Roy Davidson, 2 March 2018

The latest reporting season has wrapped up in New Zealand, with a large number of companies reporting interim results for the 2018 financial year. As is always the case, some companies announced standout results while others disappointed the market with poorer results and/or outlook statements.

Which New Zealand companies impressed?

a2 Milk was the clear standout. It’s hard to believe that this is a company that has gone from delivering operating earnings of $5m just three years ago, to be on track to do almost $300m this year, all the while becoming the largest listed company in New Zealand (recently overtaking Fisher & Paykel Healthcare for that mantle).

a2 Milk beat earnings estimates by around 20 per cent, with continued growth in infant formula sales the key driver. a2 Platinum infant formula now has five per cent market share in the large Chinese market and appears to be well on its way to get to the company’s target of ten per cent. a2 Milk also announced a strategic partnership with Fonterra, further validation of the A2 proposition. Shares in a2 Milk have subsequently gained 40 per cent.

The other New Zealand company that impressed investors was retirement village operator Summerset. The company delivered its full year result (it has a December year-end) which showed a 44 per cent increase in net profit after tax on the back of continued portfolio growth and expanding resale and development margins.

Interestingly, Summerset again mentioned it has its sights set on Australia, with the General Manager of Development set to relocate to Melbourne. This follows on the heels of Ryman Healthcare, which opened its first Melbourne village in 2014, and opens up another large growth opportunity. The Melbourne market alone is the size of New Zealand, and both Ryman’s and Summerset’s ‘continuum of care’ product offerings are well differentiated there, with Ryman seeing early success.

Which New Zealand companies disappointed?

It’s hard to look past Fletcher Building when talking about disappointments on the New Zealand market lately. Leading into reporting season, Fletchers provided its fifth (!) profit warning relating to its Building and Interiors (B+I) business, mainly driven by the New Zealand International Convention Centre project, prompting concerns around its balance sheet.

It then followed this up with a result which saw shares drop to five-year lows. The company has a lot of work to do in the second half to meet its full year guidance, all the while undertaking a strategic review.

Sky TV actually reported earnings that were ahead of expectations largely due to lower costs. However, the market focused on a number of negatives in the result. Firstly, subscriber numbers continue to decline rapidly, with Sky losing 38,000 customers compared to the prior half. The company also announced a cut to its dividend to 7.5 cents per share, down from 15 cents a year ago. This signals reduced confidence in the company’s outlook from the Board.

Finally, Sky announced changes to its pricing structure, with the cost of the basic bundle to be cut in half in an attempt to stem subscriber losses, at the cost of average revenue per user. All of this combined saw shares fall almost 10% on the day of the result.