Steel & Tube Holdings Limited (STU) Earnings Call Transcript & Summary

[Presentation] Good morning, everybody, and welcome to all our shareholders here today and joining us online. We appreciate you taking the time to attend and hope you find our presentations interesting and of value. Today's meeting is being held both in person and online via the Computershare online meetings platform. For our online participants, this allows you to watch a live webcast of the meeting, ask questions and submit votes. For those of you attending the meeting online, if you have a question, please select the Q&A tab on the right half of your screen any time. Type your question into the field and press send. Your question will be immediately submitted. We will answer any questions after the presentations. Questions may be moderated or if we receive multiple questions on 1 topic, amalgamated together. Due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via our e-mail. Should you require any assistance, you can type your query and one of the Computershare team will assist with the chat function and reply to your query. Alternatively, you can call Computershare on 0800-650-034. Voting today will be conducted by way of a poll. I will shortly open the voting online for all resolutions. If you are eligible to vote at this meeting, you will be able to cast your vote under the vote tab, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution. Once your vote has been cast, a tick will appear. To change your vote, simply select change your vote. You have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all items of business. Please submit your votes at any time. I will give you a warning before I close the online voting. Since taking over as Chair in 2017, when the business was burdened with high debt, poor inventory quality and many nonperforming assets and other aspects of the business. We have undergone a complete refresh of the Board and management, and I'm very confident we have an excellent team dedicating to driving the growth of our company. Joining me today are your directors. I'll ask each of them to raise their hand when I introduce them. Firstly, Chris Ellis, Steve Reindler, John Beveridge, Karen Jordan and Andrew Flavell. Andrew joined our Board in October last year and is standing for election by shareholders today. John Beveridge is retiring by rotation and is standing for reelection. You'll have the chance to hear from both of them later in the meeting. Also joining us today are Steel & Tube CEO, Mark Malpass, Chief Financial Officer, Richard Smyth; and Legal Counsel, John Gordon. A number of our advisers, including our auditors, are also joining us today. I'd like to thank the professional firms who have provided valuable advice to Steel & Tube over the last year. We are pleased to be able to update you on our progress and our 2022 financial year results at today's meeting. You'll hear from myself first and then for Mark. Following that, there will be an opportunity for shareholders' questions and discussion. We encourage you to submit any questions as early as possible during the presentations. We'll then move to the resolutions. Following the close of the meeting, shareholders are invited to join your Board and the management team for refreshments. I'll now move on to my address. Steel & Tube is 1 of New Zealand's leading providers of steel solutions, a position that has been built up over many decades. 2022 is, in fact, our 70th year of trading. We offer New Zealand's most comprehensive range of steel solutions and products through our e-commerce platform and our nationwide network of 27 branches and distribution centers. We play a vital role in the New Zealand economy as a reliable and trusted provider of steel solutions. We supply our products to businesses ranging from spare part manufacturers to satellite makers and for some of New Zealand's largest infrastructure projects from City Rail Link to motorways. Steel is also a key component in the construction of projects focused around climate change, such as wind farms, and Steel & Tube has good expertise in this area. Our investment into inventory over the past 12 months has ensured that these and other projects were able to continue despite supply chain, mill and labor interruptions. Five years ago, we embarked on a journey to reset our organization for a stronger future. The results of our endeavors are now evident. We're selling to reporting record sales and EBITDA for the financial year ending June 2022. And we would like to thank our shareholders for supporting us on this journey. The 2022 financial year allowed us to demonstrate the value of our turnaround and focus on growth. We delivered a strong financial performance and now have a robust operating model in place to support our growth ambitions. Our digital strategy is a key enabler and we are leading the charge in the industry to make it more efficient and more effective. We have a very clear focus on 2 pathways that will allow us to continue to generate double-digit returns on our funds employed. Firstly, continuing to strengthen our core business; and secondly, to grow by investing in high-value products, services and sectors. We are well positioned to deliver through the economic cycle with the expertise, upgrading platform and growth strategy that will create continued shareholder value. Our company has been transformed over the last 5 years since we started our Project Strive turnaround program in 2018. This slide demonstrates the substantial improvement over this time. Our financial performance has improved significantly to this year's strong results with embedded value now being realized from Project Strive and our growth strategy that is underway. Our long-term aim is to operate our business in a way that is financially rewarding for shareholders and positive for our people, our customers and our planet. We have 3 key focus areas: maximizing steel's contribution to a sustainable and low-emission society, supporting our people and customers and delivering value for our shareholders. Steel, 1 of the most essential and sustainable building products, permanent, forever reusable and the most recycled substance on the planet. On a cradle-to-cradle basis, steel's environmental performance compares favorably to other materials such as concrete and timber. In New Zealand, we estimated that 85% of steel from demolition sites has returned to steel mills for recycling. Extending the life of a structure also enables more value to be extracted from the resources invested to build, operate and maintain it. For many construction and manufacturing applications steel is the only choice. However, we are mindful of the greenhouse gas emitted during steel's production. We are closely monitoring new technologies to decarbonize steel, but are conscious that these are still in the very early stages. In the meantime, we are focusing on initiatives to control our operational emissions, optimize energy consumption and minimize waste. Our investment in technology is an important enabler of our progress towards reducing our carbon footprint. One new initiative we are excited to support the carbon credit offer for our infrastructure customers in conjunction with the Heavy Engineering Research Association. Now customers can offset the embodied carbon in the steel they order, which Steel & Tube will facilitate through our partners. These credits will be passed directly through to the customer, with the cost being used to fund the planting and protection, the planting and protection of native trees across New Zealand and the Pacific Islands. Steel & Tube does not make any money from this program. We are focused also on continual improvement in key areas that matter to us. Both employee safety and employee engagement has significantly improved over the last year. We have a great team leading our company and passionate people who are focused on delivering the best possible solution and experience for our customers. Pleasingly, our people rated their satisfaction score is 7.8 out of 10, a reflection of the supportive and strong culture at Steel & Tube. The Board recognizes the value of diversity of our workforce and the part this plays in creating a rich and vibrant culture. 30 different ethnicities are representing our workforce. Maori leaders now represent 18% of the direct workforce to our general managers. We have commenced Maori scholarship cadetship with Te Puni Kokiri, our diversity and inclusion team have led awareness campaigns on cultural traditions and practices, which are the key demographics of our workforce. Our internships in the Steel & Tube career coaching program are also new initiatives to attract and retain great people. While we have initiatives in place and numbers are growing, we recognize that women remain underrepresented in the sector and we are committed to addressing this as much as we can. Early on in COVID, we recognized mental well-being was going to be important. And during the lockdowns, we supported our people, not only financially, but also their well-being. Every 6 weeks, we've continued to run webinars on a range of topics that affect our people both in the workplace and at home. These range from mental health, parenting, managing stress, financial advice, nutrition and mindfulness. It was also important that our people and their families were healthy and safe. And we were the first to invest in COVID vaccine incentives. We pushed Booster support and provided RAT tests for families. We have also invested in training and skill development while many of our workers were stuck at home to keep them engaged and also allow them to upskill and progress their careers. Customer satisfaction also continues to increase and reflects our ability to deliver during what has been a challenging year. Our greenhouse gas emissions reduced year-on-year with a 7% reduction in emissions per tonne sold, and this is a result of multiple supply chain and operational initiatives. We are committed to generating value for our shareholders. Steel & Tube has a high gross dividend yield with this year's full year dividend of $0.13 per share, representing a yield of 11.4%. This gross yield compares well to our peers. Earnings per share are $0.183 per share with net tangible assets at $1.22 per share. Total shareholder returns in financial year '22 were 19.1%. Steel & Tube has a clear forward strategy, a strong operating platform and the means to invest in growth. Our goals are threefold: to position Steel & Tube as the preferred supplier for steel solutions and products to increase the company's valuation by growing our existing offer and programmatic smaller merger and acquisition in adjacent sectors and to deliver increasing returns and value for our shareholders. The turnaround and commencement of the growth strategy has been proved with this year's record sales and EBITDA result. I would like to acknowledge the exceptional efforts of Mark Malpass who stepped down from the Board to take on the role of CEO in late 2017, and the leadership team, as well as all the people at Steel & Tube who deliver outstanding service to our customers every day. I would also like to thank my fellow Board members whose industry knowledge and skills deliver significant value for Steel & Tube. Thank you, and I'll now ask Mark to talk to you in a bit more detail about our strategy and our progress. Thank you.

Thank you, Susan. Look, I'd also like to start by acknowledging the leadership team that is sitting -- most of them are sitting in the front row here and as you would appreciate that any turnaround like we've been doing over the last 5 years requires a lot of support and is a real team effort. So I just wanted to acknowledge the team for their contributions and support. I'm sure that I'll be very keen to meet with you after the meeting concludes to discuss the business. Just in terms of highlights, as Susan said, we've got 2 very clear pathways for growth. The first is around strengthening our core business; and secondly, around investing and growing in high-value products, services and segments. One of the drivers of this year's financial result, of course, has been strong economic activity that's been driving steel consumption and demand. The residential construction markets have been booming, the manufacturing and infrastructure markets have been steady. And of course, commercial has also been busy. In fact, infrastructure, we've seen very strong spend in terms of our government focus in that area. So three waters, [indiscernible], our rail bridges and of course, motorway upgrades. In addition to that activity this year, we've also had COVID to deal with. So in the first half of the year, we had a lot of regional lockdowns. And in the second half of the year, we had a lot of absenteeism of staff due to COVID-related illnesses. Steel & Tube has been very well placed to manage those impacts. And as well as the COVID-related challenges, we also had steel mill and supply chain congestion, we had to mitigate the risks of those supply chain pressures. Technology has played a really important part in our business as we've mitigated those impacts and it's made us more efficient and agile. Throughout the year, our focus has been on maintaining availability of products. So certainly, the high level sort of high-demand products we've been ensured we've had inventory available to service our customers, and that's meant a significant investment of our cash to support our customer growth. Supply chain start to ease, we're expecting that some of that cash will be returned to the business. We've also grown our business through the acquisition of Fasteners NZ earlier in the financial year. So turning to our results. We're very pleased to deliver record sales and EBITDA for the 2022 financial year. And that's come through a real focus on the customer, operational performance, supply chain discipline and supply chain management, which has meant that we've had inventory available to support our customers' growth. Our revenues were up 25%, almost 25% to almost $600 million, our EBITDA increased 73% to $66.6 million. And our EBIT increased 130% to $47.6 million, and we almost doubled our NPAT to $30.2 million. Other key metrics also improved. Our return on funds employed increased to 14.6%. Our customer satisfaction Net Promoter Score increased to 40 versus an industry average of 32, our employee Net Promoter Score increased to 35 versus an industry average of 18. So that represents a very strong culture within Steel & Tube. And importantly, our total recordable injury frequency rate for employees reduced to 1.13 versus an industry average of 5. Moving to business performance. Both of our divisions delivered improved performance for the year, particularly strong performance from our distribution division as they focused on customer service, ensuring that we had the right inventory and supply chain management and trading disciplines in place. We're currently expanding our processing offer, which I'll talk about shortly, and also other high-margin product growth areas, which we have underway and also some more planned. In the Infrastructure division, revenues increased despite the challenging market conditions. While margins were down slightly due to the impact of COVID on reinforcing and we have been able to reposition that business to increase returns and reduce risk. Our roofing business, which makes up about 60% of our Infrastructure division has grown as we've been able to improve sales in that area. And I'd like to show you a video from our [indiscernible] team shortly. [Presentation]

Great. So look, moving forward, we have a very robust operating model that's in place to support our growth ambitions. We're well positioned to deliver through the economic cycle to drive shareholder returns. So our strategy, as Susan mentioned, is really focused around 2 key areas. One is strengthening the core of our business; and secondly, that drive towards high-value products, services and segments. So we are doing those 2 things to really focus on driving gross margin dollars, okay? That's what matters in this business. And we're very focused on that strengthening the core in the first instance, which is about best-in-class customer experience to ensure that our goal of being New Zealand's preferred supplier of steel products and solutions. Secondly, strengthening the core is about leveraging our breadth of scale across a wider range of products. The ability to cross-sell our services and products using our industry-leading digital platform that we put in place really helps enable that growing of share of wallet and focus on gross margin dollar and delivering those operational efficiencies that we've seen benefit us today. Investing in higher-value products and services in sectors is focused on extending what we can offer to our customers. So moving further up the value chain in terms of what our customers need and helping to meet those requirements. We're also looking into adjacent sectors to make sure that we're capturing any value products and services that we can. So that diversification comes through organic growth, and we're also looking at, as Susan mentioned, building scale through programmatic, smaller M&A into adjacent sectors where we can. We're very mindful of the investment that you will make in our business, focusing on growth for growth's sake. Our focus on those adjacent sectors is really through very disciplined processes to ensure that they deliver the financial and strategic value that we expect from them. I'll talk about the strategic pathways in our current statement. You can see on this slide that many of the initiatives are in near kind of early phases and that the full benefit of those -- the value is yet to be realized. So I'd like to talk through some of the things that we've got at play at the moment in a little bit more detail. So firstly, our digital advantage. This is a really key enabler for our business. We certainly know it will drive competitive advantage over time. We've seen digital steel trading emerge in the U.S. and Europe very quickly over the last few years. In New Zealand, the market here is still very analog and digital is a new thing for many of the customers in the steel industry. But we know from what we've seen emerging in Europe and America that we're on the right track here, and it's given us a lot of conviction to continue our investment in that digital growth, making it easy for our customers. We can deliver efficiencies for both our business and our customers and also support the growth of New Zealand. So data and analytics have helped us to date capture opportunities in pricing and procurement and certainly in review of product lines and operational efficiencies. So an example of our growth strategy, and I'll talk a little bit of videos playing here is the plate processing investment that we've made. So that's adding a lot of value to plate processing, where we have invested a new equipment to expand our -- excuse me, expand our plate processing offer. This is a very high-value category with strong demand that provides attractive margins. Our expanded capability allows us to benefit from net growing demand and value-added process steel plate while continuing to supply our existing processing customers. This new kinetic machine that you can see on the screen offers a combination of cutting, milling and drilling, which helps increase the efficiency to maximize productivity from each piece of plate. So it uses laser cutting technology that can cut a variety of different metals. And thanks to fully integrated software, and that means that we can process parts from start to finish in a single setup, saving time and increasing productivity. The touch screens make it easy for our operators and simple to operate to enhance productivity. So not only does this new machinery deliver substantial operational benefits, but it also [indiscernible] to reduce as a market and the listing that the software is enabling us. So this was operational from June this year and has been delivering great results through the first quarter. On the 1st of August, we also acquired Kiwi Pipe and Fittings, which is a sort of symbolic of that strategy to grow selectively into those high-value product categories and sectors. So Kiwi is a fairly small business, which specializes in fire and water reticulation products. It builds on that existing offer that we have but provides us with a lot more scale and market share growth. So as well as being immediately earnings accretive, bringing Kiwi into the fold makes us 1 of the larger players in that fire and water reticulation market. Now I move to talk through our trading update. It's moving. Yes. Great. So trading through July and August has been fairly steady across the market sectors that we participate in and earnings have been supported by our operational and trading disciplines that I mentioned earlier. This time last year was impacted by the nationwide alert Level 4 lockdown that was at 11:59 p.m. on the 17th of August. So if we compare this current year, that's basically [indiscernible] days up until the 17th of August 2022. Our revenues are up about 15%, and our volumes are fairly flat with last year. We've also had a very strong pipeline in place for our forward workload. Moving to the outlook at a sector level on the left-hand side of the chart, there you can see infrastructure is expected to grow with government -- as the government rebuilds investment in this area with large infrastructure projects planned over the next decade, which are proposed to increase about 56% over the last decade. The manufacturing sector is showing very strong positive signals. So we've seen expanding what's called the PMI index, which has been an expansionary mode over the last few months. So at about 54.9%, I think, last month, which talks to an expanding our manufacturing base. Residential construction consent data remains -- you better get that. Residential construction consent data remains positive but we are starting to see some softening in that residential market. Now we expect that to be partially offset by social housing spend and also retirement [indiscernible] Spend. The commercial markets are remaining fairly steady. So looking at the 2023 financial year, we're expecting continued volatility in the global and local economies, steel pricing in New Zealand dollar terms is expected to remain elevated in the shorter term. Customer activity is anticipated to be steady, although we are seeing some sectors moderate off the extraordinary high demand levels as we're already seeing in sectors like residential. So our focus remains on that gross margin dollar per tonne metric that I've talked about a number of times and really driving that continued double-digit return, which leads to shareholder growth. We are well positioned. Steel & Tube, we believe, can deliver strongly through the economic cycle and take advantage of new product and product opportunities. We have a very clear focus on strengthening the core and growing in those high-value products, services and sectors. We will continue to consider smaller bolt-on acquisitions if they meet our criteria. The benefits of the current strategic initiatives are expected to commence in this 2023 financial year and to be fully realized in the 2024 financial year and onwards. We'll continue to be responsive to the changing environment and changing customer and sector departments. And our team has the experience and skills to solve challenges and identify opportunities. Our focus remains on how we differentiate ourselves to stand out as the preferred supplier of choice. We expect continued earnings momentum and our goal is to, as I said, to continue with that sustainable double-digit return on funds employed. So I'll just now turn to a video on our staff and careers. [Presentation]

Thank you, Mark, and I hope I enjoyed a few of those videos, which help make things come alive because 1 thing to look at for pavers and reports, but it's nice to get a feel about our business. I would now like to invite questions in relation to the annual report or any of today's presentations. There will be an opportunity to ask questions about the resolutions when I put those to shareholders. From our moderator, do we have any questions online before I turn to the floor.

We have several questions. So the first one is around imputation credits moving forward?

I'll pass on to Richard, our CFO to address that, we are now in a taxpaying position.

Thank you, Susan. As you mentioned, we have become a taxpayer again this financial year. So we're 50% imputed to the final dividend for '22. And while it's a Board decision that is made on each dividend -- the expectation is that we'll have sufficient imputation credits going forward to continue to impute the dividend at approximately 100% level. But as I said, that is a Board decision each time.

The next question is around active capital management. So as the Board ensuring active capital management to ensure cash is deployed in inventory only if we see double-digit returns, no write-off of stock and no bad debts and tough times and accordingly, ensure capital management with a buyback or capital return if the business is scaled?

I think that obviously, that is around capital we see in our report that we have had a large growth in inventory this year. That has been around that's because the supply chains have been much longer in order to keep projects moving for our customers, it's mean that we've had to invest a lot more in capital. We did have a Board meeting this morning, and the shareholder is right, the 2 big topics for us. We're managing our inventory and also managing debtors. But let me just pass to Mark to fill in a little more on that.

You covered it well there, Susan. I mean it really is a balance and that inventory has increased as a result of unit price and the length of the supply chain. And I know competitively that we're in a reasonably solid position there. I think [indiscernible] are high prices. And as I mentioned earlier, at least in the nearer term for prices to remain fairly elevated just given the regional pricing in U.S. dollars and then you look at those on a New Zealand dollar basis, that prices remain fully elevated. So really, the focus for us is ensuring that those inventory turns are as fast as they possibly can be so that we're as efficient as we can in terms of managing those inventories in our system. So we spend a lot of time, and our digital systems are helping aid us in that area. And debt as we watch very closely. So that's the balance for us as a team.

There's one more question at this stage. Certainly, good results last year. Congratulations. You talked today though, a lot about future growth. While the outlook sounds more like flat or steady. I'm wondering whether you could expand on that a bit. do you expect revenue and earnings to keep growing? Or are we more looking at some areas growing and others shrinking?

Yes. Look, I mean as we've noted, it's varying speeds across different sectors. We are expecting some sectors to be running a lot stronger than others. I mentioned infrastructure where there's a lot of government spend going behind that for the 4 decades at least, projects like the Three Waters, a lot of motorway work and upgrades, bridges, those type of projects. a reasonable portion of our product mix. We also have commercial and manufacturing that's an important part of our [ mix ]. So manufacturing is an expansionary mode. And you can see with the lower dollar manufacturers are exporting a lot more. So you can see strength in that sector. The residential sector, on the other hand, is probably top out and although consents are still high. We think the actuation of those consents will start dropping off. We see it in products like mesh that are starting to slow down. This is a smaller proportion of our product mix. So about 10% of our business is in the residential market. And then commercial is another sector that's been fairly steady, and we're expecting that to remain reasonably steady going forward. So a difficult one to call in terms of getting absolute numbers about revenue growth because it's also obviously dependent on prices and what happens with price going forward. But we're expecting things to remain reasonably steady, although some sectors will come off those significant hikes that we've seen.

Thank you. Are there questions from the floor? Yes, sir. I'll just wait.

Right renewable energy. You will have heard the big announcement in Queensland last night about going out of coal at 1935. What's our position regarding wind farms, solar panels, solar power, what are we doing in that area? Is that an area that we specialize in?

Certainly involved in renewable energy and providing steel into those sectors. So we're working on a couple of wind farm projects at the moment, a very large scale on Meridian's larger projects we're involved in building at the moment. We're constantly talking to people that are interested in expanding in those spaces. Also, solar farms, there's a number of companies that are involved in solar farms in New Zealand at the moment that we're talking to about supply lines and bringing product in full. And ourselves, in our own business, we have invested in renewables. So we're just in the process of putting LED lighting throughout our whole business to help significant capital return by doing that. So -- but it's also great for the environment. We spend a lot of time and energy around efficiency of our vehicles, how we can reduce fuel use. So there's quite a lot we are doing as a distributor to try and lower our carbon footprint, as you probably saw in the charts there earlier and working with our customer base around how we can help.

[indiscernible] shareholder. I'd like to understand a little about your manufacturing. I think you said something about 60% of your business is manufacturing? Or is that processing and forming steel that you've imported? Or is it New Zealand made steel?

Yes. It's certainly more on the processing front. And so we've taken the [ wall ] steel. And then as you saw with the plate processing and that type of thing. So it's not strictly manufacturing. But we do, obviously, for making roofing, glare processing, bending a lot of rebar to go into foundations and enter to buildings, making composite floor decks out of playing steel and then rolling that so concrete, et cetera, on it. So it's much more processing rather than actual manufacturer. Mark, anything further to add?

So there was a bit of a problem with Chinese steel, probably still is [ 2 ] year ago? Are you less reliant on Chinese steel?

One of the programs that we put in place probably about 4 or 5 years ago was actually to have Lloyd's certify internationally, the steel mills, which we buy from. So they go back and look at all their quality systems and processes. They go back and have a look at their environmental practices, have a look at their labor practices to make sure that those are actually up to standard and they're not breaking any labor laws, environmentally true. But we don't buy a huge amount from China, more from the likes of Taiwan. Mark, anything to add further?

Is there any New Zealand steel being manufactured still?

Yes. Yes. absolutely...

Yes. About 40% of our steel procurement comes from New Zealand, ever, New Zealand Steel or Pacific Steel, who are the 2 main suppliers. So they actually are a primary producers, so they make iron bullet and from iron sands and produce steel in New Zealand. And then there are other suppliers in Australia and through the region that Susan see Thailand, Korea or other key suppliers for us. So we're by about 60% from offshore, including Australia and then 40% locally.

Okay. So last question is. How are you positioning yourself to the challenge of Vulcan Steel?

I'll take that one. They've been around for a long time.

Yes. Actually goes to your first question around manufacturing and processing. We have, as Susan said, our infrastructure businesses that makes up about 40% of our business and then 60% is distribution roughly. So the infrastructure businesses are involved in processing and some light manufacturing. Distribution, typically, we haven't added a lot of value to those products, so moved up the value chain. The competitor you mentioned, they probably most like our distribution business. They don't do a lot of the infrastructure products business as we do. Of our distribution business, including coil and [ pullings ], we probably process about 10% of those products. So we're adding more value and services to them. where the competitor you mentioned would be processing cost of 50% of their products. So for us, which is why that strategy is really the second part of our strategy around higher-value product services is key for us is growing that percentage of added value to those products is really critical. So we -- our ambition also follow that sort of profile because it means a better margin profile for the business. And you'd have seen in the earlier charts, our focus on margin growth is just critical because our cost, you can knock them around as much as you can, but you get them into a pretty race position which we're in, really, the game is then around growing those gross margin dollars, and that's what we as a team very focused on. So that's probably the main answer to your question.

Thank you. I think you deserve and congratulations and [ products ] for the excellent initiatives and care you take with your employees, the various statistics on well care and diversity, et cetera, I think outstanding. But -- and they are obviously the basis of all the work you do. But I think it's very interesting the move to digital and obviously critical and it must affect all aspects of your work. Now do you have problems finding people who are already qualified in that area? Or do you have to provide the training yourself because it's employed throughout the whole of your work, isn't it?

We did focus on digital early on, and we were very lucky to attract Mike Hendry to the business, who is our Chief Technology Officer and in charge of all our digital. But you're absolutely right. It has meant a lot of reskilling across the business. And in the digital area, what we've done is we have a really core team who understand our systems and processes, et cetera, and our digital platforms. but we also bring in consultants to assist us from time to time because you wouldn't want to hold and have on staff, the number of people that we need when we're doing significant projects and implementation. And then an answer is, of course, it has been reskilling and retraining the entire workforce really because they're all impacted by the use of technology, but not only our workforce, we've had to train and upskill our customers as well because a lot of them were not used to using online platforms. And so that's been training them and working with our customer service people to help our customers understand how they can interact with us digitally, how they can find their invoices online, how they can get their certificates online, all those things, which actually make our customers more efficient and more effective.

And does the apprenticeship scheme include training young people in this technology or not?

Anne, why don't you take the question on that?

Sure. So we don't -- it's mostly our internships is probably the equivalent that we focus on. And absolutely. So I think for any of our new entrants that are coming in from either schools or from tertiary education, it is absolutely part of their training as digital and digital literacy.

Questions from shareholders?

Yes. A couple of -- this is the first meeting I've been to since COVID. But a couple of years ago, your fellow seems to hit the wall and no dividends and did fundraising. What were the main reasons for that?

I think it's and initially when Mark, myself and Steve and [ Kristen ] we all came into the business. It was burdened with really high debt, has done quite a few acquisitions. They hadn't really been integrated into the business. So we weren't getting the value of those and they didn't have a lot of systems and processes to actually understand what the inventory was, where it was held, what the pricing should be, what would have been bought at. So we had to do a lot of investment both in refreshing whole management team, investment in technology, which has really allowed us now to actually understand the business, more know what we should be buying, now what we should be charging for it, integrate onto 1 platform, things like the different businesses that we had bought over the years to make sure. Again, we could understand them. But again, with having the right information, we can still service all our customers. So we've done a lot of taking costs out of the business, which Mark mentioned, but it's also in managing inventory, buying the right stuff finding the right customers, having better customer service that has really benefited us in the turnaround.

My name is Michael Connor. I'm a shareholder. May I say you've done an excellent job in restructuring this company really, really good. And what's presented today is fantastic. If the dividends are imputed at 100%, which sounds like they're going to be, that's going to be 13% yield, and your earnings ratio of 7 is really low. The market doesn't believe you. This is the issue for the company. There is no love. There's none. And so carry on doing the work, magnificent, but we still got a profile issue. The question is about the steel is still the issue. And I understand clearly what those issues were. And there's a lot of misconceptions about what the company did wrong. And it was fine, and it was punished, but that staying is still with you. And yet when I come to the meeting, this is really good. You need to settle up, but with the investment community because they did not buy -- the market is not buying it. Maybe we don't need more runs on the Board. But there's a big gap between what this company is worth and what it's worth at the moment.

Thank you for that feedback. I think the comments that you make are absolutely accurate. We do work quite closely and have a good investor relation program. But I think you are right, we're only just coming out of that turnaround. And now we have -- we've got some runs on the Board. We need to absolutely continue that, and we will certainly keep up with our investors relations. Mark and myself have been visiting different wealth managers and things in the last few weeks to explain our story, explain where we are, but we'll certainly keep working on the Investor Relations program. [ Anne ] this one of your front here, too.

Alan Best, a shareholder. In the annual report, the operating cash flow was negative $34.1 million. And there's a large divergence in the working capital. We understand the need for inventory buildup, and you've told us that you're focusing on that. But will we see an improvement in the $34.1 million cash flow and will we see an improvement in the stock turn?

Absolutely. Mr. Best. I'll let Richard our CFO because that's exactly the topic that we've been discussing this morning.

Excellent question. And it is something that we're very, very focused on cash. So that deficit that you mentioned the $34 million was largely funding the inventory purchases. We think that we've reached our peak on inventory, and we'd expect those to stable and slightly decline. So that should release cash flow going forward. But we look and check every dollar that goes out the door, and I would expect that to be a significantly better number going forward.

It's probably worth noting the first quarter we've been turning positive cash flow every month. So you can see that leveling of product prices has meant that we're no longer just having this ramp-up of product pricing that you've got to pay for. So it's one of the positives of sort of lifting off of pricing.

That's a real assurance. Could I ask one more thing. You mentioned and you address that 85% of steel in New Zealand is actually reprocessed. And that figure surprised me though we can understand that we're enforcing steelers, we process steel. The future, according to some of the international experts is that reprocessing will become even more important than mining. What you recon this company's measure is of the quality of steel being reprocessed still in its raw material or it's processing as compared with, you say, 85% of the national.

It's a great question. Just to be clear, even reinforcing steel. So there is no reprocess -- there is a slight amount of reprocess scrap in New Zealand but the bulk of is going off shore. So crash cars, all the scrap that comes out of our households as well as industrial steel waste is mostly sent offshore nowadays. So the electric arc closed in New Zealand in 2014. So globally, 90% recycling is more common, but in New Zealand, it's about 85%, just because a lot of it is shift offshore. That 15% is going to land waste, and that's the opportunity for us. And so we've got active projects in place at the moment to see how we could be looking at more scrap collection and more recycling ourselves because we produce scrap as well through our processing operations. So we work with New Zealand steel and others just on how we can increase our involvement and that opportunity.

One more question here.

[indiscernible], a shareholder. I would just ask whether I'm correct that in times of inflation, it would be very beneficial for the firm to hold very high inventories that, that would benefit the end result.

I'm not sure there's a tight correlation. I mean, typically, what we've seen is just as post-COVID has globally, many governments and economies have expanded coming out of COVID that there's been a real rush up of demand and supply, particularly in where 50% of steel has actually produced over 50% has consumed a lot of that and kept pricing very tight. And so there's probably been a bit of a correlation more recently with rising pricing and inflation, but I couldn't speak to whether it's globally true over the long term.

Yes, the New Zealand dollar, what's the safeguard, the financial safeguards against that, if you're using any like hedging some insurance, that's going to be a big problem could be, could fall over tomorrow? And the liquidity issues, how many on issue, I mean, there's not many on issue, you can lose 10% or 15%, just in a few thousand [indiscernible]. Does the Board thought about all those issues?

Richard, do you want to take that?

We have, sorry, we have a hedging policy where we hedge our forecast transactions going forward that has a limited life. So we do monitor the impact of FX quite closely. We are lucky that as an input into our total costs but there's also a factor in the price that we get to charge. So there's a little bit of a natural hedge there as well, but we do have an active hedging portfolio.

Are there any other questions before I move to resolutions.

I'm not sure if you have a dividend reinvestment and if you don't have 1 actively in place, are you considering doing that?

We keep them monitor all the time on our different capital management. And at the moment, we have sufficient headroom in our banking covenant. Our banking facilities. So we're not looking to raise at the moment. So therefore, we don't have a dividend reinvestment plan. But if we were looking to need additional capital or looked at that over a longer period of time, certainly it's 1 thing that we would consider.

Okay. If there's no more questions, let me move to the resolutions. These were notified in the notice of meeting and explanatory notes have been provided. Voting on each of the resolutions in the notice of meeting will be by way of poll. Only shareholders, proxy holders or corporate representatives of a shareholder may vote on today's resolutions. For online shareholders, please cast your vote under the vote tab on the meeting platform. For those in the room, please complete your voting forms. We will take questions on each resolution as output of shareholders. So the first resolution is to authorize the directors to fix the fees and expenses of KPMG as the company's auditor. Are there any questions relating to this resolution? If not, I'll move on with the next resolution. The director resolutions, John Beveridge who is retiring by rotation and being eligible is standing for reelection. Andrew Flavell was appointed to the Board last year and is, therefore, standing for election by shareholders. The Board unanimously supports their elections. The first of these resolutions is the reelection of John Beveridge beverage. John has held senior leadership positions in the construction and steel industries and has particular expertise in people and culture, logistics, supply chain and procurement, manufacturing and sales and marketing. He is a very valuable member of the Steel & Tube Board. John, I'll ask you to come and say a few words.

Good morning, everyone. My name is John Beveridge. I'm pleased to offer myself for reelection to a second term on the Steel & Tube Board. Much has changed since the beginning of my first term, and we have survived and indeed thrived through the trials and tribulations of COVID. The Board met something like 23x in that first year. and we've worked very well with management to ensure we've got to where we are today. I'm pleased to be able to contribute to the Board and to the emerging transformation of Steel & Tube. I bring 20 years of experience in steel markets from distribution to manufacture. The Board and senior leadership team is well balanced and has worked hard to improve the performance, and we have a clear strategic pathway that we are pursuing. We're very focused on results and ensuring we conduct our business in a way that is positive for shareholders, team members, customers and our planet. I'm a Board member -- board committee member of the Audit and Risk, the [ QSIC ], Quality Health, Safety team and the Lead Director on sustainability. I consider my skills and experience add to the overall competency of the Board and are well matched to continue to help create a bright future for Steel & Tube. Thank you for your consideration.

Thank you, John. Are there any questions regarding John's reelection? Or are there any questions online? The next resolution is for the election of Andrew Flavell. We were pleased to welcome Andrew to our Board in October last year. Andrew is a very experienced senior technology executive and has driven digital transformations in companies such as Nike and Microsoft. He was recently Chief Technology Officer at Plexure and the New Zealand listed -- the New Zealand listed global mobile engagement company. Andrew has a Doctor of Engineering, systems engineering, from the University of Tokushima in Japan. And has Bachelor of Engineering at Auckland University. Steel & Tube digital strategy is becoming an increasingly valuable pathway for our company, and Andrew's extensive experience dissolves significant value. Andrew, would you like to come and say a few words?

Thank you, Susan. [Foreign Language], and good morning, shareholders. I'm pleased to offer myself for election as an Independent Director of Steel & Tube New Zealand. I believe that digital technology is foundational to the success of all publicly traded companies today and that increasingly, the complexity and breadth of adoption of digital technologies requires that Boards take a more active role in the strategic direction, risk management and governance of digital initiatives. While I'm new to the steel industry, I have decades of experience in the development and deployment of digital technologies. This includes the design of supercomputer architectures and applications of AI during my doctoral research in Japan, almost 15 years at Microsoft leading large teams, delivering complex software and systems and more than 6 years as a leader in the Nike Digital team where we completely transform the way that Nike delivered its software and services. These experiences have given me a depth and knowledge and risk management and government digital initiatives and delivering successful digital transformations and in privacy, compliance and cybersecurity. As an expat Kiwi who recently returned home, I'm excited to use my extensive experience in digital here at home and for the impact I can have in shaping the digital future of Steel & Tube. Thank you.

Thank you, Andrew. Are there any questions on this resolution? The final resolution today is in regards to directors for remuneration. This is the first time that we have come to shareholders to seek an increase in director fees in 5 years. There has been significant change in the organization since 2017 as we have moved through a period of resetting to now deliver record sales and EBITDA with a strong foundation for growth in place. In addition, over the past 5 years, regulatory and legislative requirements have also increased. This added regulatory oversight and the increasing demands of the business are reflected in the knowledge and experience required of directors as well as time commitments. As noted in the Institute of Directors' report, directors' time commitments are at the upper quartile of comparator companies. Steel & Tube Governance Committees for audit and risk, quality, health, safety and environment and people and culture play an important role in the risk management and oversight. We take our responsibilities in these areas very seriously and are very aware of the reputational damage and impact on the short share price should issues in these areas arise. Our reputation and strong value proposition are also really important in attracting and retaining staff. All of Steel & Tube's directors are passionate about the business, its success and delivering sustainable value for shareholders. We aim to ensure fees are at a level to attract and retain experienced directors with the appropriate skills and expertise to govern the company. The Board engaged the Institute of Directors in New Zealand to undertake an independent benchmarking review and assessment of appropriate direct fees. A summary of the IOD director fee report has been provided in the explanatory notes of the meeting. The Board is proposing an increase of $67,500 to the current fee pool. This is in line with Institute of Directors recommendations and represents an annual increase of 2.3% per year over the last 5 years. Are there any questions on this or any questions from online.

There's no online questions.

Thank you, Jackie. This concludes our discussion on the resolutions. In a minute, I will close the online voting system. Please ensure that you have cast your vote on all resolutions. I will now pause to allow you time to finalize those votes and in the room for those forms to be collected. [Voting]

I think everybody has had sufficient time to vote. They will still keep collecting your forms. We will now close the online voting. The results of the voting will be posted to NZX as soon as practicable. Is there any other business that shareholders would like to raise? I will then declare the meeting closed. Thank you to all shareholders for your continued support. We remain committed to realizing the potential of our business and delivering value on your investment. For those of you in attendance today, we welcome those to join us and have some refreshments. Please feel free to come up and speak to any of the Board or our management team. It's very nice that you've been able to join us in person. Thank you very much.