintained, and average selling prices remained elevated. We continued to grow gross margin dollars per tonne and more than offset inflation through our successful cost-out program. We reported a net profit after tax of NZD 2.6 million, which includes one-off and non-trading costs. The dividend payout of NZD 0.06 per share for the full year is above our policy range and reflects the board's ongoing confidence in the future of our company. A Dividend Reinvestment Plan has been established, and this will be effective for the current dividend.
The significant decline in activity across a range of sectors as a result of economic conditions drove a 21% reduction in volumes, with revenue down 19% to NZD 479 million. Pleasingly, gross margin dollars per tonne continued to improve to NZD 901 per tonne, up from NZD 850 in the prior year. While this is down a little bit from the first half, the year-on-year improvement is a result of our strategic focus on higher value products and services, increasing customer share of wallet, and pricing disciplines. As mentioned by Mark, further inroads have been made to streamline the business, with NZD 5 million taken out of the cost base in FY 2024. These cost reductions more than offset inflation, with normalized operating expenses down NZD 3.9 million or 5.2% year-on-year.
We have commenced a new cost out program, targeting a further NZD 5 million in savings. Inflationary pressure has started to cool, and our ongoing focus on costs through the current cycle will further expand operating leverage and the profitability of the company as activity returns. This new cost out program will again focus on all areas across, cost across the business. Normalized earnings were in line with our June 2024 guidance, with normalized EBITDA of NZD 35.8 million and normalized EBIT of NZD 14.5 million. As you can see, the drop in volumes was the main driver of the lower earnings result, with some offset from cost savings and margin improvements. The balance sheet has been successfully positioned, providing strength during more challenging times and establishing, enabling continued investment and growth.
Inventory was further reduced, operating cash flows remained strong, and net cash was NZD 8.7 million at year-end, with no borrowings. We have a NZD 100 million facility, which was renewed in August last year to fund growth in other initiatives. Inventory levels have been reduced in line with activity and were down NZD 17.9 million or 13% year-on-year. Inventory has been carefully managed to ensure customer availability while shifting product mix towards higher value products. Our finished product prices remain at elevated levels. We have been carefully managing cash flows with benefit from the decrease in inventory and good cash collections in the softened trading environment. Major cash outflows included dividends, tax payments, and lease payments. We have a prudent approach to CapEx in the current environment, and priority spend is guided by our strategic framework.
We invested 30% of CapEx in strengthening our core, with just under 39% spent on strategic investments, including new machinery in Auckland and Christchurch. Both investments focused on growing higher value revenues. We will continue this focus into FY 2025. Earnings per share were NZD 0.016, with net tangible assets per share at NZD 1.11. Reflecting market conditions, the board declared a final dividend of NZD 0.02 per share, fully imputed. This takes full-year dividends to NZD 0.06 per share and is a gross yield of 9.7%, including imputation credits. This compares well to our peers. As mentioned, the new dividend reinvestment plan will be active for this dividend. Thank you for your time, and I'll pass you back to Mark.
Thanks, Richard. We see a significant long-term opportunity in infrastructure and climate resilience. The government is budgeting to spend more than NZD 68 billion in infrastructure over the next five years, which provides a real opportunity for us. This includes roading projects, regional infrastructure, rebuild of communities following Cyclone Gabrielle and Auckland floods, and the KiwiRail work. Other areas of growth include health, water, energy generation, and climate resilience. There's a big pipeline of work ahead, and we're well positioned to capitalize on this. In the medium term, we see positive themes that should lead to improved activity over the next 12-18 months. Manufacturing is poised to grow, supported by recovery of domestic construction and export markets. Interest rate cuts over the coming year are expected to stimulate commercial construction sector.
In the residential sector, there's an estimated 115,000 homes that will be required to fix the housing crisis. In terms of infrastructure, excuse me, there are some shorter-term government-funded projects, such as the Dunedin Hospital, that will be very helpful. Longer-term infrastructure is important, given the significant underfunding. There's a massive need for new infrastructure and maintenance of existing infrastructure. As mentioned earlier, the government is progressing a number of initiatives, although they will take some time before project work actually starts. We're also very well positioned to deliver on climate resilient projects such as port rebuilds, wind, solar energy developments, coastal protection, and resilient buildings. We have proven expertise and capabilities in these areas.
Our dual pathway strategy is now delivering tangible results, and this remains the framework for our actions as we continue to strengthen our core and build high value growth products and services. The economic cycle is likely to remain challenged in the near term, with some improvement anticipated from calendar 2025 as interest rates and inflation moderate. We will continue to support our customers through the cycle and explore growth opportunities in a difficult environment. Weak economic conditions should provide opportunities for industry consolidation. We've seen strong inherent operating leverage, expecting an uplift in activity to be reflected in our results. We expect market challenges to reduce in severity this year, and we'll continue to manage them appropriately. The responses that we have made through the 2024 financial year help reduce the impact on our business.
In summary, our dual pathway strategy is now proven, and we will continue to build on this in the coming year, strengthening our core and investing in high-value products and services. While the timing and pace of the economic recovery remains unclear, our expectation from our customer mix is that we are at or near the bottom of the cycle and should start seeing conditions improve from 2025 calendar year. We are successfully navigating a challenging trading environment, and we're well positioned for demand growth when it returns. Our market share is strong, we have a loyal customer base, and we have quality inventory, meaning that we can provide the products and the solutions we know our customers will need when projects get started.
Steel is one of the most essential and often the only product for many construction needs. The macro trends for our sector remain strong, and we have the balance sheet and expertise to support our growth strategy and deliver value for shareholders. Thank you for listening, and I'll now hand back to the moderator to manage questions. We'll take phone questions first and then online questions.
Thank you. If you'd like to ask a question via the phone, generally press the star key followed by the number one on your telephone keypad. If you'd like to ask questions via the webcast, please type your question into the Ask a Question box. Your first question today comes from Cameron Parker, from Craigs Investment Partners. Please go ahead.
Hi, guys. Hope it's all well, and congrats on navigating a tricky situation. Just wondering if you could comment on the pricing behavior of your competitors at the moment as the market squeezes and hopefully activity finds its bottom of the cycle?
Oh, hi, Cam. Yeah, look, I mean, it's, it, it's I guess, fairly, you know, when volume comes down, of course, you get, you know, players that are behaving, you know, differently across the market. We have seen some players were a little bit slow in destocking, and so, you know, and this process has been underway really since COVID. Of, you know, if, if you've, if you've had the, you know, the barometer out there, you've been watching the market very closely and seeing that, the volumes were falling in the market, and so most, players like ourselves have been destocking. But there have been some that have left it a bit late, and of course, that creates some price pressure in some categories as those companies offload into the market.
You probably expect that to carry on for a little bit longer, or?
I'd be surprised. I mean, you can see that we've been able to hold up margins. There's been a bit of compression since the half, but, you know, largely, we've been able to keep that trend going of strong margin growth. And I think, you know, obviously, if the market was continuing, you know, to see a lot of competitive pressure, that would change. But what we're seeing really is just, over the last six months, has really just been volume impacts on margins rather than, you know, sort of competitor intensity.
Okay, cool, and just wondering if you could comment a bit further on your, you've delivered five billion or so sort of cost out over the FY 2024. You want to target another five million. Can you just expand on kind of where that sort of comes from and how it might impact you know your ability to capture growth as the market rebounds?
Hi, Cam, it's Richard. So, as I mentioned, we're looking at costs across every single part of our business. But some of the larger bits is, you'll recall that during the year we purchased 20-odd trucks and 8 trailers, and we're looking at maximizing the benefit of that. So that's actually having an immediate impact on the cost of transportation. We've had another hard look at some of our more back office functions. Seeing where we can merge positions, drop to part-time roles, et cetera, et cetera. Looking at reducing contractors wherever possible. So we've continued on that. We are very, very conscious that we're cyclical, and, you know, you want to be well positioned for when the economic activity improves.
So we are being very careful to not cut muscle, and we expect the bulk of the cost savings that we've made, both last year and the coming year, to actually continue even when economic recovery happens.
Okay. Great. Great. Thanks, Richard. And last one for me, just with regards to your cash burn and so forth, well, your net cash sort of outcomes, there's been a fair bit of cash burn in the second half of this year. I think it's come. You know, you've come back from 26 or so net cash back to about 8. Some of that's dividend and so forth. Can you comment on kind of. I know you can't guide to give it at dividends or anything, but kind of what's sustainable going forward and whether or not the company plans, you know, to carry on a dividend at this kind of level?
As you appreciate, dividend is a board decision. We have a policy of paying between 60%-80% of adjusted net profit. Clearly, for both our interim and final dividend, we've paid above that significantly above that. So we have no plans to stop dividends. We've introduced the Dividend Reinvestment Plan, but really, we look at each dividend payment and look at our position and the economic situation carefully each time we declare a dividend. So really, I haven't given you an answer.
Yeah, no, that's fine. All right. Thanks, Richard. Thanks, Mark.
Thank you. Your next question comes from Grant Swanepoel, from Jarden. Please go ahead.
Good morning, Mark and Richard. First question, just on July and August. From your commentary on where you are in the cycle, can I assume that July and August has deteriorated further from 2H 2024?
Certainly, June, July, first part of August have been pretty tough, Grant. But we have seen, certainly on that, you know, 14 August announcement on the OCR, you know, the customers I've been out and seen since then have certainly seen a pickup in activity. Sentiment certainly has improved. So we've seen a little bit of a change in activity really through August. But June, July were tough. Yeah.
Thanks. So, and then just back to the OpEx side of things, in real terms, they went down NZD 6.8 million, in FY 2024. What is the variable component of that contraction in OpEx?
So can you just repeat that? Sorry.
So, s o, are you?
You want to know t he variable cost component of that?
Yeah, so, so you've taken five million costs. I'm just trying to find out where that actually-
Most of that isn't-
...or just variable costs coming out.
Most of the OpEx isn't directly related to volumes. It's not purely variable, so the variable costs tend to be above operating expenses. Clearly, if we were to double the business, you know, you need more accountants, et cetera, et cetera, but if you sell another couple of tonnes, you don't. Sorry, Grant, go ahead.
In real terms, you're saying you took out NZD 6.8 million with a target of five, so you've done really well?
Yeah. Yeah, the bulk of those costs have come out of OpEx, right? So not variable cost. Those tend to stay flat with volume. So you know, really with the bulk of that NZD 5 million. And the forward NZD 5 million, there is a bit of variable cost in that, and there's about 20% of it is freight improvements that we've made to the model there, and the rest of it is other OpEx.
Thanks, and my final question, just on your outlook for calendar 2025. Calendar year is a long time, it could just be pushing into FY 2026. Are you guys seeing with your comments that the OCR is changing or the August 14th OCR change changing tentatively, but that you could be looking at a turnaround in first half calendar 2025, or is it just you're just so opaque in terms of your outlook, you wanna give a full year in terms of expectations?
I think we've been fairly consistent with our view here that we think it's a you know early calendar 2025 pickup. But it really depends on the pace you know the timing and pace of those OCR reductions. And I think the other thing I think is really important Grant is the confidence that comes through government infrastructure projects. And you know we've obviously all seen a lot of pausing and reprioritization of projects but we've seen a number of announcements over the last two or three months and on Sunday of course that are relatively positive for that infrastructure sector. Now we know those projects take some time but you know some are lined up ready to roll.
I think, you know, we're waiting on the Dunedin Hospital move and some others, but they could be quite, you know, quick in terms of coming forward. So that, that later one, Dunedin, that's, you know, we hope we'll be able to get started in early in the new year. So I think, you know, interest rates, a lot of that is sort of... It's obviously, cost of money is important, but it's the signal that cost of money is coming down that's really important to the sectors that we operate in. And so I think we'll start seeing some improvement. I wouldn't want to call that's gonna come in, in the first half of the financial year, but what we're planning is by the second half of the financial year, we should be starting to seeing some growth.
The pace of that growth is obviously yet to be seen, and you'd be very brave to call that at this juncture. But we, you know, we're not expecting a rapid turnaround. We're expecting a steady improvement.
Good. Thanks, Mark and Richard. Be brave. Be brave, you say.
Of course, we're internally brave. I must stop telling you what those numbers look like, Grant.
Thanks.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. The next question comes from Paul Grant, a private investor. Please go ahead.
Yeah. Hi, guys. Well done being proactive to manage costs. Just from reading the newsletters and that, you put together a new barrier for roading construction, and then, of course, the tracks. Just wondering, are they fulfilling your hopes and being earnings accretive already?
So the two items you mentioned, so the first one is the roading barrier. And that's where we've given a loan to a company called ROBOS, and we've got a supply agreement where we're supplying them with steel. So they are the company that is actually installing the barrier. And they've run a reasonably successful program, pilot program in Nelson. So if you were driving around Nelson, you'll see a piece of land that's being used, it's Ruby Bay in Nelson and that's been really well received by the locals, we believe.
They're going, as you would understand, they're going through that project and looking at what they've learned from it. It was the very, very first pilot. So it's going in accordance with our expectations. We made some money supplying the steel, and that's where we're going to get the bulk of our return. The second one is the trucking. So that was a ROBOS deal. That's probably fair to say is exceeding our expectations at the moment. It's. We brought that in a couple of months ago, so I think we've had that three months underway, and we're very pleased with how that's going.
Hi, Paul. I'd also just add that those trucks are really for our sort of tributary zones from our site. So we're not doing long haul with trucks. We think it's far more competitive to, you know, tender those out on an annual basis and have third parties do them. But certainly in the distribution zones from our plants, we think that it makes good sense to operate those trucks ourselves most of the time, where we can have a direct interface with our customers and can control those costs because we're able to use those drivers for warehousing activities when the markets are a bit softer like they are at the moment. So as Richard said, that investment is performing very well.
Okay. Thanks, guys.
Thank you. Once again, if you'd like to ask a question via the phones, please press star one and wait for your name to be announced. As there are currently no more questions on the phone, I'll now pass back over for any webcast questions to be addressed.
Thanks. We've got a couple of questions online. The first one is from Ross Sheeran: "Why have you instituted a DRP when you have paid a dividend above your policy range?
Thanks for the question. So every time we declare a dividend, I will receive questions from shareholders asking: Why haven't you got a Dividend Reinvestment Plan? They would like to continue to invest in the company. So we've implemented it for two reasons. One is a service to our existing shareholders. We're not providing a discount at all in this application of the plan. So it doesn't create any dilution to any shareholder, and it's a low-cost way for shareholders who wish to expand their holding in the company. The second reason we've done it is it helps us retain just a little bit more capital.
The next question is from Bill Potter: "Very impressed by your M&A strategy explanation. It gives confidence that M&A is being thoughtfully studied. My question is, what is the reason behind the increase in receivables from 11.8% in FY 2023 to 12.3%?
Receivables is at a particular day of the year, 30th of June. This year, the 30th of June was a Sunday, and it was Sunday for Matariki weekend. That actually, strange as it may sound, impacted the amount of cash we collected at the very end of the period. We actually found that we had higher than normal cash collections on the Monday and the Tuesday, but the accounting standards take it as at the 30th of June.
Final question is from Bob Nightsnacker. "In your presentation, you state Steel & Tube has eight companies under active consideration. Are these bolt-on to existing product offerings, or are they new product offerings which would enable you to expand into new markets? Also, are you waiting for more clarity of an uptick in cycle to execute transactions, or will you move on transactions in the current climate?
Hi, Bob. Look, the sectors that we're focusing on, obviously, steel and metals businesses, so we don't. We're not interested in ice cream businesses. We really wanna make sure that we've got alignment with our existing product suite. We're trying to basically go deeper or wider into those sectors. So yeah, ideally, we're moving organically wherever we can, but where we see opportunity, where we've got, you know, a higher margin products with low market shares, that are obviously targets for us, and so that's how we've identified businesses. Often they come to us, but we've also identified specific opportunities where we can buy a business and expand it rapidly through our distribution network. So, we are looking for, you know, adjacent sectors, so products and services that add value to our existing customer set.
For example, customers may be buying these products from other suppliers, and we're seeing opportunities to grow into those areas where we can fill those gaps. All about increasing that share of wallet with our existing customers is really the biggest opportunity for us and the lowest risk from a use of shareholder funds perspective. In terms of the second part of your question on timing, look, we have got very clear criteria that we've, you know, developed with our board, obviously all the usual financial metrics you would expect, and we just stick to those, and so we're not. You know, the current environment, I guess, as I highlighted in the presentation, is presenting opportunities just because it is pretty tough out there for a lot of business people.
We are, you know, we don't want to waste a crisis, so to speak, and so we are actively reviewing several. We've just had one in DD that is probably not going to proceed, just given the DD process we're working through. But there's another couple that are at least in the M&A phase immediately, and others that we're actively looking at. So, in terms of funding, we have the balance sheet to support that. You know, there's several, obviously several mechanisms available to us to fund acquisitions, and also, depending on the vendors' posture around whether they're, you know, open to, you know, earn-outs, scrip, that type of thing.
So there's a bunch of sort of tools available for us to fund M&A, but it really comes back to the quality of the opportunity, and we're certainly not slowing down because of the existing market environment.
We have no more questions online. I'll hand back to the operator.
Thank you. As there are no further questions at this time, I'll now hand over to Mr. Malpass for any closing remarks.
Thanks, everyone, for listening and look forward to your ongoing participation in the company.
That does conclude our conference for today. Thank you for participating. You may now disconnect.