Winners and losers in Covid-plagued season
How they fared: A solid NZ company reporting season but what lies ahead for businesses?
The reporting season has drawn to a close with most listed Kiwi companies having posted solid increases in earnings, but the question of what happens next is cloudier than usual, given the raft of uncertainties that lie ahead.
While the economy faced high inflation, supply chain constraints and Covid-related disruption, there have been some standout, record performances from the listed corporates.
As expected, construction and building materials stocks did well in the June year, reflecting the building boom.
At the top of the list was Steel and Tube's net profit, which leapt by 96 per cent to $30.2 million.
Newly listed Vulcan Steel's profit lift wasn't far behind — up 91 per cent to $124m, while Fletcher Building's profit jumped 42 per cent to $432m.
The big power generators put in some strong performances, helped along by favourable hydro generation conditions and firm wholesale power prices.
A newly transformed Mercury NZ reported a 25 per cent increase in its earnings before interest, tax, depreciation and financial instruments (ebitdaf) followed by Genesis Energy with a 24 per cent lift.
Meridian's ebitdaf rose by 2.5 per cent while Contact's eased a touch, down 3 per cent.
The well-understood, Coviddriven problems continued to have an impact on aviation and travel, although Auckland International Airport's loss narrowed substantially to $11.6m.
At Air New Zealand, losses continued to mount, the shortfall doubling to $591m.
Tourism Holdings' loss narrowed substantially to $5.4m.
Once again, there were strong performances by Ebos, Skellerup, Port of Tauranga and Freightways.
The highly acquisitive medical products supplier Ebos reported a A$228m net profit, up 21.3 per cent and another record.
Analysts highlighted Skellerup's 19 per cent gain to $47.8m, continuing the specialised manufacturer's long record of annual earnings increases.
Port of Tauranga's 8.7 per cent increase in net profit to $111.33m was also singled out for honourable mention, as was Freightways, which lifted its earnings by 4.1 per cent to $73.9m.
Craigs Investment Partners' head of private wealth research Mark Lister said company earnings were generally solid.
“Maybe that's because expectations had come back to a more reasonable level earlier in the year, when the sharemarket was a bit softer,” he said. “The companies in our market are in good shape, and most of them posted reasonable gains.”
Where there was weakness — such as Air New Zealand's loss — it was in the “rear-vision mirror”, Lister said.
The season showed that company balance sheets, for the most part, were strong.
And those companies that had been dealt a sharp blow from the impact of the Covid-19 such as a2 Milk looked to be back on track.
As always, the market focused on earnings outlook statements, but this time round companies were circumspect on their prospects.
“There was an uncertain, cautious tone to their commentaries, but I don't necessarily interpret that as meaning that we need to panic or worry that there is major trouble ahead,” Lister said.
“If you were a business, a CEO or a management team, you would be mad to go out on the limb with any strong conviction in your earnings guidance because there are so many unknowns out there,” he said.
Ebos said it was pleased with the strong earnings growth in 2023 and that it expected another year of profitable growth in the current year.
Inflation made its presence felt on fast-food company Restaurant Brands, which reported a net profit for the six months to June of $15.3m, down by $19.2m on the previous comparable period.
“The company continues to face cost inflation pressures across all markets but is mitigating the impact of these by implementing cost savings and taking price increases where possible,” it said.
“However, the extent of cost inflation has meant that the opportunity to pass input costs on in the short term has been limited, with consequent short-term adverse profit impacts.”
Looking ahead, businesses are facing higher inflation, higher interest rates, supply chain problems, staff shortages and geopolitical issues.
“Most management teams would rather under-promise and overdeliver than get anything wrong,” Lister said.
While Air NZ, Sky TV and a2 Milk had all had a rough ride, they were looking like they were getting their ducks in line for the future.
Adrian Allbon, director equity research at Jarden, said Jarden had lifted its revenue forecasts on the strength of the latest reporting season.
“Roughly half the companies in our coverage which reported fullyear results achieved higher revenue than expected, while the other half were either in line or missed,” Allbon said in a research note.
“However, we saw more misses than beats on ebitda margins and dividends,” he said.
He said an encouraging 14 (or 40 per cent of) companies provided earnings guidance and, of the 14, six provided or reiterated longer-term targets.
“Post-August reporting season, we have revised revenues up for roughly two-thirds of our coverage that reported but, on balance, are taking a more balanced stance on 2023 estimated ebitda and ebitda margins,” he said.
“Meanwhile, we have revised dividend per share estimates down for a number of companies post-capital management programmes, as well as due to lower net profit margin forecasts.”
Jarden said a2 Milk's turnaround was tracking to plan and Sky City's earnings recovery was on track.
On Air New Zealand, Jarden said the scale of the year's loss reflected
the material operational disruption from lockdowns and border restrictions.
“One of the highlights of the results is the ongoing strength of cargo, which saw revenue rise by 32 per cent to $1 billion, albeit supported by $403m from government-supported flights,” Jarden said.
Air NZ noted that it does not expect cargo revenue to remain at this level in 2023.
With Sky TV, Jarden said the company's capital management and dividend approach was reflective of the environment.
Freightways' acquisition of Australia's Allied Express would deliver a new growth platform for the company.
On Skellerup, Jarden said growth from new and existing products, pricing changes and productivity gains meant the company was largely able to offset increased raw material and freight costs.