Thank you and welcome to everyone on the call. Here with me today is Richard Smyth, Steel & Tube Chief Financial Officer. We'll discuss our 2025 financial year results and performance and then have time for questions at the end. The last 12 months have delivered some of the most challenging economic conditions we have seen since the pandemic and prior to that, the early 1990s. During this time, we have continued to focus on executing our strategy, that is strengthening our core and growing high-value products and services. We've invested in both organic and acquisitive growth over the year, further expanding our leading range of steel solutions and businesses. The acquisition of Perry Metal Protection, a market leader in galvanizing services, was a highlight and reinforces our position as a leader in the steel solutions sector.
Our operating leverage has improved as we have focused on IT and digital systems, costs, and efficiency. This will drive margin expansion and profit growth when demand returns. We are increasingly seeing that we're selected as a preferred provider as we support our customers with value-added solutions, whilst maintaining the quality and reliability that our 13,000 active customers rely on. We saw some improvements in activity in the second half of the 2025 financial year as we are well positioned to capitalize on our expanded offer and strong operating leverage as the economy recovers. The challenging economic headwinds affected volumes, revenues, and margins in the 2025 financial year. However, normalized EBITDA remained positive, as did operating cash flows. We completed a $7 million cost-out program in response to the soft economic conditions and continued to manage inventory tightly.
Our capital allocation discipline has meant that we could buy quality businesses at the bottom of the cycle. This meant that our net debt increased to $36 million, which included $30 million from the Perry's acquisition. I'll now turn to looking into our operating backdrop in a little bit more detail. Steel & Tube has broad sector exposure with revenue predominantly generated from manufacturing, construction, and infrastructure sectors. The high interest rate environment, although now easing, international uncertainty, limited government infrastructure and social housing spending, and job losses have affected the construction markets and business confidence to invest. Manufacturing has started to improve from several months of contraction. Many infrastructure projects are longer-term in nature, although some of the fast-track projects are already getting underway, such as the Ports of Auckland, Bledisloe Wharf extension. .
The agriculture sector, which is an important market for Steel & Tube , has been a standout over the years, supporting the economy by driving rural incomes and job creation and sector-related activity. Activity is improving. Construction has started to stabilize after an extended period of decline, and with around half of all mortgages coming up for renewal over the next six months, lower interest rates should also benefit disposable income and housing demand. Improved funding conditions and business confidence will stimulate commercial construction activity. The government has also committed to commencing $6 billion of infrastructure projects pre-Christmas this year. Our dual pathway strategy continues to direct our actions and deliver results. We have continued to strengthen our core and have invested in both organic and acquisitive growth over the 2025 financial year, further expanding our leading range of steel solutions and providing real value for our customers.
Acquisitions allow us to grow at a faster pace than organically. We have a disciplined, gated approach to growth investments, and every potential acquisition is robustly tested before we decide to proceed through each of the gates. We don't just look at the financials; we also look at cultural fit and values within our group. We started out with small acquisitions, Fast was InZed in 2021, Kiwi Piping & Fittings in 2022, and Rhodix last year, and proved our ability to successfully acquire valued businesses and products, and more importantly, to properly integrate those businesses into the group. The Perry's acquisition is the largest we have done to date and is a clear demonstration of our capability to both identify strategic opportunities, execute complex transactions, and then realize synergies and strengthen our group's market position.
In the past year alone, we have expanded our range of aluminum products in response to customer demand, extended the reach of Kiwi Piping & Fittings into the South Island, and also launched QBT 450, which is a first and a new roofing profile to the market in many years. We've also added 13 trucks to our in-house fleet. We now have 33 trucks on the road, providing more control over the last-mile service, delivery, and efficiency. Our recent investments are delivering value with positive revenue, margin, and earnings growth in the face of a cyclical downturn.
The acquisition of Perry Metal Protection, a market leader in galvanizing services, is a great demonstration of our strategy in action and highlights and a highlight over the past year that further expands our offer and reinforces our position as a leader in the steel solutions sector. Integrating Perrys into the group has gone well. We have had a great culture and values fit and strong alignment of our customer groups. We are already seeing benefits ranging from cross-selling to operational synergies, and while it's early days, the results to date have exceeded the business case expectations. I'll now hand over to Richard Smyth to talk through our 2025 financial year results in a bit more detail.
Thanks, Mark. The challenging economic backdrop and its impact on demand for steel affected volumes, revenue, and average selling price in FY 2025. Lower demand and volumes increased competition, putting pressure on margins. Volume and pricing impacts resulted in a decrease in FY 2025 earnings. However, we delivered positive normalized EBITDA at the bottom of the cycle.
A focus on costs and efficiency has further improved operating leverage with an additional $7 million in costs taken out of the business during the year. We reported a net loss of $24.4 million, which includes non-trading costs of $4.6 million. The board has made a prudent decision not to declare a dividend, reflecting careful stewardship of funds and a commitment to preserving financial strength for long-term growth. We have a very disciplined approach to the use of funds, particularly in the current economic cycle. However, this environment has opened up opportunities for us, and we've been able to utilize our strong balance sheet for growth initiatives in M&A, including the acquisition of Perry Metal growth. Volumes were down 12% year-on-year, with sales revenue down 20% to $385.4 million due to the mix of lower volumes, product mix, and competitor activity putting pressure on selling prices.
2H 2025 volumes started to improve off a low base, and you can see in the graph that upwards momentum in revenue and tons per trading day since February this year. Gross margin remains a priority with the economic slowdown and heightened competition compressing margins. We are supporting margins through our focus on higher value products and services, pricing discipline, and cost control, and lowering costs to serve. We have strong operating leverage, and margin recovery is expected as volumes rebound and capacity is better utilized. The continued cost-out program delivered approximately $7 million in annualized direct and operating expense savings in FY 2025, more than offsetting inflation. This was on top of the $5 million achieved last year. Cost initiatives have been focused on transportation costs, back office functions, site consolidations, efficiencies, and tight control of discretionary spending.
A large portion of our costs are fixed, which means increasing margins and improved profitability as volumes increase. Normalized EBITDA remained positive at $2.1 million, although it was down year-on-year. New investments provided a positive impact. However, overall earnings were affected by the recessionary environment. Inventory continues to be managed prudently to ensure best use of working capital. We reduced active SKUs by 1,700 and are continuing to invest in higher value products. Year-end inventory of $113.6 million, which included $5.7 million relating to the new galvanizing business. We are managing our cash flows carefully with good cash collections in a softened economic operating environment and a disciplined approach to inventory and supply chain. Our primary cash outflows during the year were the drawdown for the Perry's acquisition, the FY 2024 dividend payment, CapEx, and lease payments, which increased by approximately $1.1 million this year.
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 and 46% on strategic investments, including new machinery in Auckland and Christchurch and the new roofing profile Mark mentioned before. We will continue this focus in FY 2026 and expect to maintain CapEx spend below depreciation levels. Thank you, and I'll now hand you back to Mark.
Thanks, Richard. There are some positive themes that should lead to improved activity over the next 12- 18 months. Manufacturing is poised to grow, supported by the recovery of exports and agriculture-related construction. Five of the last eight months this calendar year have seen expansion in the manufacturing PMI. Further interest rate cuts over the coming year are expected to stimulate the commercial construction sector.
The residential sector is slowly recovering as lower interest rates and a large portion of fixed mortgages are coming up for renewal and will drive increased demand over time. Elevated supply, relative to demand, sluggish wage growth, high unemployment, and affordability constraints continue to exert a damping influence in the shorter term. In terms of infrastructure, there are also some short-term government-funded projects, such as the Dunedin Hospital that we're already involved with. The government has advised that $6 billion of construction projects are set to get underway across New Zealand before the end of the calendar year, and we're actively working to secure contracts across that work. We're also positioned to deliver for climate-resilient projects such as port rebuilds, wind and solar energy developments, coastal protection, and resilient buildings, with proven expertise and capability across these areas.
We're very confident in Steel & Tube 's ability to capitalize on increased demand as the economy improves. However, we are also conscious of the uncertainty in the current environment. While we are seeing modest improvements emerging, we expect headwinds to remain until early 2026, at which time we expect to see some easing as the benefits of lower interest rates take effect and stimulate confidence, spending, and investment. Our focus is on making life easy for our customers, delivering value, and continued disciplined management of costs, inventory, and cash. The Board and myself are very conscious of the impact of the cost-out program on our team members. As governors of the company, we are committed to modeling the values that matter. Therefore, the Board and myself have voluntarily taken a temporary 20% reduction in fees and my salary.
The leadership team has also agreed to a temporary pay freeze. We believe that if we're asking our people to cut back, it's only right that we do the same too. Steel & Tube is well- positioned to navigate the current economic cycle and position for growth, with strong foundations, balance sheet strength, and a committed team. We will continue to focus on our strategy and delivering for our customers. In summary, Steel & Tube is one of New Zealand's largest and leading providers of steel solutions, with product diversity and broad sector exposures that differ from our listed peers. We have strong customer trust and loyalty, a key ingredient of success in a tighter market, and an engaged and committed workforce. Market fundamentals remain strong, and long-term drivers provide a multi-year growth pathway.
With significant operating leverage and our expanded offer, we are well- positioned for the cyclical upswing and to drive margin expansion and profit growth when demand returns. Thank you for listening. We're now happy to take questions, and I'll hand over to the moderator to manage these.
Thank you. If you would like to ask a question via the phone, you need to press the Star key followed by the number one on your telephone keypad. If you would like to cancel your request, please press Star two. If you are on a speaker phone, please pick up the handset to ask your question. If you would like to ask a question via the webcast, please type your question into the ask a question box and click submit. Your first question today from the phones comes from Kieran Carling from Craigs Investment Partners. Please go ahead.
Good morning, Mark and Richard. Thanks for the presentation. The first one's on the balance sheet strengths that you talk about. You know you've gone from a net cash position last year to finishing FY 2025 with $36 million of net debt. What level of debt are you comfortable carrying, just given the current macro outlook and the fact that you're loss-making? Could you allude to what you mean by further M&A opportunities and maybe just touch on what your appetite is there?
Thanks, Kieran. I'll take the first question and then pass back to Mark. We're at a point where we're hoping that we are cash flow neutral and we will start to slowly pay back our debt. Most of that $36 million, as you know, is the Perry's acquisition for just over $30 million, which is delivering very positive cash flows right from day one. We're comfortable with our debt levels. Our bank is comfortable with the debt levels, and we do see a decline of that net debt over the coming year to two years.
The second part of the question there, Kieran, hi. We are constantly seeing a flow of potential M&A. There's a number of attractive businesses out there. It's been a tough few years for baby boomers wanting to retire. For us, it's probably worth just elaborating that the main focus is organic growth where we can. It's just really the M&A growth provides the opportunity to pick up the pace of that where we can't grow as quickly organically. We're always on the lookout, but realistically, we can only really absorb one or two businesses per year, just the time it takes to integrate businesses properly. It does govern the pace, if you like. We've got some fairly standard processes that we work through, and at any time, there's probably 10 odd opportunities out there.
As I say, realistically, only one or two ever get through the various filters that we have.
Great, thank you. I guess just on that Perry's acquisition, it's good to see that it's performing well so far. One of the things you've previously highlighted is that business is less cyclical than your wider business. Do you think it's fair to say that, going forward, as we see an economic recovery, it won't have the same upside? Or is there a different way to look at that?
Yeah, look, it is, you can see in the graphs that we shared there that it's fairly stable, both revenues and EBITDA over time. It's very much a service-oriented business. Typically, at the end of the construction process, prior to delivery to customers, they really only have a three to five-day turnaround. That service is really critical. I think that will continue. In terms of the upside, it will be a little bit more tempered than the other parts of our business. It doesn't have quite the same operating leverage, but it does provide good cyclical resilience for us going forward. It would have been great to have had it in our system over the last 24 months. The bit that will add some value that's not currently in the cash flows for Perry is the cross-selling opportunities between our two businesses.
We are finding that those opportunities continue to expand, as well as the cost-side synergies.
Thank you. Just final one on margins. They've obviously been squeezed further in the second half. Can you just give us a sense of how you expect those to track through FY 2026 and whether there are any signs that margins have stabilized?
Yeah, I'd say that's probably right. I mean, it's really a function of activity as well. As we see industry starting to lift in terms of activity levels, you get closer towards capacity. We're also seeing some shortening of the cycle times between tenders and actual work taking place. It's a reasonably good signal that we should be able to get back to a normal sort of run rate margin. There are one or two competitors out there that are clearing inventory, but some of that behavior may start to retract.
Are you expecting margins to pick up in FY 2026 from FY 2025 levels, or do you think flat is a good outcome? Can you just give us a sense of that?
Yeah, I think as we've noted, Kieran, first half of 2026 is probably a little bit more subdued, but, you know, probably more aligned with the second half of 2025. As we get into the second half of 2026 and the activity we're expecting will start to improve, we should start seeing margins start to recover back towards, you know, more long-run averages.
Great, thanks guys.
Thank you. Your next question comes from Paul Koraua from Forsyth Barr. Please go ahead.
Hey, good morning guys. Maybe just a quick follow-on from some of those questions on the banking side. Presumably, there's a level of covenants that need to be provided given where EBITDA is and where your earnings are and where the debt levels are. One can you sort of talk to that a little bit and, you know, where those covenants go out to?
You probably haven't had a chance to look at our debt note and the financial statements yet. We have negotiated replacement covenants on our facilities with our bank. You'll see that the facilities that we have, we have $80 million of facilities, and the bulk of those are due for renewal in August 2026. The covenants that we have will take us effectively up to and including June 30, 2026, which was the final covenant test before we have to replace them.
Okay, cool, thank you. Maybe just on the volume and margin piece, second half volumes were pretty good, I think, versus expectations. Presumably, the market's still pretty challenged, but you know, you look at your average selling prices per ton and your gross margins per ton, and those have come down a bit. Is there any element of sort of trying to win back a little bit of falling market share here, or would you say that you guys are performing broadly in line with the market here?
I think, Paul, you've got a situation where, of course, the activity levels in the economy have been fairly soft, particularly in the first half of the financial year. The second half, we've seen a little bit more projects coming back on stream, some of them government-backed type projects that are helpful. There is definitely, you know, fairly strong competition around a limited volume pool. As I noted earlier to Kieran's question, we have seen some of that activity start to improve. I guess in a kind of comforting way, it's at the early construction phases where, you know, reinforcing steel, those types of products, we're starting to see a lot more projects coming online. I think we had probably 300 tender opportunities last month.
Volumes are a little bit smaller than they were a year ago, but having said that, there's a lot more projects out there, and we're winning a fair few projects at, you know, okay sort of conditions. We're expecting that to continue to improve as we get through the financial year 2026.
Yeah, cool. I guess your outlook, you've talked to sort of one half of 2026 continuing to be quite soft and potentially pick up into H2 2026. I guess the counterfactual is if, you know, we go through another sort of soft period through 2026, what does Steel & Tube Holdings Ltd look like then? Are we going to be looking at another sort of deeply loss-making year?
I think we're starting to see a bit of a base of volume improvement. You can see in the graphs that Richard referred to before that we've picked up kind of 100 ton a day ex-endent versus prior period. It does give a little bit of confidence that there's some momentum building. As I mentioned earlier in my prepared remarks, we're seeing manufacturing, which is about a third of our revenues, move into a more expansionary mode. I think the PMI was like 52.8 last month. Really, we'd only had three contractionary periods out of eight months so far this year. That gives us sort of an indication that manufacturers are tracking along with some improvement there. I think the cost of money obviously flows into the commercial space, and we're starting to see that flow through into the market with, as I said, more tenders.
Of course, the government-backed infrastructure, which flows through various parts of the economy in a positive sense. I think we're likely to see some improvement in FY 2026. We're obviously flagging that's probably more back half-ended than in the front half. We're expecting the front half to be pretty similar to the second half of 2025.
All right, cool guys. I'll leave it there. Thank you.
Thanks, Paul.
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. Your next question comes from Grant Swanepoel from Jarden. Please go ahead.
Morning, Thaddeus. Just a continuation on the outlook. It's really refreshing to see one of the first companies indicating that we have passed the bottom of the cycle and we've got some positive outlook. Can you talk to what's happened in July and August post that bottoming that you indicated at the end of your FY 2025?
Grant, could you just repeat the last little bit to that?
I'm just looking about what happened in July and August relative to the end of FY 2025.
Yeah, look, I mean, I think July probably took a bit of a breather. You know, obviously, you get into that difficult part of winter where it's a lot of rain days, so that doesn't help, and school holidays and all that sort of thing. I think we've seen some fairly robust activity in August. Obviously, the month's not over yet, but as it stands so far, we've seen a similar trajectory to the charts that we shared in the communication we did this morning.
Fabulous. Thank you. In April, you put through quite a hefty price increase. You were one of the last of the industry to put through it, the others I would have believed. Have those price increases stuck?
That would be the answer there, Grant. I think certainly the smaller end of our customer base, you know, the P3 type customers will probably have a lot more traction. I think, as I mentioned in response to Paul's question, it's a fairly tightly competitive market at the moment. The larger customers have got, you know, reasonably strong pricing power in the market at the moment, so it's been difficult to get price increases through when you've got that sort of market competition going on. As I mentioned, the sort of what we call our P3 customers, we've been able to get a little bit of price growth there.
Thanks, Mark. That's it from me.
Thank you, Grant.
Thank you. As there are no further phone questions at this time, I'll now hand back for any webcast questions to be addressed.
We have one question from Bob Haywood . What have been the implications on market share during the past year?
Fairly stable, actually. We track, we don't have any kind of sell-out data or industry sell-out data that we can compare with. We use purchasing data as a proxy for market share. There's always a bit of a lag in that. From what we can see, we've been able to, across all of the products, we've got kind of a fairly broad range of products that we pull together. Using imports and local data that we have, we've been able to discern that our shares are broadly held.
There's no more questions online.
All right, thank you for those that have attended the call, and we'll close the call now.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.