Two results out this week provide contrasting pictures for the companies concerned, one of which is in an asset swap deal and the other subject to takeover speculation.
Smorgon Steel Group which is proposing an assets split of sorts with OneSteel showed why it was such an attractive candidate, while Symbion showed why it is the takeover candidate in the healthcare sector with a sluggish set of numbers.
Firstly Smorgon Steel (SSX) which reported a 24 per cent lift in first half earnings and says it sees no material change in trading conditions going forward (that’s assuming nothing happens with OST).
The scrap metal recycler and structural steel group said net profit for the half year to December 31 was $75.30 million, up from the $60.5 million recorded in the first half of 2006.
Underlying net profit, after adjusting for non-recurring items, was $64.2 million, up a more sedate 6.1 per cent but still better than inflation.
Smorgon said the result followed strong growth in revenues largely due to metal recycling with “Trading conditions in the first half challenging (and) lower margins reported in all segments of the business.”
CEO, Ray Horsburgh said that” Overall, we do not see any material change to the trading conditions we experienced in the first half of 2006/07.”
He said the local manufacturing sector had generally performed better in the most recent six months than in the first half of fiscal 2006 (a point borne out by yesterday’s latest PMI survey for February) from the Australian Industry Group.
“Mining production around the world is expected to continue to remain healthy, and as a result we expect continued demand for our rail wheel and grinding media products,” he said.
“Demand for recycled scrap metal is also expected to continue at high levels.” Imported steel products continue to grow and now have a significant presence in most product segments.”
Smorgon’s sales revenue for the year was $1.9 billion, up 25 per cent and SSX has declared an interim dividend of five cents, up from four cents last time. The shares ended yesterday up 5.5c at $1.95.5
On the proposed OST deal the company said
“As announced to the market on 2 February 2007, Smorgon Steel and OneSteel have decided to pursue their proposed merger via a new transaction structure. This decision was taken because Smorgon Steel was unable to be satisfied that the originally proposed Scheme of Arrangement would not be blocked. Under the new transaction structure, Smorgon Steel will sell to OneSteel all its operating assets except for its steel and metals distribution businesses.
“Smorgon Steel will receive OneSteel shares as consideration for the sale, and will distribute those shares to its shareholders.
“Smorgon Steel will continue as a listed, specialist metals distribution company with a strong balance sheet and sound growth prospects. Smorgon Steel shareholders will, on completion of the transaction, own shares in Smorgon Steel and OneSteel. Separately, Smorgon Steel has indicated that it will pay a special dividend of 6.2 cents per share, fully-franked.
“Because of the need to obtain ACCC approval for the new transaction structure and satisfactory rulings from the ATO, we do not expect to be able to convene a meeting of shareholders to consider the transaction before late April 2007”, said Ray Horsburgh.
“Smorgon Steel and OneSteel have also agreed to form a joint venture for the manufacture of structural pipe and tube, in order to bring forward some of the synergy benefits from the merger.
“The joint venture proposal has been reviewed by the ACCC who have announced they will not intervene in its formation. Activities have been commenced to implement the joint venture at the earliest feasible date.”
No mention of the $320 million gorilla on the share register, BlueScope Steel which again indicated its displeasure this week at the SSX-OST deal and its being locked out of the final carve up.
There’s more to come on this yarn.
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Healthcare group Symbion Health says is expecting earnings growth for the 2007 full year to be broadly in line with the 16 per cent growth achieved in the first half.
Symbion on Wednesday reported a first half net profit of $56.9 million. Earnings before interest and tax (EBIT) lifted 15.9 per cent to $94 million in the latest half and SYB said in a release that key financial information for the continuing business includes:
“A 10.0% increase in revenue to $1,876.5 million; a 15.9% increase in EBIT to $94.0 million; EBIT is now reported on a pre-securitisation basis.
“A change in accounting policy during the period resulted in the reclassification of the pharmacy debtors securitisation charge to a financing charge, a 0.5% decrease in NPAT to $46.9 million as a result of higher financing charges incurred in 1H07; Expect FY07 growth in pre-securitisation EBIT to be broadly in line with the 16% growth achieved in 1H07. ”
Symbion said that its pathology division would supplement organic revenue growth with bolt-on acquisitions, and margins were expected to further improve.
Momentum in the pharmacy division was expected to improve, with the focus on new business underpinning revenue growth.
Analysts said the pharmacy business was solid with good margin growth in a result which was flat to disappointing.
Three leading analysts have downgraded earnings for the full year in the wake of the interim
Symbion’s consumer division, which supplies vitamins and mineral supplements, would continue to grow revenue via a differentiated branding strategy and bolt-on acquisitions. Analysts said this division did well.
The company said no major changes in industry conditions are expected for the imaging division in the second half, but underperforming sites would be consolidated or closed.
The medical cent
