We had another good example of the two speed nature of the current reporting season yesterday with emerging nickel miner, Western Areas confirming that it enjoyed a sharp rise in profits in the December 31 period, and medium women’s wear retailer, Specialty Fashion Group revealing a 37% drop.
It echoes last Friday’s results from Newcrest (big profit surge) and sales update from Harvey Norman(sales weak or easing).
Western Areas revealed plans to boost its 2010-11 production after posting a substantial rise in first half revenue and net profit that was up five fold to $67.2 million from $10.7 million in the previous corresponding period
The company also increased its interim dividend to 10 cents a share, unfranked, compared to 3c a share for the first half of 2009-10.
The shares were up 4.1%, or 26c at $6.52.
Revenue from nickel sales jumped to $230.9 million, from to $85.5 million previously as production rose and prices rose strongly.
The company said production from its Flying Fox and Spotted Quoll mines in Western Australia’s Forrestania region was 16,261 tonnes, compared to 3791 tonnes for the first half of 2009-10 and 10,020 tonnes for the second half of that financial year.
"Strong demand from Jinchuan for nickel concentrate resulting in 6,785 tonnes of nickel in concentrate being exported from Esperance Port in the six months to 31 December," the company said.
“The strong improvement in output prompted the company to increase its production forecast for the current financial year by 16% to about 29,000 tonnes, from 25,000 tonnes.
"We have substantial drilling programs underway or planned at our main nickel deposits of Flying Fox, Spotted Quoll and at the proposed Diggers South mine, with the target to push mine life out past 10 years," managing director Julian Hanna said in yesterday’s statement.
"Encouraging results are being received from a number of areas and these will be announced later in the March quarter,” he said.
The company said that "March Q 2011 mine production to be higher than planned but lower than Dec Q 2010 production due to substantial development work in both mines. Strong production is scheduled in June Q 2011 as high grade areas are accessed at Flying Fox T5."
Western Areas said it had total cash plus receivables of $167.7 million at the end of December and strong projected cashflows.
This meant it had sufficient funding for planned growth, capital expenditure, exploration activities, bond repayment obligations and potential future dividend payments over the foreseeable future.
The company has a policy of returning half of its net profit to shareholders in the form of dividends.
At Sydney-based Specialty Fashion Group a different story, though the lower profit was on the cards after the company said in January that sales had been weaker in the second quarter and the six months.
The company said yesterday that the first half profit fall was due to a very difficult trading environment and heavy discounting, and says apparel retailers face "a new headwind" in rising input costs from China.
Specialty reported net profit for the six months to December 31 of $16.803 million, down 36.9% from $26.634 million in the first half of 2009-10.
Revenue fell 1% to just over $308 million after same store sales fell 3.8% in the half year. That was down sharply from the 8% plus rise in same store sales in the December half of 2009.
Despite the drop, directors declared an unchanged fully franked interim dividend of four cents a share.
The company said earnings before interest, tax, depreciation, impairment and amortisation fell nearly 24% to $34.6 million.
Chief Executive Gary Perlstein said despite flooding in Queensland, customers were spending more in the first six weeks of the second half and less discounting was necessary.
But he said it was too early to form a view about trading in the second half.
"There is a new headwind that the apparel retailers will have to manage, being the inflationary impact of higher yarn prices and increasing Chinese labour costs," Mr Perlstein said in the statement.
He said the Australian consumer had become accustomed to price deflation over a number of years so retailers would find it "challenging" to pass increases in product costs on to consumers.
Product differentiation would become even more important in the future, he said.
Despite the lower profit the company has a strong financial position with nearly $17 million of cash, no debt and a $100 million undrawn debt facility.
Despite this strength, the market didn’t like the news and the shares fell 6c or 4.7% to $1.20, but then recovered to end unchanged at $1.26.
