I would now like to hand the conference over to 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 will discuss our financial year 2026 results and performance and have time for questions at the end. New Zealand has now experienced three recessionary years in a row, with the downturn continuing longer than we had anticipated. While it was good to see the improvements this year, it has been uneven, with continued market weakness delaying the return to profitability. As a cyclical business, we are highly leveraged to the economy. We started to see some positive recovery and demand across the first three quarters of the year and achieved positive normalized earnings in March and breakeven in May before the market disruption as a result of the Middle East conflict and pre-election caution.
The emerging recovery gave us confidence initiatives that were put in place to strengthen our operating leverage of working. We saw margins start to expand, earnings improve, and converted modest revenue growth to stronger financial outcomes. Normalized EBIT was improved 23.7% on last year, and second half earnings were improved 40% on the first half. This reinforces to us that the changes that we have made in the past few years are working and will deliver more meaningful uplift in financial performance as the market demand returns. Over the past five years, we have acquired a number of high-performing businesses. The acquisition of Perry Metal Protection last year was a bottom-of-cycle purchase with a favorable deal structure. However, it saw our borrowings increase ahead of the market recovery, which put pressure on our balance sheet.
To manage this, we have paused our M&A activity, we have put CapEx restrictions in place, and dividends are on hold. Importantly, we renewed our banking arrangements with the ANZ for a further year until September 2027, providing additional financial stability for the company. We have also undertaken a comprehensive portfolio review to ensure our capital is allocated toward the highest value opportunities. Initial outcomes of this review have been to exit our reinforcing and wire business and our plate processing operations. These are currently in the consultation phase. We are also closing seven smaller sites and two larger sites. While still below desired levels, this year's results are a solid improvement on last year. Volumes are up 15.9%, revenue increased 13.9% alongside improved earnings, although we are not yet at the level needed to generate profit.
This year's results includes a NZD 51.9 million impairment to reflect the write-down of the carrying value of our business units, as well as other non-trading adjustments of NZD 3.8 million. Including these, the statutory loss was NZD 61.2 million after tax. It is clearly disappointing to report another loss, and our focus is firmly on restoring the strength of our balance sheet and returning the business to sustainable profitability. Looking at the backdrop in a bit more detail, as I said, the start of the financial year 2026 was encouraging. Inquiry levels lifted, forward orders improved, and customer sentiment showed some recovery. First half revenue and tons per day both improved year-on-year, along with a lift in product margin. The improving trend continued to about April this year, supporting increased revenues and volumes.
However, the renewed geopolitical uncertainty, cost inflation, pre-election uncertainty, and the persistent caution amongst our customers affected what appeared to be the early stages of recovery. Despite growth momentum slowing in the fourth quarter, our second half revenue and tons per day were still well ahead of the same time last year and ahead of the first half performance. Although margins were impacted by product mix and competitive pressure and cost inflation. Normalized earnings also improved in line with the market recovery, with a strong improvement year-on-year and continuing growth momentum from the first half to the second half of the financial year, with a return to positive normalized earnings in March and breakeven in May. We saw quite a marked difference in demand across sectors and regions.
Manufacturing and export were strong, while construction and infrastructure remained subdued, with New Zealand currently in the worst construction sector recession in decades. Activity in the South Island was stronger than in other regions. The recovering manufacturing sector was mixed month-on-month, but the overall trend bodes well for this year. Residential consents also recently improved, but we are cautious about how these will translate into building activities. Likewise, for commercial construction, that has also been very slow, which impacts on demand for reinforcing and mesh in particular. While a number of infrastructure projects have been commenced, public sector activity was still fairly subdued and well below what New Zealand needs. With an election looming, we do not expect there to be much of a tick up in the infrastructure space in the short term.
Export markets remain strong, driven mainly by dairy and agricultural industries, and this benefits us with demand across our product range. Looking at key priorities as we progress over the past year, the recent macro uncertainty highlights the importance of continuing to evolve our business model to be less dependent on construction cycles. We are consciously expanding our sector diversity, growing into areas where we can create competitive advantage, and galvanizing is a very good example of this. The cost discipline is a continued focus for us with the third phase of our cost-out program in the financial year 2026. Optimizing our supply chain, rationalizing our SKUs has also benefited our cost line. Lower costs and increased efficiency, as well as the focus on higher value products and services, will continue to support margin expansion as volumes recover.
We're conscious that our customers are also operating in a very challenging environment with cost pressures that are significant for them. Our approach is to maintain a disciplined pricing approach, ensuring we deliver fair value while maintaining the quality, service, and expertise our customers rely on us for. We're also looking ahead at how our business models can further adapt AI and other technology to deliver smarter, more profitable ways of servicing our customers. Rebuilding our balance sheet capacity continues to be a key priority for the board and management. We have a disciplined approach to capital allocation as demonstrated by the recent portfolio review and decision to exit businesses that do not meet our investment criteria. The acquisition of the Perry's business was a strong endorsement of our strategy to grow into high-value products and services.
It's now been part of our group for just over a year and has continued to outperform, with revenue and earnings trending above both the business case and prior year performance. The cross-sell and revenue synergies that we had expected are coming through as planned. Our other acquisitions over recent years, such as Kiwi Pipe & Fittings, and RoadEx Trucks, and in-house fleet, and organic growth of our aluminum business, have all delivered and are providing value for our group. In the past year, we've further expanded our range of aluminum products in response to customer demand, extended the reach of Kiwi Pipe & Fittings into the South Island, and we've grown our in-house fleet and launched a number of new products in different categories. Disappointingly, however, our plate processing business has been an outlier, and returns have been below the investment criteria.
Over the past several years, we have taken decisive action to reshape the business, strengthen our operating model, and position Steel & Tube for long-term success. This slide shows the significant work that's been done. We are now a more focused, leaner, and a more efficient company. In quarter four this year, we commenced a comprehensive portfolio review to ensure that capital is directed to the highest value opportunities. We assessed our current portfolio against clear criteria and prioritized products, services, and markets where we can create the greatest value. We also considered new opportunities that offer strong returns, sustainable competitive advantage, and long-term growth. The review has confirmed the areas where our recent investments are delivering value and where we see further growth potential, while also identifying businesses that no longer meet our criteria.
As such, we'll be exiting our reinforcing and wire business and plate operations, and these are currently going through the consultation process with our team. Even with the market-leading specialist support and outstanding talent and excellent service, the competitive dynamics in the reinforcing and wire market, and prolonged low activity across the construction sector, has continued to see returns below the value needed for a sustainable, profitable operation. Plate processing has been one of the outliers of our strategic growth initiatives, and despite the early success that we saw, the returns from our investment have been below expectations due to the extensive competitive pressure. Our priority is to maximize the value of both of these businesses through the sale of the assets, with proceeds used to pay down debt. We've received an offer from Euro Corporation for the reinforcing and wire assets, and we've agreed terms.
Any sale to Euro Corporation would be conditional on obtaining the necessary approvals, and also satisfactory engagement with the Commerce Commission. Under their offer terms, Euro Corporation would assume customer contracts and acquire the inventory and assets. Euro Corporation would also consider effective staff for future employment opportunities. Separately, we are also conducting a marketing process for the reinforcing wire and plate processing assets over the next few months to ensure that the full market value of those assets is realized. The sale of the assets is expected to realize a value of about NZD 11 million-NZD 12 million for the assets and inventory, excluding cost for the reinforcing and wire business. We are also working closely with the effective team members through this process and exploring ways to support them. As we mentioned at the half year, we have also reviewed our lease portfolio.
Over the next 12 months, we will exit seven smaller sites, lowering our operating costs, improving returns on capital through more efficient use of assets. Our regional hubs will not be affected and will continue to provide our customers with a one-stop shop. As part of the portfolio review, we are also exploring the exit of two further larger sites. I will now hand over to Richard to talk through the financial year 2026 results in more detail.
Thanks, Mark, and welcome everyone. Excuse me. A relentless focus on financial discipline over the past few years underpins the year-on-year improvement in our FY 2026 trading results. Volumes and revenue increased. Earnings growth was ahead of revenue and a meaningful uplift on prior years. We benefited from the long-term cost-out program with lower structural costs supporting increasing operating leverage. The statutory results this year include an impairment losses and other adjustments mentioned by Mark earlier. These are non-cash, with the impairments reflecting a write-down in the carrying value of the Steel & Tube business units as a result of accounting assessments made at this point in time each year. While impairments reduce the carrying value of assets today, they may be partially reversed as performance improves and recoverable values increase.
As you can see in the graph, the emerging market recovery through the first three quarters drove upward momentum and demand in revenue. First half revenue and tons per day both improved year-on-year, along with the lift in product margin. While growth continued in the second half, the pace slowed in Q4 due to macro headwinds. Despite this, second half revenue and tons per day was still ahead of the same time last year and ahead of the first half performance. Although margins were down slightly due to product mix and cost inflation. Average selling price reflects increasing price pressures in a tighter market, offset by the higher value galvanizing service. While we seek to be competitive and meet the market, we are not necessarily the cheapest, nor do we want to be, so maintaining market share is a good reflection of our value in a price-sensitive market.
Margins lifted year- on- year as a result of the galvanizing acquisition, offsetting base business margin decline. Efficiency initiatives in freight and warehousing are also delivering benefits. While we've had to shed some margin to retain volumes, we are still being disciplined about pricing and adding value through our service offer. We've built a more efficient business so that when demand returns, we're well positioned to convert into stronger margins and improved earnings. The increase in operating expenses year- on- year is directly attributable to inflation and the addition of the Perry's business. Excluding these, OpEx was almost flat year- on- year. A further NZD 6 million program is underway, and we expect to deliver a NZD 3 million benefit to operating expenses from FY 2027. The cost program has been a big focus for the past three years.
We've looked to make our business more efficient, more competitive, and more profitable. We're keeping close control of the costs with further measures for FY 2027, including constrained salary increases, no management incentive program, reductions in inventory, and a freeze on mergers and acquisitions and discretionary expenses. The site consolidation over the coming months is expected to deliver an annualized cash saving of approximately NZD 2 million in FY 2028. Normalized EBITDA improved year- on- year from NZD 2.1 million - NZD 9.9 million, an increase of 376%. Looking at the waterfall on this page, you can see the positive impact of growth investments, largely driven by Perry's and our group freight initiative. Volumes in our base business have increased. However, this was offset by a decline in the base business margin. The impact of inflation is less than recent periods and has been largely offset by our cost-saving initiatives.
Rebuilding our balance sheet remains a priority following the acquisition of Perry's last year. The portfolio review has identified opportunities to release capital and exit loss-making operations. In June, we extended our banking facility with ANZ to September 2027 and agreed revised bank covenants, which provides us with financial stability and flexibility. The board regularly reviews the company's capital structure and is comfortable that the group's financing position remains sound. Net operating cash was NZD 12.7 million for the period, with borrowings reflecting the Perry's acquisition as well as support for ongoing operations. We are managing our cash flow very carefully with good cash collections in a softened operating environment and a disciplined approach to inventory and supply chain. Working capital continues to be prioritized with close cash control mechanisms in place.
We have a prudent approach to CapEx in the current environment, and priority spend is guided by our strategic framework. CapEx was NZD 7 million in FY 2026, with approximately two-thirds of that being maintenance spend. We continue to carefully manage our inventory to make best use of working capital with year-end inventory of NZD 111 million. We have continued to invest in the products and locations where customer demand is strongest while reducing slow-moving and obsolete inventory, sometimes at reduced margins. This has seen SKUs decrease from 23,000 to around 13,000. The implementation of our Netstock forecasting platform has enabled better purchasing decisions and more disciplined stock management. Our deep supplier relationships have allowed us to progressively turn towards a more just-in-time inventory model with shorter lead times. This provides greater operational flexibility, supports working capital efficiency, and enables us to respond more quickly to changing customer demand.
I'm happy to take questions at the end of the presentation, but in the meantime, I'll hand you back to Mark. Thank you.
This year demonstrated our operating leverage, improved our ability to increase earnings and margin as volumes improved. Although the timing and pace of the economic recovery remain uncertain, there are encouraging signs that activity across several sectors is gradually improving. We are cautiously optimistic but do expect that any recovery will be gradual and uneven rather than a sharp rebound. Export and manufacturing activity should remain comparatively resilient and infrastructure work continues, although the timing of major projects and funding constraints means workloads are likely to remain uneven. Residential construction should improve from a low base. However, the recovery is expected to be gradual, with headwinds continuing to impact the translation from increased consents to spades in the ground. Commercial construction is likely to lag, with businesses remaining cautious about committing to new projects and longer timelines.
We are well-placed for the opportunities ahead of us as we showed this year, we will benefit the operating leverage as volumes start to recover. We have a clear pathway to improving performance and returns. Our strategy remains unchanged to strengthen the core and grow high-value products and services. Our immediate priorities are to continue to improve capital allocation and strengthen the balance sheet through the exit of loss-making businesses. Retaining our focus on cost and margin growth, capturing value from our initiatives and acquisitions, as well as building on our customer alliances and partnerships to increase market share and revenue. In summary, Steel & Tube enters the financial year 2027 well prepared for market recovery, but we still have some work to do.
As one of New Zealand's leading steel solutions providers, we have the scale, customer relationships and technical expertise and operating leverage to benefit as the demand does improve. Our focus remains on disciplined execution, growing returns, and creating long-term value for our shareholders. Thank you. We are now happy to take questions, and I will hand over to the operator to manage these.
Thank you. If you wish to ask a question via the phones, you will need to press the star key, followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the ask a question box and hit submit. Your first question comes from Kieran Carling from Craigs Investment Partners. Please go ahead.
Morning, Mark and Richard. Thanks for the presentation. Just first one from me is on Perry's. You have talked about the fact that acquisition is tracking about 30% ahead of business case. From memory, it was historically spitting out about NZD 35 million of revenue and NZD 8 million of EBIT. Looking at your annual report on page 46, it looks like revenue was NZD 32 million and EBIT was about NZD 5 million. Can you just talk us through how we should triangulate those comments and what is going on there?
Hi, Kieran. The main difference between those historic numbers that we talked about was our corporate levy. That is a sizable amount of Mark and I and various other people's cost that we allocate that did not exist in the Perry's world. Those numbers that you are referring to impact that. You are right, revenue is about NZD 33.5 million. We actually think that is slightly up on the prior period, like for like basis.
Earnings are up about just over NZD 1 million on prior year, per the presentation there, Kieran.
Right. It is fair to say that you are not expecting much additional growth from that business going forward?
It has been incredibly resilient given the general volume environment. It has increased, as Richard noted, about NZD 1 million of revenue. We have seen a lot of cross synergy benefits between Steel & Tube that are actually continuing to grow. Perhaps way to describe it is about 25% of Perry's customer base we were not servicing. We were servicing about 75% of it, and so we have been progressively building for Steel & Tube volumes from Perry's customers, and same thing vice versa. Customers that we were having galvanizing with Perry's competitors, we have been switching those across to Perry's. There has been some synergistic, I guess, growth both ways. It has maintained. It is a strong earnings that we have been able to continue to build on from previous ownerships, and we are quite happy with the performance.
Okay. Thank you. Just on the portfolio and business reset, I think you mentioned about NZD 11 million in potential proceeds from asset sales in the reinforcing and wire business, and also the exit of nine or so sites. Can you just talk us through the timing of those potential asset sales and also what EBIT benefit you expect to flow through the business as you exit those leases and close down the loss-making businesses?
Yeah. The number that we quoted there, the NZD 11 million -NZD 12 million, is both assets and inventory release. We are expecting to wind the reinforcing, we will start with the reinforcing the wire business. We started consultation on that today, and we are winding that down over a two to three-month period as we fulfill customer contract obligations. There are three or four contracts that are more enduring longer term, and we are working through solutioning around those. We have an early agreement with an MBI, with the Euro Corporation team that are interested in buying those assets. That is of course subject to Commerce Commission approval, and that process will also likely take a few months to work through. So by Christmas, we should have realized quite a lot of that value.
We have not disclosed specifically around the earnings expected from those transactions on the reinforcing and wire at this point. I will let Richard comment on that further. On plate processing, we are also winding down that business, announcing that to employees again this morning, and that is expected to yield some further cash as we unwind that business over the next month or two. Regarding the site consolidations, they have been in train, as we mentioned at the half year, and they are progressively working their way through and will be completed by the end of this financial year. They are expected to realize some value, which I will let Richard comment on as well.
Hi, Kieran. Just to expand on Mark's comment. For each of reinforcing wire and plate, a chunk of that proceeds comes from the disposal or usage of inventory and non-replacement. That will start, assuming we are going through consultation with our staff, assuming that proceeds, the inventory reductions will occur reasonably quickly over the next coming months, and then the proceeds from the actual sale of the assets and residual inventory will be subject to negotiations. As Mark said, we are hopeful that end of calendar year, we will have everything signed, sealed, delivered. The cash might follow slightly after that. With regards to the site consolidations, Mark mentioned two lots of sites. One was the seven sites which will give us net cash of NZD 2 million when it is fully executed. That will be the end of 2027. It will start in 2028.
There's a significant amount of costs associated with exiting the sites, so we expect a small cash benefit in 2027. That will primarily occur towards the end of the year because we have the costs that we incur in the beginning. The other two large sites, we haven't provided any guidance on those because we're still in discussions on those.
Cool. That's very helpful. Thank you. I guess that's a good segue into the next question, which is just around your net debt and the NZD 18 million unwind in working capital through the period. Factoring in the comments you've just made, is it fair to say we're going to see inventory reduce further over the year ahead, or do you think as you build that inventory into a cyclical recovery, it'll stay sort of flat or perhaps even increase a bit from here?
Yeah, look, it's actually relatively flat, Kieran, is probably the right answer. There's some ins and outs going on there. Obviously, with the reinforcing wire and plate , there's a reduction. As we see volume growth as the market does start to improve, we'll see some increase. You can see over the year, there's been a lot of work going into that working capital management, and we've achieved, I think, really good results, where we've seen a 16% or near almost 16% increase in volume, but we've been able to reduce our inventory levels from prior periods. So we've been able to increase the efficiency of that inventory through SKU reduction and a bunch of other tech and initiatives that we've put in place to enable tighter management of our inventory turns.
We've been quite pleased the progress in that space as well as the financial receivables, payables, net balance, we've been able to improve as well.
Can I just expand? The site consolidations allow us to be more efficient in holding safety stock as well, so we do not have to have safety stock from each site. So we have a reduction from that as well.
Maybe I will just squeeze in one last one. I guess more broadly on the macro backdrop. Appreciate it is pretty challenging to give any sort of guidance at this stage of the year, but, can you just give us any sort of steer on what your expected volumes are for the year ahead? Or how you expect earnings may be skewed between the first half and the second half? Or anything around pricing and margin expectations?
I think you can see in the numbers there in the presentation and some of the graphics as well there, Kieran, that we saw the first three quarters of the year some nice steady trading performance improvements in terms of just tons per day. The capture of margin, we have been able to, even net of Perry's, we have been able to grow our product margins. Product margins are coming back up at a reasonable pace. We have had the disruption of the Middle East conflict, and that has obviously took a few months to impact, but I think what we saw is some customers pulling back and putting the brakes on some projects that have been deferred. I think most of those projects are still there and will move forward that impact that commercial construction in our space, which is a key part of our business.
You can see in the mix that we now have over 50% of our business associated with manufacturing and the rural economy, and that is where we have been able to sort of drive that performance, and we are continuing to drive into those sectors that I guess are non-construction cycle fee dependent, and that has meant that our mix has improved as well. We are not giving forward sort of forecast on earnings, but I think you can see in the trajectory that we were on up until the Iran conflict, we were making some fairly good progress in hitting most months, getting around that kind of break-even mark to improving above the line in March that we saw a reasonably good sort of trajectory that we were on. So gives you an indication of, I think, the potential.
More second half weighted, I think the calendar year 2027 is when we should start seeing some improvement coming through in terms of macro volumes. But this first half of the financial year, we're expecting it to be sort of still fairly variable. Hope that helps.
Cool. Yeah. Fingers crossed. Cool. Thanks for the color, guys. That's all from me.
Thank you. Once again, if you wish to ask a question via the phones, please press star one. Your next question comes from Rohan Koreman-Smit of Forsyth Barr. Please go ahead.
Morning, guys. Some questions from me. First one, congratulations on the volume growth, 13%, but revenue only up 6%. If I look at page 15 of the preso, the lines between revenue and volumes get closer together over the year. This suggests that margins are shrinking. Is that how we should read that?
Hi, Rohan. What chart are you on there? I am not on the printout.
Just page 15.
Yeah. Okay. I think that is more just the conflict, I think, and the impact that that has had over the most recent period. I think that, just to correct you as well there on the revenue growth, I think it was more like 13.9% year-on-year, whereas volume is about 15.9%. So there has not been that much compression. You can see the product margin graph as well, just shows that general improvement. That is obviously including periods, even if you net out Perry's. As I mentioned earlier, there is about a NZD 5 million improvement in core product margins. So that gives you an idea that there has been an improvement flowing through there, and we have continued to see our own mix as we have deliberately shifted our mix to the sectors I mentioned before to Kieran's questions.
Okay. Just also going back to the question on Perry. Obviously, there is an overhead that has gone in there. If you go to the graph on page 18 and look at the growth investments. Perry, as you said, earned NZD 8 million, maybe NZD 9 million of EBIT. I am sure there is some lease costs in there, so EBITDA should be higher again. That is well above the NZD 6 million of growth investments. There is obviously some overheads sitting in that number. If you were to take those overheads out, because that is stuff you have acquired, and put them in that base business bars to the right. At the moment, it looks like the base business is fairly stable, but I think all that has happened here is there has been an allocation of overheads to these growth investments.
If you were to reverse those allocations, what does the base business look like on a margin and OpEx and other cost inflation basis?
If we, on a like-for-like basis, look at Perry just purely at an EBIT level, it has improved about NZD 1.1 million year- on- year. So we have got tight lock on that, Rohan, when you just look at it on a like-for-like basis. So it has not just been a case of shifting overhead into that business. Yeah, of course, it is carrying part of the group's overhead because it is part of our network now. But if you normalize for that business has continued to grow and improve. And it has been incredibly resilient and a great acquisition for us that was bought at the bottom of the cycle at a good multiple. So a deal structure that has been very successful for us.
Obviously, we have taken on NZD 30 million of net debt with that acquisition, which has flowed into the balance sheet, obviously, that we are managing at the moment. But the fundamentals of that business have been fantastic.
Sorry, I am not questioning that. I am just saying that the way you are presenting it suggests the base business is more stable than it really is, given the allocation of overheads to these acquisitions.
Yes, there is an allocation.
Yeah. On net debt, can you give us an idea of what net debt is today? Payables up NZD 20 million year-on-year is the main reason net debt didn't go up as much as expected. Inventory came down in the second half as well, NZD 6 million, payables up NZD 8 million. There would have been a sizable lift in net debt if those two things didn't happen. I understand the SKU rationalization on inventory, but you can't rationalize SKUs to zero, and your suppliers eventually need to be paid. When do those tailwinds stop?
Yeah. Can I answer that in a second? I think, just going back to your earlier question, Rohan, on the base business, I think that the observation I'd make there is the metals businesses, so the stainlesses and aluminums and other mechanical services type businesses that we have all been performing well and continued to improve. The steel commodity business is the challenge that I think any industry participant would say at the moment has been short on vertical construction, incredibly competitive in a very difficult space in New Zealand right now on the core steel commodity-heavy business. That has flowed into our results, of course. But what we've been able to do is diversify, optimize as much as we can the way that we're running that steel core business through all of the initiatives I've talked through on the call, and really refocus on those metals.
We're continuing to try and find ways to optimize our cost structure and the site reductions we've talked about exiting out of the reinforcing wire business that's been a real drag and is part of that core commodity steel space. Even plate processing I put into the same bucket. That is just an unattractive part of the business model at the moment. Hopefully that gives you a bit more of an answer to your earlier question. I think on the net debt, that NZD 48 million that we closed at, we're in a very similar position to that today, Richard. Today is not a good day. You actually have to look at month end because we do go up during the month. So we're not too dissimilar to that at the end of July, and we won't be too dissimilar to that at the end of August.
Okay. Thanks for that. Just because you touched on it there, the wire closure and the plate processing closure, can you help us quantify those? What percentage of FY 2026 sales were those? Obviously, you described them as loss-making, so it helps at the bottom line, but what comes out at the top line?
Yeah. We haven't disclosed those numbers, Rohan, to date, but it's-
Just a rough percentage combined? Is it a quarter?
Yeah. To give you a rough idea that the reinforcing and wire business for FY 2026, including its share of corporate levy, lost about NZD 7.5 million in normalized EBIT. So it's a significant part of our loss. It's been the last couple of years, if you look over the last few years, we saw very good performance as we came out of COVID. That business, as we had the significant amount of infrastructure and construction spend going on there. But if you look over time, which we've done, as we've said in the presentation against our investment criteria, it hasn't met our cost of capital returns that we would expect. It's had two years, I think it was FY 2023 and 2024, where we saw a return above cost of capital, and the other periods haven't.
So there's been a despite massive amount of effort to turn that business around. I know that we are the highest quality player in that space. Talk to any of our commercial construction project partners, they will all say that our team do an outstanding job. The challenge is we're just not rewarded for that. Structurally, it's a challenged business because of low barriers to entry. You can get into that business relatively cheaply in terms of capital for equipment, and you have a relatively undisciplined competitor construct where the typical price disciplines that you need to run these businesses well are just not there. It's a bit like whack-a-mole, as you see one competitor come out, you see others pop up quite quickly. The board and ourselves have got to a point where we've caught time on that business.
Thanks. Then these lease store closures. Are you coming to the end of these leases, or do you have to sublease the sites to remove the ongoing lease obligations?
A bit of a mix, Rohan. We have been able to shore up sublease or assignment opportunities. All of our leases have assignment clauses in them, of course, and we're working through those. The other two bigger sites that I mentioned, we also have a number of parties that have expressed interest in those sites. We're just working through those at this stage. We're expecting to be able to clear those bigger sites and also the second site that we're working through without any impairments that we've needed to. We do have an impairment against one of the sites, but the rest of them, we're expecting to be able to clear those okay.
Yep.
They are obviously all in the right of use assets.
The NZD 20 million impairment there, that is effectively your obligation on the remaining leases of those sites that you are closing. Is that how I should read it?
The way we have calculated it, Rohan, is for the sites that we are exiting, we did a site-by-site analysis. Some have small impairments. There is actually a partial reversal of an impairment we booked several years ago in there. That is almost a wash across the seven. We have got a larger impairment within the reinforcing impairment that is disclosed in the financial statements, note C2. The main bulk of that impairment that you are referring to there is where we have done our cash-generating unit assessments and impairments. That comes up with a recoverable amount, and then the accounting standards require us to allocate that initially to goodwill, which is just under NZD 5 million, and then pro rata across the rest of our assets, being the fixed assets, the intangible assets, and the right-of-use assets.
Okay. I do not profess to understand accounting, but all right. There is no inventory impairment.
There's no inventory impairment.
Well you take an impairment because you're not going to earn a cost of capital on the value of the assets, right? I don't know if it's a great thing. I'm assuming there's no-
There's no inventory impairment.
Yeah. Cool.
Just backing up, Rohan. I just did not understand that last comment. There is actually no inventory impairments here.
Yeah. Perfect. That is what I was asking, if there was any.
Okay.
No, that is all for me. Thank you. I will hopefully talk later if I have any more questions.
Thank you.
Thank you. There are no further phone questions at this time. I will now hand the conference back to your speakers to address any webcast questions.
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?
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. 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.
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?
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.
Okay. We have got several questions from Simon Todd. Are you focused on areas that are booming, for example, Queenstown, Christchurch?
Yes, we are. We have seen a lot of our growth in the South Island. I mentioned earlier that manufacturing and rural now make up over 50% of our revenue mix, and so we have been deliberately diversifying into the South Island, in particular, and also the lower North Island, we have seen some good growth. Really, it is outside of Auckland and Wellington is really where the main growth has been in our business.
The next question from Simon. Are you able to negotiate better lease terms to get a temporary discount until things improve?
It is a good question, and we have been working with our landlords to do things like deferring increases, and many of them have been supportive around the standard market ratchet type formula. We have continued to work with our landlords on those.
Okay. Again, from Simon, are you working with the power companies, AGL, Contact, and Genesis, to provide the steel for the massive solar farms that have been rolled out?
Yes, we have been. In fact, we did the Te Mihi Power Station rebuild in Taupō. We have been all over that, everything from the ground up, effectively, right from foundation work through to structural steel through to roofing, across all of that, and we have got more work that we are continuing to do there. Other power station programs and also wind farms, we have been working very closely with partners around that and data centers. We are also very close to work that is going on in those spaces.
Final question from Simon.
Sorry, I think I missed the first part of his question was around negotiating energy costs. Yes, we are, and we run tenders around that. We are currently working through a tender on our energy as well as on our fuel and just diesel is something that we use a lot of. So we are negotiating that at the moment as well.
Okay. Final question from Simon. Lyttelton Port Company is rolling out an NZD 821 million expansion plan. Is Steel & Tube across that rollout?
We will be. There's a number of different large projects that we're either in NDAs around or early pricing programs. Yes, absolutely. We've got a large footprint in Christchurch, and we have done several projects with Lyttelton Port Company , and I'm assuming we'll be able to continue those.
That's all we have online. I'll hand back to the operator for any more online calls.
Thank you. There are still no phone questions at this time. I'll now hand back for any closing remarks.
Thanks everyone for listening and appreciate the questions. I will now close the call down.
That does conclude our conference for today. Thank you for participating. You may now disconnect.