MELBOURNE: Australian companies fared reasonably well in the first half of the financial year but still face challenges as they emerge from the global financial crisis.
CommSec chief economist Craig James says most companies finished the February reporting season showing a lift in profits, after cutting costs to survive theglobal financial crisis.
But they must now look at increasing sales, he said.
"Corporate Australia is in good shape, but now companies need to drive sales growth rather than rely on cost-cutting to boost the bottom line," James said in a research note.
CommSec assessed 129 companies among the top 200 on the Australian Securities Exchange (ASX) and found 113, or 88 per cent, were profitable for the six months to December 31, 2009.
Sixty-seven per cent reported improved earnings and 60 per cent lifted earnings per share.
James said corporate Australia was "back in the black", market valuations had become more attractive and economic conditions continued to improve. CommSec expects the S&P/ASX 200 and the All Ordinaries indices to lift to 5150 by mid-year and 5600 by the end of calendar 2010.
James said it was "quite an extraordinary achievement" that almost 90 per cent of companies had been profitable considering the "fluky" business conditions in the second half of 2009.
Furthermore, firms reporting profit rises outweighed those reporting weaker outcomes by two to one.
He said cost-cutting was a key driver of improved profits, with company expenses falling 10 per cent compared with a 5 per cent sales drop.
For the 35 companies in the top 200 on the ASX that reported full-year results, expenses fell 20 per cent, and sales fell 13 per cent.
But 60 per cent of companies lifted earnings per share despite increased capital raisings. More companies paid dividends but they were 7 per cent lower than in the previous year.
James said the banking, retail and insurance sectors stood out in terms of bottom-line profit growth, and the oil, gas and energy equipment sectors were notable for profit declines.
Credit Suisse analysts said overall returns during reporting season were "ultimately flat".
Companies' earnings outlook was still uncertain because the 2010 financial year had so far been characterised by a large degree of Government economic stimulus and a need for restocking at a global level.
