At the end of reporting season for Australia’s publicly listed companies, it’s clear COVID-19 has been a payday for some but destructive for others.
- A quarter of ASX 200 companies reported a loss for the 2019-20 financial year
- Full-year earnings were down 38 per cent, and dividends down 36 per cent
- Some retailers and mining stocks saw strong profit growth, travel stocks fared worst
Analysis by CommSec reveals 75 per cent of companies reported a statutory net profit in 2019/20, well below the 10-year average of 90 per cent of companies reporting an annual profit.
“It is the weakest outcome in the decade we’ve been tracking interim and final reports with an end-June or December financial year,” said CommSec’s chief economist Craig James.
Full-year earnings were down 38 per cent, which led to a 36 per cent fall in aggregate dividend payments to investors.
“The normal situation is about 85 per cent of companies reporting dividends,” Mr James told The Business.
“It’s a lot lower this time and that’s understandable — companies aren’t making money; if they’re not making money, they’re not paying dividends.
“What they’ve done instead is to shore up their cash position and that augers well for the future.”
Who were the big winners?
Broadly, pockets of retail and mining were the bright spots.
This should come as no surprise considering how many people rushed to set up home offices or were bored at home and filled their time online shopping, as well as soaring prices for iron ore and gold.
But not everyone in retail was a winner.
Scentre Group, which owns Westfield shopping centres in Australia, posted a $3.6 billion half-year loss as lockdowns forced some retailers to close, while others chose to close and some simply stopped paying rent.
The shopping centre owner fought back as it handed down its results, locking some retailers out of its buildings.
The half-year loss prompted credit ratings agency Moody’s to sound the warning bell.
“We expect Scentre’s credit metrics will deteriorate materially in 2020, given increased net debt, reduced asset values and our expectation for significantly lower full-year earnings,” said Moody’s Investor Services vice-president Matthew Moore.
The retail winners included JB Hi-Fi — which reported a $302.3 million profit, up 21 per cent on the year before — and online retailer Kogan which posted a 56 per cent profit increase to $26.8 million.
“You had to be an e-commerce consumer, but we saw record highs across the board for the likes of JB Hi-Fi, Kogan, Temple & Webster, Red Bubble, Adairs,” observed Karen Jorritsma, head of equities Australia at RBC Capital Markets.
Long queues outside Bunnings and a rush on home office gear at Officeworks boosted revenue for owner Wesfarmers by 11 per cent.
But it recorded a 69 per cent fall in profit, to $1.7 billion, largely because last year’s result was so good due to profits from the Coles demerger.
Demand for Australian iron ore helped miner Fortescue Metals Group mark a 49 per cent increase to a $6.5 billion profit.
Rio Tinto’s profit was down 20 per cent to $4.5 billion, but investors were happy, taking home an increased dividend.
BHP’s profit was also lower, down four per cent to $11 billion.
BHP chief executive Mike Henry told The Business he expected demand from China for Australian iron ore would remain strong for a few more years until the “mid-2020s where we start to see Chinese steel demand move into a little bit of a decline”.
Analysts at Bank of America said BHP’s results were “broadly in line” with expectations.
Gold miners including Evolution Mining (up 38 per cent to $302 million profit) and Newcrest (up 15 per cent to $647 million profit) enjoyed the benefits of record-high gold prices.
“Miners didn’t have the same sort of disruption as a lot of other companies,” said Mr James.
“In the short term the situation remains good; strong demand for gold, strong demand for iron ore, as well as higher gold prices and higher iron ore prices.”
And what about the losers?
It’ll come as no surprise that travel-related companies were among the biggest losers this reporting season, as their business model was effectively shut down.
It has stood down or laid off about 70 per cent of its staff and closed about half of its physical stores globally since the pandemic hit.
Qantas reported a $2 billion loss — crash landing from last year’s $840 million profit.
“I don’t know if I had any expectations for the travel sector,” said Ms Jorritsma about whether it met or missed the mark.
“We had seen some capital raisings ahead of reporting season from a couple of the names to make sure they had the balance sheets to get through this period.”
What about the banks?
Despite the Hayne Royal Commission, Australians still love bank stocks.
It’s the sector with the most investors, either directly or indirectly.
But after the Australian Prudential Regulation Authority (APRA) advised banks to hold onto at least half of their revenue, there was only one direction dividend payments would go this year — down.
The Commonwealth Bank is the only one of the big four to report annual results at this time — it posted a 12 per cent profit increase to $9.6 billion.
But it wasn’t a payday for investors, who’ll take home a reduced dividend as the bank pays out 49.95 per cent of its second-half statutory earnings in line with APRA’s order.
National Australia Bank gave a third-quarter update, revealing an unaudited statutory net profit of $1.5 billion for the three months to June 30.
Its preferred measure — cash earnings — was down seven per cent on the same time last year at $1.55 billion.
It’s cutting its dividend by 70 per cent.
Westpac shareholders were told they will not receive an interim dividend for the first half and the bank is reassessing dividend payments at its full-year results in November.
Overall, the bank reported unaudited net profit for the third quarter of $1.12 billion, with its preferred measure of cash earnings coming in at $1.32 billion.
ANZ rounded out the big four, reporting a third-quarter statutory profit of $1.3 billion.
Its preferred measure, cash profit from continuing operations, was slightly higher still at $1.5 billion, which was more than double its quarterly average over the first half of its October 1 to September 30 financial year.
ANZ will pay a significantly pared-back interim dividend of 25 cents per share, fully franked.
What about 2020/21?
The big thing investors and analysts were looking for this year was guidance — and there wasn’t much of it.
“A lot of the companies were really quite reticent to provide any real guidance given the environment remains so uncertain,” Ms Jorritsma told The Business.
“Some of the online retailers are clearly having a structural tailwind which has been very supportive and then a few of the mining companies — but it was very few and far between this time.”
Mr James agreed there wasn’t a lot of specific forward looking.
“That’s understandable; I don’t think investors are too disappointed by that,” he said.
“What we will need to see is a lot more updates to keep us on track of what the current situation is.”
While most companies shied away from giving a hint to where they see the next 12 months of their operations heading, one thing’s for sure — with no vaccine, hard borders and a globally increasing infection rate, COVID-19 will continue to dominate the economic landscape this financial year.