What we've learnt from reporting season
Dividends seem secure despite pressure on earnings, writes Craig James
Every six months, Australia's listed companies lift the lid on their financial accounts. Clearly this is an important time to see what shape companies are in and how they have performed in recent months. Some companies also provide useful commentary on the results and connect with media and analysts via phone, webcam or in person.
The focus in the latest profit-reporting season was on those companies reporting their results for the year to June. The large majority of ASX 200 companies report for the year to June, around 12% have a December reporting year (report half-year results to June) and about 30 have a different reporting period.
So how did companies perform? Well, usually earnings seasons tend to be characterised by a central theme, or themes but that wasn't the case with the earnings season that concluded at the end of February. And that has also been the case with the latest earnings season. Companies have not generally been slashing costs, although resource companies in particular have certainly been aiming at improving productivity and efficiency.
Some companies identified significant "impairment charges" or write-downs and provisions in their profit-and-loss accounts that affected bottom lines: WorleyParsons, Seven Group, Seven West Media, Beach Energy, UGL and South32. Companies that depend on activity in the resources sector highlighted the tough operating conditions: UGL, Boart Longyear and Arrium.
The housing construction boom has been positive for many: Sunland, Cedar Woods and Folkestone. There were "turnaround" stories, notably that of Qantas, which was previewed at the December interim earnings report.
There were a few standout results such as those of Aurizon, Austal (not in the ASX 200) and Newcrest.
Outlook statements will always vary from company to company and industry to industry. Probably on the back of a better economy in the first half of 2015, companies were generally positive on the period ahead.
Interestingly, optimism was shown by some companies that reported "challenging" conditions in the past year: Coca-Cola Amatil, Cabcharge and ARB. Some companies were more cautious (Seven Group). Some noted mixed prospects ahead (WorleyParsons). And both Transpacific and Pacific Brands expect further challenging conditions.
It is clear companies are still focused on lifting or maintaining dividends. But there is no sense they have blinkers on and a single-minded determination to pay dividends at all costs. Rather companies are competing for the affection of current and prospective shareholders.
Cash levels are still healthy, giving companies scope to maintain dividends. But reinvestment of earnings back into the business is not being shunned. Certainly conservatism continues. However the results on dividend payments are not markedly out of kilter with overall financial performances.
So what about the overall results? Well, focusing on those companies reporting for the full year, it's worth noting a sharp lift in the variability of bottom-line earnings.
Stripping out "outliers", CommSec estimates that underlying aggregate revenues rose by 2%, expenses rose by 2.2% and aggregate profits fell by 3%.
Almost 82% of those reporting full-year earnings reported a profit - below average. But almost 61% improved their profit results - above average. And encouragingly, almost 90% paid a dividend and 85% lifted or maintained dividends.
Looking at cash levels, if you put all companies together, total cash earnings were $100.7 billion. Eight large companies have each reduced cash holdings by $1 billion or more. If these "outliers" are excluded, then aggregate cash levels actually lifted by 5.4%.
Overall, based on this reporting season, Australian companies are in strong financial shape. The main criticism is that too many companies are too comfortable with paying out dividends. And the worry is that earnings have been hard to generate in the past year and, if anything, this is likely to continue.