Investment Matters

Company profit reporting: BHP, Pact, Southern Cross & more

Company profit reporting season continued this week.  Overall, the results were quite good.  The final six results for companies in clients' Australian shares' portfolios are to be released next week.

BHP Billiton

BHP delivered a significant step-up in profit.  This was expected given the strong commodity price increases over the last year. 

Price increases were particularly strong for iron ore (+28% increase in realised price vs pcp) and both metallic coal (+118% HCC) and thermal coal (+51%).  Lesser but nevertheless meaningful increases also occurred for copper (+14%) and oil & gas (+7% petroleum, +19% US natural gas).  The result really shows the high operational leverage (influence of commodity prices) on the business.

Production of iron ore and metallic coal increased by 4% and 1% respectively.  Total petroleum production increased 15%.  Thermal coal production decreased 4%, and copper production fell 7% due to decreased volumes and lower grades at different operations.

BHP's revised dividend policy was enacted - with 30cps provided from the 50% payout ratio, and a 10cps bonus dividend, to total 40cps.  This was higher than expected.

The company's debt reduced from $26.1b to $20.1b.  Whilst gearing is currently comfortable at 24.3%, we expect further debt reduction in coming periods.

BHP

Pact Group

Although Pact's underlying volume growth - including production of containers for the troubled NZ dairy sector - was down, it achieved a very reasonable result.  Food and beverage also had weaker demand, along with destocking from the health and wellness sector.   

Efficiency measures,  along with past acquisitions, resulted in a profit increase (+19.9%) - which flowed through to an increase in dividend (+15%).

In relation to the company's outlook, Pact indicated that it expects to grow both revenue and underlying profit in FY-17, as compared to FY-16 (subject to global economic conditions).

Pact also announced the acquisition of Pascoe's Group.  The company is one of Australia's largest contract manufacturers of aerosol and liquid based consumer products.  The acquisition expands Pact's contract manufacturing business, and provides diversification from Pact's packaging heritage.

Pact

Southern Cross Media

Southern Cross' result was rather complex because of a number of one-off revenue items (for example, the ATN (Australian Traffic Network) deal in H1FY-15, gain on the disposal of DMD in H1FY-16), and accounting changes associated with underlying operational changes (for instance, the way the sales force is structured).  The change of regional TV affiliate from Ten to Nine is also washing through.  Overall the financial results were in line with expectations, but not as strong as would appear from the table below.

Given the accounting complexities mentioned below, a focus on the underlying EBITDA (earnings before interest, tax, depreciation and amortisation) is warranted.  This increased 1.3% vs the pcp to $92.6m - a reasonable result given the difficult advertising market.

The dividend was higher than expected, increasing 15.4% over the pcp.

Breaking down the result to division level, Metro (city) Radio grew revenue 7.1% excluding one-offs in FY-15, and earnings increased 4.0%.  Regional Radio & TV had a strong increase (+24.7%) in revenue, driven by the new Nine affiliate agreement.  Revenue was down, as the affiliate agreement has lower margins, and there were one-off costs associated with the transition from Ten to Nine (including $1.4m of rebranding).  We expect the financial performance of the regional TV business to improve in coming periods.

In relation to the outlook, Southern Cross indicated that it expects H2 EBITDA to the higher than H2FY-16, and FY-17 results are to be at the lower end of the guidance range ($177m to $183m).

The company also advised it is selling 45 transmission sites, with the proceeds to be used to re-invest in opportunities such as digital media and sales tools.

Southern Cross

360 Capital

360 Capital's statutory profit was impacted (positively) by the one-off sale of the management rights for 360 Capital Industrial Fund and the 360 Capital Office Funds to Centuria.  However, even on an underlying basis the results were good, with a 20.5% increase on operating profit, and a 24.2% increase in operational EPS.   

The distribution increased 4.0% vs the pcp, to 3.25cps.  Net tangible assets (NTA) per security is now 93.0cents.

360 Capital reaffirmed its guidance of a 6.5cps distribution for FY-17.  A security buyback is also in place, with 10.4% of the Group's securities brought back since 31-Dec-16.

360 Capital's market cap is $209.7m (at the security price of 87.5cents).  360 Capital has $97m net cash, and $109m in receivables owing from Centuria.

360 Capital Group