Seven Group sees flat earnings as coal sector cools
SEVEN GROUP HOLDINGS has blamed a subdued coal sector in NSW for a cautious outlook that includes flat underlying earnings for the present half-year.
The company reported on Tuesday that net profits for the six months to December 31 increased 590 per cent to $258 million.
The strong result was powered by WesTrac - Seven's Caterpillar franchise in NSW and Western Australia.
The continued strength of the resources boom helped product sales in 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.
"The first-half group result was exceptional and was driven by some significant large fleet deliveries at WesTrac," the Seven Group chief executive, Peter Gammell, said.
"The second half will not see this level of product sales and we are therefore not anticipating as good a half."
He said earnings would be flat this half and underlying group net profit for 2012-13 would rise between 10 per cent and 20 per cent from $343 million in the previous financial year.
Seven said underlying profit after tax increased 39 per cent to $235 million for the December half.
Mr Gammell said the main issue was the difference between the recovery in the iron ore 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," he said.
It is not just in NSW that WesTrac is under pressure.
Seven signalled trouble at WesTrac's Chinese operations at last year's annual meeting, with costs being cut in line with falling sales. For the December half, Seven said revenues were down 28 per cent and the business was achieving break-even at the earnings before interest and tax (EBIT) level.
Mr Gammell said he expected the business to return to profitability this half.
Earnings for the December half also received a boost from the sale of Seven's stake in Consolidated Media Holdings to News Corp for $491 million. The group reported a gain of $50 million on the sale.
The sales proceeds and strong cash flow helped reduce Seven's debt from $1.72 billion to $837 million.
The sale of ConsMedia 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 investments accounted for less than 20 per cent of group earnings.
The potential sale of Seven's 45 per cent share of the Coates Hire Group - which it co-owns with the Carlyle Group, a private equity firm - continues. Goldman Sachs recently sent an information memorandum to interested parties.
"This process is still ongoing," Mr Gammell said.
Seven increased its fully-franked interim dividend by 2¢ to 20¢ a share.
The shares gained nearly 4.6 per cent to finish at $10.51.