From the outside, looking in
A number of New Zealand companies with a presence in Australia have reported full-year results or provided earnings updates in recent weeks, and one particular theme has emerged that does not bode well for the upcoming reporting season.
This theme has emerged from those companies that operate in cyclical industries, namely construction and consumer discretionary. It seems that operations in New Zealand have been meeting expectations, while Australian operations have been underperforming.
The Chairman and CEO of Methven, NZ’s largest supplier of showerheads and faucets, commented, “The continued rapid decline in Australian market demand impacted operations with Operating Revenue down 12.9% from A$38.0 million to A$33.1 million. While a decline in the Australian market was expected, we did not anticipate the market would contract at such a rapid rate.”
In contrast, “Earnings from the New Zealand operation improved as market conditions improved. A pick up in building and renovation activity, particularly in Auckland and Christchurch, offset by lower sales in other regions and channels, resulted in domestic sales up slightly on last year, from $34.8 million to $34.9 million.”
The CEO of Hallenstein Glasson, a major NZ fashion retailer, announced to the market that, “A late start to winter has meant earnings for the current winter season will not match last year. Group sales for the period February to May were -1.6% on the same period last year, with Glassons in both NZ and Australia bearing the brunt of difficult trading conditions.”
He then specifically commented on challenges from the Australian market – “The larger Australian chains, who comprise most of our competition in volume fashion womenswear, have commenced winter clearance earlier than usual which is a sign trading isn’t up to expectations. As a result there is now considerable pressure on margin for the balance of the winter season.”
Finally, the CEO of Cavalier Corporation, a leading NZ carpet and tiling business, reported, “While business conditions in New Zealand have improved, and continue to improve in line with expectations, the operating environment in Australia remains very subdued and Cavalier Corporation advises that normalised earnings are now expected to be at the lower end of the range indicated in November.”
Companies that operate in cyclical industries are heavily influenced by economic fluctuations, and there is growing evidence that conditions are slowing in Australia. On the back of these announcements from New Zealand companies, it seems highly likely that their Australian competitors will be using similar language when they announce their results in the coming months.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Andrew Legget
:
The Australian economy is going to go through a bit of a tough period i feel, as the country needs to make a transition from a mining driven economy to a something else or nothing driven economy. My feelings are that we will start seeing the tide starting to expose those that have been swimming naked.
I think the psychology of investors and the dominance of superannuation in Australia has helped inflame the situation as it leads to more emphasis being placed on dividend being paid than companies investing in R&D and marketing.
We could easily have great companies if they wanted to but i just don’t think it is a trait that is alive in Australia. We are not an ambitious country i have come to feel and this has led many of the ambitious people to go offshore leaving us to focus on digging up rocks and selling them. I don’t see businesses being rewarded by the market for doing so and little incentive exists for start-ups.
Something that needs to be fixed i think if we have any hope of the economy kick starting again and sustainably.
David Procter
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Any chance the NZX can go onto Skaffold ?
Mike Williams
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Not so sure, that the CEOs’ comments are a reflection of a downturn / looming downturn in Australia, or whether the better conditions in NZ reflect, what I consider to be a property bubble in NZ. Credit inflation seems to still be alive in NZ. Possibly its NZ’s economy that you need to be wary of regarding a downturn, notwithstanding the headwinds facing Australia.