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Seven has resources to counter asset loss

SEVEN GROUP HOLDINGS' results are a mess not because they are bad, but because the structure of Kerry Stokes's controlled investments in media and in earthmoving have changed so much twice in two years that comparisons are hard.

SEVEN GROUP HOLDINGS' results are a mess not because they are bad, but because the structure of Kerry Stokes's controlled investments in media and in earthmoving have changed so much twice in two years that comparisons are hard.

On numbers Seven has to provide to the market, trading revenue was up 488 per cent to $3.16 billion, yet trading profit after tax was down 90 per cent to $80 million. Neither figure properly indicates the performance of two wildly different businesses.

The good news: WesTrac, its Caterpillar earthmoving business in NSW, Western Australia and China, is riding the mining boom well - particularly in coal and iron ore. Revenue in Australia was up 38 per cent and, in China, 12 per cent, the latter a result affected by the strong dollar.

Overall, earnings for WesTrac before interest and tax were up 52 per cent to $233 million.

Seven Group expects things to continue that way, and is spending big on new service centres and inventory to meet demand this financial year. It is in talks with Caterpillar to distribute heavy equipment made by its newly-bought Bucyrus.

The bad news: the slump in media share prices has forced it to write down the value of its stake in Seven West Media - the old West Australian Newspapers entity that bought the Seven Network earlier this year - by about $239 million. It has also written down its quarter-stake in Consolidated Media - the James Packer-controlled owner of a half stake in Fox Sports and a quarter of Foxtel - by $67 million.

Since the end of the financial year, media stocks have dropped further, and the chief executive, Peter Gammell, warned of further write-downs should share prices still be bad in December. But he expected things to improve and the company "remained confident" in its media business.

It is carrying a lot more debt than it did a year ago - $837 million without derivatives - due to its purchase of stakes in the Agricultural Bank of China and the Seven West Media transaction and after increasing its working capital in WesTrac. But Mr Gammell said that did not constitute a problem for Seven Group.

If significant one-off items were excluded, net profit after tax would be $248 million. To get an idea of the performance of its businesses without the turmoil of restructures, Seven Group compared its first full results with what the numbers would have looked like had the deal been done a year earlier.

On this measure, revenue including other income was up 35 per cent across the group to $3.37 billion and earnings up 95 per cent to $353 million before interest and tax, although profit before tax was down by 78 per cent to $32 million, due largely to those write-downs of media assets.

Seven Group shares closed at $8.56, up 6 per cent, still down from about $8.70 at the start of the year but well up from about $6.10 a year ago.


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