Caterpillar powers Seven profit
Seven Group Holdings blamed a subdued coal sector in NSW for a cautious outlook, which includes flat underlying earnings for the current half year, after reporting that net profits for the six months to December 31 increased 590 per cent to $258 million.
The strong result was largely powered by Seven’s Caterpillar franchise in NSW and Western Australia - Westrac.
The continued strength of the resources boom saw product sales for the heavy machinery business jump 87 per cent to $1.68 billion for the December half while earnings before interest and tax rose 63 per cent to $275 million.
Shares of the company rose 40 cents, or 4 per cent, to $10.45 in afternoon trade.
‘‘The first half group result was exceptional and was driven by some significant large fleet deliveries at Westrac,’’ said Seven Group chief executive Peter Gammell. ‘‘The second half will not see this level of product sales and we are therefore not anticipating as good a half.’’
He said earnings will be flat for the current half and underlying group net profit for the 2013 financial year will be up approximately 10 to 20 per cent on 2012’s $343 million result.
Seven reported that underlying profit after tax increased 39 per cent to $235 million for the December half.
Mr Gammell said the main issue is the difference between the recovery of the iron sector - in line with recent gains in the price of ore - and the subdued outlook for coal which dominates Westrac’s NSW business.
‘‘The confidence in the iron ore sector has definitely returned whereas in the coal sector the same cannot be said, it is looking very flat,’’ Mr Gammell said.
NSW is not the only Westrac business under pressure.
Seven flagged trouble at Westrac’s Chinese operations at last year’s AGM with cost being cut to match falling sales.
For the December half Seven said revenues were down 28 per cent and the business was break even at the EBIT level.
Mr Gammell flagged a return to profitability for the business in the current half year.
Earnings for the December half also got a boost from the sale of Seven’s stake in Consolidated Media Holdings to News Corp for $491 million with the group reporting a gain on the sale of $50 million.
The sales proceeds, and strong cash flow, helped reduce Seven’s debt from $1.72 billion to $837 million.
The sale of CMH further reduces Seven’s media investments to its 35 per cent stake in Seven West - the owner of the Seven network and West Australian Newspapers - and a smaller stake in Prime Media.
Last year its media investment’s accounted for less than 20 per cent of Seven Group earnings.
The potential sale of Seven’s 45 per cent share of the Coates Hire Group - which it co-owns with private equity firm the Carlyle Group - continues, with Goldman Sachs recently dispatching an information memorandum to interest parties.
‘‘This process is still ongoing,’’ Mr Gammell said.
Seven increased its fully-franked interim dividend by two cents to 20 cents a share.