Profits: Four Good Results Win Markets

Four profits yesterday from companies of varying sizes illustrate the current state of the Australian economy, and where the profits, revenue growth and pain are occurring.

The four companies selected - Flight Centre (ASX:FLT), iiNet (ASX:IIN), Fantastic Furniture (ASX:FAN) and Monadelphous Group (ASX:MND) - all lifted interim payments to shareholders and saw strong rises in the value of their shares which easily topped the 0.8% rise in the wider market.

We already know that most resources companies - from BHP Billiton, to Rio Tinto, OZ Minerals and oil groups like Santos, and Oil Search yesterday - are doing well.

So are mining services companies, engineers and contractors (as the Downer result showed, see story below) and Monadelphous Group, a Perth based contractor, which reported yesterday.

The internet is wreaking great change on businesses of all types, from retail to services, health and education. The rapidly growing iiNet yesterday produced a solid first half result.

Retailing is a minefield, but it's not a black hole, as many investors still think.

Fantastic Furniture turned in some decent figures yesterday to underline the point that well run retailers prepared to take tough decisions in tough times, can be successful.

And then there's overseas travel which is all about rising disposable income, thanks to the resources boom, and the sustained strength of the Aussie dollar.

That's Flight Centre's performance in a nutshell and yesterday it reported a double-digit lift in first half net profit and upgraded profit guidance for the full year.

The travel agency group said net profit for the six months to December 31, 2011, was $81.6 million, up 15.7% from the first half of the 2010-11 financial year.

Total transaction value, or sales from airline and accommodation bookings, rose 9% to $6.18 billion, Flight Centre said in its profit statement yesterday.

Earnings before interest, tax, depreciation and amortisation rose 13.4% to $137.5 million from $121.3 in the previous corresponding half.

The group boosted interim dividend to 41c a share from 36c, a move supported by the solid outlook for the rest of the year with the upgraded profit guidance.

"Growth of this magnitude is a sound achievement for a company of our size and given the economic uncertainty in some regions," Flight Centre managing director Graham Turner said in the statement yesterday.

The company said the "solid" start to 2011-12 was built around a strong first quarter globally.

"Growth slowed in Australia during the second quarter, before rebounding in January," Flight Centre said.

In terms of current trading, Mr Turner said profit before tax (PBT) for the first seven months of 2011/12 was "in the order of 20-22 per cent higher'' than during the previous corresponding period. It was also above the company's initial full-year target of between 8% to 12% growth.

''In light of our position after seven months' trading, we believe it is appropriate to increase our full year profit target from the initial $265 million to $275 million range,'' Mr Turner said.

''We will now target a PBT between $270 million and $290 million, excluding any major abnormal items that may arise and assuming stable trading conditions.''

That would be an improvement of 10 to 18% in pre tax earnings of $245 million achieved in 2010-11.

"Reaching our new full year profit target will not be a formality," Mr Turner cautioned.

"Economic conditions are volatile in some regions and we will need to build on the record second half result achieved last year."

Flight Centre said the grounding of Air Australia after the airline entered voluntary administration was expected to cost the company up to $1 million.

The company's shares jumped 3.7% or 77c to $21.50.

iiNet reported a 17% lift in interim net profit for 2011-12 to $14.4 million, from $12.3 million in the first half of in 2010-11.

That would have been higher at $16 million but for the cost of the ongoing copyright case between iiNet and representatives of Hollywood studios, which is now awaiting a High Court decision

iiNet said in its statement revenue was up 11% to $365 million and EBITDA jumped 36% to $56.4 million for the December half year.

Interim dividend was lifted 20% to 6c a share (up 1c), fully franked, for the half.

The company said its customer base increase was aided by two large acquisitions during the period. iiNet recently purchased Canberra's Transact Network and Adelaide-based Internode, which has customers across the country.

iiNet gained 40,000 from Transact and 190,000 customers from Internode, taking the total number of subscribers to 860,000, who are paying for a total of 1.7 million services.

Chief executive Michael Malone said in yesterday's statement that the company was ready for the roll-out of the national broadband network and would take advantage of a recent regulatory decision which lowers the cost of buying Telstra wholesale broadband services.

"The recent acquisitions of TransACT and Internode have been key in building further scale, and taking iiNet's broadband market share to around 16 per cent.

"These acquisitions further build out iiNet's national footprint, providing market leading presences in South Australia, ACT and regional Victoria," Mr Malone said.

iiNet sells broadband, fixed and mobile telephone and internet-television services.

iiNet shares rose 1.3% to $3.16.

Furniture retailer Fantastic Holdings has lifted first half profit by more than a third to a record $13.2 million, despite the sluggish conditions across much of the retailing sector.

Fantastic said interim net profit rose 35% in the half year to December 25, 2011, compared with the $9.8 million earned in the previous corresponding period.

Sales revenue rose 3.4% to $227.6 million from $220.6 million, but comparable store sales (the best measure of retail sales performance) dipped 0.2% from the previous corresponding period, telling us how tough trading conditions were in the half year.

Directors said the result was achieved despite the ongoing depressed trading conditions impacting the discretionary retail sector.

"The main driver in the strong financial performance was an improvement in gross margin to 48.3% from 46.2% previously," the statement said.

Interim dividend was boosted 30% to 6.5c for the half year which, as always, tells us a lot about the level of confidence around the board table about the company's prospects.

That higher payout is still equal to just over 50% of profit, so there's ample left in the till if trading conditions suddenly worsen this half year.

But that seems unlikely, as managing director Julian Tertini explained in the statement yesterday.

"It is encouraging to see January and early February sales being more positive, trading ahead of the corresponding period in 2011. However, we still see overall trading conditions as challenging in the near future," he said in the statement.

He said supply chain efficiencies had helped improve gross margins and the group, unlike many of its rivals, had not needed to heavily discount its products to attract customers.

"Overall, due to our core value proposition and our strong brands, we believe that FHL (Fantastic Holdings Ltd's) is in a sound position compared to other retailers in the current environment," Mr Tertini said.

The group also opened four new outlets during the half year, taking the total number to 132 nationally.

"Our profit growth in a depressed sales environment is particularly pleasing, with four of our five businesses delivering improved performance," Mr Tertini said.

Fantastic went through restructuring of some of its brands last year in an effort to arrest a crimping of margins.

Mr Tertini said despite improvements within its Dare Gallery furniture stores, the group was still considering selling the business following a strategic review.

"The brand has great consumer awareness in its home market and is a profitable contributor to the group but remains non-core to FHL's long-term strategy," he said.

And the Le Cornu chain was also revamped last year and remains on a tight hold by Fantastic management.

"As previously indicated, Le Cornu was unprofitable in the half. The business undertook a re-launch in October 2011 and we continue to implement a number of initiatives to improve the brand's performance," the CEO said.

"To date, whilst early sales have shown positive signs, insufficient top line growth has been achieved to sustain profitability.

"Management will closely monitor the outcomes of these initiatives and update the market in due course.

"Our Australian manufacturing divisions continue to produce solid results and our China sourcing office is now well established." he added.

Fantastic shares leapt more than 7% or 15c to $2.05 yesterday on the better than expected performance.

And the interim results of Perth-based engineering firm Monadelphous were illustrative of where the resources boom benefits are flowing.

It's not just to the miners and oil groups, large and small, but also to the many companies servicing those companies and their projects, mines, wells and fields.

They range from giants like Orica, Leighton, to Campbell Brothers, Macmahon holdings, Downer, UGL and a host of others.

Monadelphous hasn't been backward in moving to build its share of the pie, as yesterday's half year report confirms.

First half net profit jumped 26% and the company said the growing number of resources projects will continue to drive revenue growth.

Monadelphous said its record net profit and revenue in the six months to December 31 was due to strong growth in sales in its maintenance and industrial services and infrastructure divisions.

Monadelphous reported a net profit of $57.5 million for the six months to the end of December, up from $45.5 million in the previous corresponding period.

It was a record for an interim result for the group and came from the historically high level of large resources and energy projects being built.

Sales revenue in the six months to December also rose 26% to $879.5 million from $700.1 million in the previous corresponding period, a sign that profit margins are not under pressure.

"The results reflect strong operational performance and increasing demand from our customers in all our key markets," Monadelphous Managing Director Rob Velletri said in yesterday's statement.

"Monadelphous secured $1.4 billion in new contracts during the period and we have signed more contracts in the early stages of the second half.

"We enter the second half of 2012 well positioned for future growth and expect the strong revenue momentum achieved in the first half to continue for the remainder of the financial year and into the near term."

The 25% (10c) a share lift in the interim dividend to 50c a share was another message to the market from a confident board.

The 3% or 71c rise in the value of the shares to $23.86 yesterday was also a sign of confidence in the company's outlook.