31 Aug 2022

Corporate business appears resilient in face of economic woes

4:30 pm on 31 August 2022

Corporate New Zealand appears to be in good health, amid emerging signs the economy is slowing under the weight of high inflation and rising interest rates.

Business woman hand writing on charts and graphs that show results.

Photo: 123RF

More than 30 listed companies reported their interim and full year financial results over the past two weeks, including big names such as Air New Zealand, Spark, Auckland International Airport, Sky City and EBOS.

Fisher Funds portfolio manager Sam Dickie said it had been an interesting time for companies to show their report cards, given macroeconomic uncertainties associated with inflation, interest rates and growth.

"On the face of it [there's been] pretty good growth," Dickie said.

"Around 10 percent revenue growth on average but what's interesting is that costs are starting to bite, so profit growth was much slower at around four percent."

Dickie said relative to expectations, which had been low given global economic headwinds, more companies had beaten their targets, rather than missing.

Harbour Asset managing director Andrew Bascand said many of the financial statements had been better than feared.

"The results themselves are certainly reflecting a slower economy but by no means significant disappointment."


Economic uncertainty was a prevailing theme in many companies' outlook statements, Bascand said.

"They were generally soft or perceived as conservative or actually didn't even exist because companies faced the uncertainty we all face."

Recent surveys from the ANZ Bank showed consumer sentiment was atnear-recessionary levels, as households contend with a higher cost of living, rising mortgage rates and falling house prices.

The bank's latest read of businesses told a similarly bleak story.

A feature of many of the reports was the difficulties firms were faced with when trying to attract staff, Bascand said.

"I think this is a key constraint on growth in the period ahead. Not the cost structures, not the interest rates costs but the availability of labour and to me that's a significant uncertainty for corporates."

"I fear this may be more of a supply side problem than one we can manage with high interest rates or other tools," Bascand said.

Meanwhile, Dickie said the balance sheets of corporate New Zealand "were in pretty good shape", putting them in a solid position to deal with any potential slowdown.

Best performers

Trucking company Mainfreight and retirement village operator Summerset were Dickie's stand out performers over the earnings season.

Although Mainfreight did not report its results, it did provide a market update at its annual meeting which shows trading across its transport, warehousing, and air & ocean divisions over the past 16 weeks were up 51 percent, 22 percent and 136 percent respectively on the year earlier.

"They're taking market share, they're growing, they're becoming more efficient, they're taking cost out," Dickie said.

Summerset's bottom line profit for the six months ended June fell on reduced property value gains, but its underlying result, which strips out the one-off gains, grew 9 percent to $82.5m, on the back of strong development margins and new sales demand.

The retirement village operator was also among Bascand's notable mentions, along with the healthcare and animal products firm EBOS, which reported double digit profit growth.

But the most outstanding result came from newly listed steel products firm, Vulcan Steel, he said.

"At their IPO they forecast underlying net profit would rise from $61m to $74m and they delivered $142m, unbelievable," Bascand said.

"Alongside that [they] provided a pretty solid ESG or sustainability report which was great for the first time they had reported market."

There were no shocking results, Bascand said, as most of the big losses had been signalled to the market well in advance.

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