Like competitors, such as Australian Foundation and Mirrabooka et al, Sydney-based listed investment company Milton Corp. was hit by the downturn in the market in 2009 which caused impairment losses and lower earnings.
But the underlying result was only down a credible 11%, which was much better than the 59% slump after taking into account the one off items, or the 20% fall in the value of the local market in 2008-09.
But the market yesterday saw through the accounting moves and pushed the shares up 44 cents higher to $16.12.
But like its rivals, Milton can’t give shareholders an idea of what 2010 looks like until it sees how the companies it invests in perform in the current reporting season, especially the level of their dividend payouts which are under pressure in many cases.
Milton said underlying operating profit after tax for the year to June 30 was $73.6 million, down 11.1% from the $82.8 million earned in the previous year.
Net profit after tax was $50.0 million for the year ended 30 June 2009 which included special dividends of $0.9 million (2008: $4.5 million), net realised losses from the disposal of investments of $1.8 million (2008: gains of $34.7 million) and net impairment losses of $22.6 million (2008: Nil).
The impairment losses made a mess of the final figure, as it did at AFI and the other investment companies associated with Goldman Sachs JBWere.
Milton’s realised gains from the takeovers of St George Bank and Just Group in the year were offset by losses realised from the disposal of investments that no longer met Milton’s investment criteria.
The company pointed out that the net impairment losses taken in the year were "unrealised accounting expenses, which have no effect on Milton’s net asset backing as the company revalues its investments to market value continuously."
Milton’s managing director, Mr Frank Gooch said in the profit statement, “The result, which is in line with the profit outlook announced to the market in April 2009, was affected by reduced ordinary dividend and distribution income from the long term investments portfolio.
"As credit conditions tightened, particularly in the second half of the year, many companies reduced their dividends to strengthen balance sheets.
"Distributions from the investments in the property and infrastructure sectors were also impacted by debt reduction strategies, such as new issues and lower distributions.”
“Annual net interest income reduced by 27% to $4.7 million as lower interest rates took effect, particularly in the second half of the year,” Mr Gooch added.
Milton said it realised trading profits of $1 million, as it took advantage of opportunities that arose with the significant number of substantially discounted share issues during the year.
The directors have declared a lower fully franked final dividend of 35 cents a share.
This brings the fully franked, full year ordinary dividend to 78 cents per share, 11% lower than the record full year ordinary dividend for the 2008 year.
Milton’s investment portfolio was valued at $1.3 billion at the end of the financial year.
Milton said it invested $20 million during the year, and in February 2009 it acquired an unlisted investment company with a portfolio that was valued at $38 million.
"The level of on-market purchases reduced in the second half as the outlook for earnings and dividends became increasingly uncertain and the level of discounted share issues increased.
"Milton invested $10 million into these issues. The larger additions to the portfolio over the year were BHP, Woolworths and Rio Tinto,” the company said.
The company said its total portfolio return for the 10 years to June 30, 2009 was 9.4% a year compounded.
The company’s largest investments include Westpac, Commonwealth Bank, National Australia Bank, BHP Billiton and Washington H Soul Pattinson.
Lihir Gold had some good news for shareholders yesterday; it said it achieved record production of 612,000 ounces of gold in the June half year and remains on track to meet earlier full year production guidance of between 1 million and 1.2 million ounces.
Lihir said in its second quarter production report that first half production was up 10% from the 566,000 ounces produced in the six months to December, 2008 and the 316,300 ounces in the first half of 2008.
That will partly repair the damage done to management’s image with shareholders by the expensive Ballarat goldfields play which could cost the company over $350 million in losses.
The irony yesterday was that the gold output boost reported came from a more successful deal: the mines that came with the takeover of Equigold in the middle of last year which boosted output, especially the Mount Rawdon and Bonikro mines.
"The strong result was due to record production at Lihir Island in PNG, increased output at Mt Rawdon in Queensland, and a full six month contribution from the Bonikro operation in West Africa, which commenced production in October last year," the company said in the production report yesterday.
Lihir said cash costs were $US368 per ounce for the June quarter, excluding Ballarat, up "marginally" but still in a "low cost position".
Operating margins remained strong in the June quarter, benefiting from high gold prices
