INSIGHTS BLOG

NZ REPORTING SEASON - PROVING THE NAYSAYERS WRONG

Mark Lister, 28 August 2018

After an avalanche of earnings from listed companies last week, we’re approaching the end of the corporate reporting season.

If you’re getting caught up in the downdraught of negativity we’ve been hearing in recent months, pick a handful of these and have a read. You’ll be hard pressed to deduct we’re on the cusp of a major economic slump.

Some of the highlights include consistent performers Auckland Airport, EBOS, Meridian Energy and Port of Tauranga. These are genuine blue chip companies, and true to form they all posted record profits and increasing dividends.

Trade Me was another standout, producing a solid result and giving shareholders a surprise special dividend. You could infer from this that Trade Me has little in the way of growth ideas, although I personally like companies respectful enough of shareholders’ capital to return it when they don’t have a superior use for it.

Fletcher Building and Fonterra should take note.

Speaking of our largest construction business, the Fletcher result was in line with recent guidance. Things look to have stabilised, although there were a few concerning details under the hood. Cost pressures were prevalent across most divisions, and margins appear to be getting squeezed as well.

The a2 Milk Company silenced critics with a strong set of numbers and comforting comments around the impact of increasing competition. However, Chinese growth could’ve been better and the jury is still out on whether the performance in this crucial market will meet expectations in the years ahead.

At the smaller end of town, Skellerup has been the pick of the bunch. The company reported an impressive result comfortably above market expectations and with some promising underlying trends emerging.

Air New Zealand provided another example of how mixed ownership between government and private investors can work well. The company posted the second largest profit in its history, despite a number of challenges including sharply higher fuel costs.

Contrary to the prevailing headlines, the Sky TV result wasn’t too bad. Excluding the impairment charge, bottom line net profit was up slightly from last year and better than most analysts were expecting. However, this improvement came on the back of cost cutting rather than revenue growth, and the longer term structural challenges remain.

Another good news story was Fisher & Paykel Healthcare. The company wasn’t scheduled to report a result this time around, although the annual meeting speeches included a healthy profit upgrade. It was almost entirely due to a weaker NZ dollar, but we’ll take it nonetheless.

A few results are still to come, but it’s been a fairly impressive showing so far. There’s no shortage of worries to cloud the outlook, but the numbers point to an economy that’s probably in better shape than some might believe.

In terms of the next 12 months, most companies are playing their cards close to their chests at this early stage of the new financial year. We’ll have to wait until the annual meeting season in October for our next opportunity to take the pulse of corporate New Zealand.

This article was also published in the NZ Herald on 12 August under the title "Mark Lister: Why the Kiwi dollar took a pounding this week".

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