Mining a boost for Seven

SEVEN Group Holdings chief executive Peter Gammell says the media and earthmoving equipment company is on track for buoyant full-year earnings because of Australia's mining boom.

By InvestSMART · 1 Mar 2012

By InvestSMART ·
1 Mar 2012

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SEVEN Group Holdings chief executive Peter Gammell says the media and earthmoving equipment company is on track for buoyant full-year earnings because of Australia's mining boom.

The Kerry Stokes-controlled Seven Group reported statutory net profit for the six months to December 31 of $52.14 million, down 57.8 per cent from the previous corresponding period.

The result was affected by write-downs on Seven's media assets. But on an underlying basis, which excluded write-downs, total group first-half net profit rose 33 per cent to $169.3 million.

Also, the company was keen to stress that comparisons with the previous year were difficult given the changes in company structure over the past year.

Seven West Media was formed after a $4 billion takeover of Seven Media Group by West Australian Newspapers Holdings in February last year, which created the country's largest media company.

Mr Gammell said the write-downs were due to Seven West Media's share-price deterioration towards the end of calendar 2011. But he said the recent share-price recovery, if not reversed, would see the majority of the impairment charge likely to be reversed in the second half.

The underlying result was above market expectations and led to Seven Group shares closing up 33?, or 3.8 per cent, at $8.99, the highest close since August.

Mr Gammell said underlying net profit, before significant items, for the full 2011-12 year was forecast to be 20 to 30 per cent higher than the previous year.

"WesTrac has continued to trade strongly, particularly in Australia," Mr Gammell said during the company's first-half results presentation. "At present, we continue to be confident that the year should be another good year for growth, both in Australia and China, although the growth for China will be less strong than in previous years."

Demand for resources led to Seven Group's WesTrac posting a 67 per cent lift in earnings before interest and tax, driven by coal and iron ore mining. WesTrac is the Caterpillar dealership in Western Australia, New South Wales/ACT and parts of China. It also owns National Hire and Allight Sykes and is a 46 per cent shareholder of Coates Hire.

Seven Group declared a fully franked interim dividend of 18? a share. AAP

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Frequently Asked Questions about this Article…

Why did Seven Group Holdings report a big drop in statutory profit despite strong underlying results?

Seven Group's statutory net profit for the six months to December 31 was $52.14 million, down 57.8% from the prior period because the result included write-downs on its media assets. On an underlying basis that excludes those impairment charges, first-half net profit actually rose 33% to $169.3 million.

What were the write-downs on Seven West Media and can they be reversed?

The write-downs were triggered by a deterioration in Seven West Media's share price towards the end of calendar 2011. Management said the recent share-price recovery could mean the majority of that impairment charge is likely to be reversed in the second half — provided the recovery is maintained.

How has Australia’s mining boom helped Seven Group’s performance?

Demand from the resources sector boosted WesTrac, Seven Group’s equipment arm, with a 67% lift in earnings before interest and tax driven by coal and iron ore mining activity. Strong mining demand underpins growth for Seven’s equipment and hire businesses.

What is WesTrac and how does it contribute to Seven Group’s earnings?

WesTrac is Seven Group’s Caterpillar dealership operating in Western Australia, New South Wales/ACT and parts of China. It posted a 67% increase in EBIT, reflecting strong trading in Australia and solid, though slower, growth in China.

Which equipment hire and services businesses are part of Seven Group?

Seven Group owns National Hire and Allight Sykes and is a 46% shareholder in Coates Hire, in addition to operating WesTrac. These businesses tie Seven to equipment sales and hire demand driven by mining and construction activity.

What dividend did Seven Group declare for the half-year?

Seven Group declared a fully franked interim dividend of 18 cents a share for the six months to December 31.

What is Seven Group’s full-year earnings outlook?

Management forecast that underlying net profit before significant items for the full 2011–12 year would be 20% to 30% higher than the previous year, with continued growth expected in Australia and China (although China’s growth is expected to be less strong than in prior years).

How did investors react to Seven Group’s first-half results and what happened to the share price?

The stronger-than-expected underlying result led to Seven Group shares closing up 3.8% (to $8.99), the highest close since August, reflecting investor confidence in the company’s underlying earnings and mining-linked exposure.