Squeezed Steel & Tube raises working capital by selling properties

Friday, 4 May 2018

Steel & Tube is consolidating its operations on to fewer sites such as its Blenheim Rd factory.

Steel & Tube is continuing to consolidate its staff onto fewer properties and selling and leasing back others to raise working capital.

The company recently reduced debt from the $32 million sale of its Stonedon Drive property in Auckland with a lease back, and it now wants to raise more working capital by selling its property at 375 Blenheim Rd, Christchurch, also with a lease back.

Mark Malpass chief executive of Steel & Tube.

Steel & Tube is one of the main providers of steel to the New Zealand market and has been going though an expensive restructuring.

Its new chief executive Mark Malpass said Steel & Tube was a customer-focused steel distribution and solutions company, not a commercial property company.

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'A sale and leaseback would release capital, improving the efficiency of our balance sheet, while still reflecting the importance of the property through favourable lease terms.'

Over the past few years, Steel & Tube has been consolidating to a smaller number of properties as it tries to capture synergies from recent acquisitions.

It aims to create a one stop shop for customers, allowing them to access the range of Steel & Tube's products and services in one place in each city.

Malpass recently reported how high global demand and reduced capacity in China combined with Chinese domestic demand resulted in a reduction of imports and rise in price.

'These increases had a significant impact on Steel & Tube's margins in September and October 2017 as the highly competitive New Zealand market was slow to respond to these cost increases,' he said.

In Christchurch, Steel & Tube has recently undertaken two major developments.

In December 2017, it opened a new coil processing site on Seymour Street. The development was undertaken by the landlord on a long term lease arrangement.

The second development was the 375 Blenheim Rd site that has been upgraded and forms a distribution hub for steel sales in the South Island.

Malpass said the Blenheim Rd property would be attractive to potential landlords given the substantial upgrade that has just been completed, Steel & Tube's long term tenancy and the size and scale of the asset.

The property is expected to be one of the leading industrial investment opportunities in the South Island market for 2018, he said.

It is being marketed by CBRE Christchurch brokers Tim Rookes and Merv Davies.

In February, Steel & Tube released its six month profit result for the period ending December 2017 which showed slightly higher revenue at $267m. But higher sales, administration costs, and tax shaved the final profit to $3.7m compared with $10.5m for the previous corresponding period.

Malpass said while impairments and restructuring costs were having an unavoidable impact, improved earnings from the restructure were expected in the next two years.