Vulcan Steel, a prominent player in the steel products New Zealand’s industry, has announced a significant decline in its full-year profit for the period ending June 2024. The company’s net profit plummeted to N$40 million, a stark reduction from the previous year’s N$87.9 million. This dramatic drop is a result of various challenges facing the construction and building sectors, which have been notably sluggish in both Australia and New Zealand. Alongside the profit reduction, Vulcan Steel also saw a 15% decrease in revenue, which fell to N$1.06 billion from N$1.24 billion the previous year.
The company’s underlying earnings, measured by EBITDA, also took a hit, declining from N$218.9 million to N$147.6 million. In light of these financial difficulties, Vulcan Steel’s final dividend has been reduced to 12 cents per share, compared to 30.5 cents per share the previous year. This reduction in dividend reflects the broader economic strain and the company's efforts to manage its financial resources prudently during challenging times.
Chief Executive Rhys Jones attributed the sharp decline in profit to the ongoing high interest rates and elevated inflation levels. These factors have contributed to increased business costs and reduced activity levels across the construction and steel sectors. Jones expressed that while the current business environment remains tough, there are glimmers of optimism due to recent changes in monetary policy. Specifically, the Reserve Bank’s recent decision to cut interest rates is anticipated to provide some relief for the economy, potentially aiding in a recovery.
Despite the current economic pressures, Vulcan Steel has managed to achieve a 16% increase in operating cash flow. This improvement has been instrumental in reducing the company’s net debt by N$64 million compared to the previous year. This positive cash flow outcome suggests that while profit margins are under pressure, the company is still able to generate sufficient cash to manage its financial obligations and reduce debt levels.
Looking ahead, Vulcan Steel is cautiously optimistic about future conditions. The company anticipates that the Reserve Bank’s rate cuts will eventually stimulate economic activity, which could lead to better performance in 2025. However, Vulcan Steel also recognizes that the challenging monetary policy environment in Australia will continue to affect its operations there, potentially leading to sustained low levels of trading activity in the near term.
For the first half of the fiscal year 2025, Vulcan Steel expects trading conditions to remain subdued, mirroring the low activity levels experienced in the second half of fiscal year 2024. The company plans to provide more detailed guidance during its annual shareholders meeting scheduled for November. This meeting will offer further insights into Vulcan Steel’s strategic plans and expectations for navigating the ongoing economic challenges.
