Bloomberg News

Australia Company Profits Fall Most Since ’09 on Weak Mining

March 04, 2012

Australian business profits unexpectedly dropped in the three months through December by the most in two-and-a-half years as earnings weakened at mining and financial companies.

Gross operating profits fell 6.5 percent in the fourth quarter to A$66.3 billion ($71.1 billion) from the previous three months, when they rose a revised 4.7 percent, the Bureau of Statistics said in Sydney today. The result compares with the median forecast for no change in a Bloomberg News survey of 15 economists. Inventories (INAUQOQ) rose 1.4 percent, compared with economists’ forecast median for a 0.3 percent gain.

Reserve Bank of Australia Governor Glenn Stevens will keep the benchmark interest rate at 4.25 percent tomorrow, according to all 24 economists in a Bloomberg News survey. Companies such as BHP (BHP) Billiton Ltd. were hurt by a fall in the terms of trade, or export prices relative to import prices, while a strengthening currency eroded earnings for manufacturers and retailers.

Mining profits “were hit by the terms-of-trade decline,” Westpac Banking Corp. economists led by Bill Evans said after the report. “Profits in the broader economy declined also, consistent with patchy sales and consistent with private business surveys reporting sub-par profitability.”

Currency Strength

The Australian dollar gained 5.7 percent last quarter against its U.S. counterpart, the best performer among the 16 major currencies tracked by Bloomberg, and has risen another 5.1 percent to date this year. After the report, the local currency was little changed, trading at $1.0726 at 1:34 p.m. in Sydney compared with $1.0733 on March 2.

From a year earlier, profits advanced 2.2 percent, today’s report showed.

Profits at mining companies dropped 8.7 percent in the fourth quarter, while financial and insurance services slumped 57.3 percent, according to today’s report. Utility companies earned 4.7 percent more, the report showed.

Gross operating profit measures earnings before tax, interest, depreciation and amortization. It excludes asset sales and foreign-exchange gains or losses.

A report by Australia & New Zealand Banking Group Ltd. showed Australian help-wanted notices advanced for a second straight month, gaining 3.3 percent in February after rising 7.5 percent in January.

BHP Profit

Stevens lowered the overnight cash rate target by a quarter percentage point on Nov. 1 and Dec. 6, before unexpectedly keeping the benchmark unchanged last month at 4.25 percent. Employment in Australia stalled last year as the currency’s climb hurt non-resource companies and house prices slumped by a record 4.8 percent.

BHP, the world’s biggest mining company, reported a 5.5 percent drop in first-half profit, the first decline since 2009, as rising costs and lower output and prices halved base metals earnings. Net income was $9.9 billion in the six months ended Dec. 31, from $10.5 billion, a year earlier, the Melbourne-based company said Feb. 8.

Australia’s economy probably decelerated in the final quarter of last year to 0.7 percent growth from 1 percent three months earlier as Europe’s sovereign-debt crisis intensified, a Bloomberg News survey of 23 economists showed before the release of gross domestic product data on March 7.

Westpac (WBC) and Harvey Norman Holdings Ltd. (HVN) were also among companies recording weaker results.

Westpac Profit

Westpac, Australia’s second-largest bank, reported first- quarter profit that was lower than a year earlier as rising funding costs squeezed the profitability of its lending. Unaudited cash earnings in the three months ended Dec. 31 were A$1.5 billion, the Sydney-based bank said Feb. 16. It posted cash earnings of A$1.55 billion a year earlier.

Harvey Norman, Australia’s largest electrical-goods retailer, said first-half earnings fell 2.1 percent as stalling consumer spending cut sales and crimped fees from franchisees. Net income dropped to A$128.9 million in the six months ended Dec. 31, from A$131.7 million a year earlier, the Sydney-based company said Feb. 29.

The nation’s steel industry has begun buckling under the pressure of the higher currency.

BlueScope Steel Ltd. (BSL), Australia’s largest steelmaker, posted a wider loss in the first half on lower production, restructuring costs and impairment charges related to the closing of a plant. The net loss was A$530 million in the six months ended Dec. 31 compared with A$55 million a year earlier, the Melbourne-based company said in a statement last month.

Services Hurt

The services industry has also been hurt, declining in February to the lowest level in almost a year, driven by a drop in new orders as the gap between resources and other industries widens, a private report showed today.

The performance of services index sank to 46.7 last month from 51.9 in January, the weakest reading since March last year, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. Fifty is the dividing line between expansion and contraction.

Also today, a gauge of Australia’s annual inflation slowed to the lower end of the central bank’s 2 percent to 3 percent target range as weaker prices of furniture and furnishings offset gains in fruit and vegetables.

Consumer prices rose 2 percent last month from a year earlier, compared with a 2.2 percent annual advance in January, according to an index compiled by TD Securities Inc. and the Melbourne Institute released in Sydney today. Prices rose 0.1 percent in February from January, when they were up 0.2 percent.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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