NZ Herald business editor at large

Liam Dann: Reporting season is real crowd-pleaser

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As a survey of how New Zealand business is performing, the announcement of corporate results is unmatched.

The corporate reporting season is like the return of test cricket after the slap and dash of the shorter forms. Photo / Brett Phibbs
The corporate reporting season is like the return of test cricket after the slap and dash of the shorter forms. Photo / Brett Phibbs

At the end of a long, hot silly season, the corporate reporting season - which kicks off this week - comes as welcome relief for followers of business news.

Like the return of test cricket after the slap and dash of the shorter forms, corporate results offer up a solid and dependable stream of market information.

Purists will lap up the facts and figures that are unveiled in the coming weeks.

Traditionally, those purists are the brokers, analysts of the finance sector and, at home, the thousands of "mum and dad" shareholders, who, if we are honest, are more often "grandma and grandad" shareholders these days.

Like all things with a long tradition in this high-tech online age it is valid to be asking whether results remain relevant to the majority of readers - therefore whether they should still hold their place in the printed pages.

Why should we care if we don't own shares?

Well, first of all, are you so sure you don't own shares? Have you got a KiwiSaver account? More than two million New Zealanders now do.

There is about $18 billion invested in KiwiSaver. It is true only about 10 per cent of that is in local shares and listed property trusts (far too much remains unloved in low-yielding default funds).

But it is enough that the performance of the local market matters, especially for those who have more balanced or growth focused funds.

KiwiSaver's growth provides a trend that should see market reporting becoming more relevant to New Zealanders not less.

That has certainly been the case in Australia where the more comprehensive compulsory super scheme means every working Australian now has a significant stake in the market.

While we hear a small proportion of Australians getting vocal about big bank profits, a far larger group is well aware that those profits are feeding their retirement savings.

And while we could feel annoyed about that from this side of the Tasman it would probably make more sense to follow Australia's lead.

You have to wonder why we have about a third of our KiwiSaver funds earning minimal interest - sitting in cash, probably in Australian bank accounts - when it could so easily be directly invested in the banks themselves with a move towards balanced and growth funds.

Putting aside any direct ownership stake in the market though, reporting season is still hugely important to those with an interest in the economy and, by association, politics.

As a survey of how New Zealand business is really performing, the reporting season is unmatched.

The NZX-listed companies don't represent the entire economy but they are a large and important cross section employing hundreds of thousands of New Zealanders. The total value of companies listed on the main board of the NZX is $83 billion. That's a sizeable total for a country with a annual GDP of about $200 billion.

While the reporting season doesn't catch the thousands of small businesses or foreign subsidiaries it does provide far higher quality of information than we get from the confidence surveys that poll these groups.

A market listing comes with a requirement to publish highly detailed data which, while open to subjective presentation, is required by law to meet high standards of empirical accuracy. The reporting lets the purists know what they are looking for and why certain numbers are important. Just as a good test match isn't always about a win or a loss, a company's result won't always be judged by its bottom line profit.

At the sharp end there is the dividend - the most fundamental piece of information for many shareholders because it is about how much money the company will actually be paying out to its owners, large and small.

Then there are the numbers that tell us about growth prospects - sales, revenue and the dreadfully named EBITDA ( earnings before interest, tax, depreciation and amortisation), which is the profit the company made from doing the main thing that it is in business to do. It is the earnings when you don't count variables businesses are subject to - interest, tax and depreciation and amortisation of assets.

Then there are the numbers that tell us about risk. Debt levels remain a big one. Plenty of good companies were sunk by debt in the wake of the global financial crisis and as interest rates start to rise it is unlikely to become any less critical.

The other figure crucial to a company's survival is cash flow. Without available funds it doesn't matter how good the outlook is for a company. If it can't pay the cleaners it has got problems.

And then there is the bottom line. The reported profit can't be ignored because it is what being in business is about, but it does require context.

There's companies such as Xero that are on such a dramatic growth path that they aren't trying to make a profit yet. Then there are companies in transition which may have spent large sums on capital investment. Or perhaps they've sold some part of their business or bought a smaller rival.

These things can provide valid reasons for trying to emphasise an adjusted profit - which means a profit that ignores some one-off event or "unusual item".

At that point the reporting does become quite subjective. That's the fun of it for purists - it can be a bit like arguing over a decision to bat first or not to enforce a follow-on.

From this week we'll be trying to make sense of all that as we endeavour to present a picture that tells us something about how the economy is performing and offers clues about where it might go next.

- NZ Herald

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NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

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