After the turmoil of this week’s wide-ranging and ever-changing Trump tariff announcements, not to mention the sudden and unexplained resignation of Reserve Bank Governor Adrian Orr, or the slightly less unexpected resignation of Greg Foran, the two weeks of interim and full-year results preceding this week have largely faded into the background.
However, this results season was an important and instructive one for an economy searching for something ‒ anything ‒ to suggest the tough times were, at some point, going to be coming to an end.
Sadly, the results did not proffer definitive evidence of the coveted ‘green shoots’ for most companies apart from those in the primary sector, where demand remains strong. A2 Milk was the stand out, with a half-year bottom line profit that had gained 7.6% to $91.7 million, a maiden dividend and signals of a strong full-year, albeit with caveats.
Others in the ag space also brought the bling, with Livestock Improvement Corporation’s interim profit up 35% to $39m and PGG Wrightson’s post-tax profit up 25% to $16m.
The positivity spilled over into other ag stocks, including Fonterra, which has already signalled a strong year, and expects earnings for the 2025 full year to be towards the upper end of what it has previously guided ‒ between 40-60 cents per share (cps). It will report its half-year result on March 20.
In horticulture, the effects of Cyclone Gabrielle in early 2023 appear to have finally receded. There was a full-year net profit of $8.8m at Seeka, up 160% over the year prior, and primarily apple play Scales reported a $50m net profit for the year, up 103% over the prior comparative period.
T&G Global, currently on the chopping block thanks to the surfeit of debt burdening its majority owner, German agri-conglomerate BayWa, reported a post-tax loss of $9.9m, a vast improvement on last year’s $45m loss.
Biggies cautious
New Zealand’s largest companies expressed an abundance of caution about the year ahead and tempered forecasts of obvious improvement in the economy,
New Zealand’s largest mobile operator by market share, Spark, was perhaps the most pessimistic, and with good reason. It smashed down through analysts expectations to deliver a half-year profit that had fallen more than three quarters to $35m, and combined with a weak full year forecast, promptly saw a billion dollars in market value evaporate.
The result also prompted S&P Global Ratings (S&P) to place its credit rating of A- Stable for the company on negative outlook/watch.
The comments accompanying the results were not reassuring. Spark’s chair, Justine Smyth, said the company was experiencing “one of the longest and deepest recessionary periods in recent history”.
Conversely, Fletcher Building had perhaps the most positive things to say about the economic environment, and new CEO Andrew Reding put it this way: “Macroeconomic pressures are expected to persist and economic activity to remain subdued at below mid-cycle levels for the remainder of the financial year.” The company widened its losses, reporting negative $134m for the half year, up on the previous $120m net loss.
In travel and tourism, Air New Zealand reported post-tax profits of $106m, down from $129m in the half year prior, with engine maintenance problems hampering results. Auckland International Airport, which took the opportunity of its half-year result to take a swipe at Air New Zealand’s dominance in regional travel, grew its revenue and profit by 13% and 2% respectively, with net profit after tax coming at $187.3m, largely on the back of lower interest costs.
Tourism Holdings, meanwhile, cited a difficult period for campervan sales for its six month post-tax profit of $25.3m, a 36% decline on the prior comparative period.
Power companies, ports
Last winter’s energy crunch took a toll on three out of four energy companies, which in large part maintained their dividends to shareholders despite seeing less by way of profit in the half year.
The largest, Meridian, reported a $121m half-year loss compared with a $191m profit in the period prior, which it attributed to the cost of hedge contracts to get itself over last year’s dry winter. Contact Energy saw its net profit drop 7.2%, while Mercury reported a $67m loss for the period, down from a $174m interim profit the year prior.
Genesis bucked the trend, gaining from the increased value of some of those same hedging contracts, to report an interim net profit of $70.3m, compared with $38.3m the half year prior.
Any company dealing in exports, such as the Port of Tauranga, saw an uplift from the continued demand for New Zealand produce, and Port of Tauranga was a recipient of this. It reported a $60.2m after-tax profit for the half year, up more than 27% on the same period a year earlier.
But those with largely domestic operations had it a bit tougher. Move Logistics reported a loss of $8.9m for the first half to December 31, slightly up on the $10.7m loss for the same period a year ago. Bellwether stock Freightways recorded a 9.5% growth in net profit to $44.7m.
But chief executive Mark Troughear said the company had seen a decline in volumes from existing customers in its express courier and temperature-controlled businesses, and expected it would be a “slow grind” in New Zealand to provide better volumes for the rest of the year.
Analysts weigh in
Michael Sherrock, head of equities at Nikko Asset Management, said calling the just-finished results season “disappointing” would be going too far, but he said it reflected a “very tough last six months”.
“We knew that was coming, given the economic backdrop, but the results would probably show that things were a little bit tougher than investors were expecting.”
He highlighted Spark’s result as particularly soft, but also Heartland Group, which confirmed it was winding down its home loan book after posting a 90.4% drop in half-year profit to $3.6m in the six months to December.
He also pointed to SkyCity, which showed a marked drop of visitation to its Auckland casino, and Ryman, which did not report a result in the period, nevertheless had to go cap in hand to investors for a billion dollars with which to help it balance its books.
Sherrock said there was a notable lack of companies indicating they thought New Zealand was “in a recovery”.
“Things are not getting worse, but the timing of a recovery, a number are just talking about the second half of this year, and that’s been my expectation, that we don’t get a sharp recovery just because interest rates have been cut.
“It does take a long time for that to flow through the economy and ultimately end up in company earnings.”
This was never more so than in the construction sector. Developer Winton, which reported an uncharacteristic net loss after tax of $2m in the half year under review compared with a $9.7m profit in the prior comparative period, said it remained “cautious, and believe New Zealand isn’t yet at the bottom of the construction cycle”.
Sherrock said he’d be looking at the construction sector closely in the second half of the year ‒ the likes of Fletcher Building, Vulcan Steel, Steel & Tube ‒ as well as the gentailers, who are possibly facing down a second dry winter, boosting their input costs and impacting their results: “we’ll be mindful of lake levels, and what that means.”
Highs and lows
John Norling, head of wealth research at Jarden, said his top stock of results season would be a2 Milk “by a country mile”.
“Over the month of February, [a2] stock was up 37%, they had a very good result, they upgraded their full year guidance … the thing there is that the Chinese infant milk formula market is a bit dead, but the a2 component of that, where they have real strength, they’re performing very well.”
On the other side of the spectrum was Spark, Norling said. Although most companies were finding the six months under review tough, and although the mobile business would be under a bit of pressure, “it ended up being quite a bit worse than expected” and left a question mark over what was normally a reliable dividend provider.
Norling’s interest had also been piqued, like Sherrock’s, by Heartland Bank, which had two closely timed announcements to the market. In one, Heartland Group Holdings said it had taken an impairment expense of $49.6m in its New Zealand bank in the six months to December 31 “in response to the impact of ongoing deterioration in economic conditions in New Zealand, and to derisk and reposition some of the New Zealand bank’s lending portfolios”.
This predominantly related to late payments within the bank’s motor finance and business lending portfolios, and the total expense included $20.2m of write-offs. Norling said at the level of lending for vehicle purchases it was expected an organisation would rack up some outstanding arrears, but “the age of some of the loans … brings into question some of the growth that they’ve had in their loan book”. It might suggest the bank had lowered their lending criteria and taken on lower quality loans.
As for the result itself about a week later, the bank reported “a massive increase in operating costs”, even while a reduction in operating costs due to computerisation or digitalisation “had been a theme for Heartland for many years”, leaving many scratching their heads.
“It’s disappointing because … you wonder what they can actually deliver on.”
He agreed that overall, the results season had been “not as good as expected”.
“It was a difficult period for companies, but what it showed was that some companies actually managed it quite well despite the very tough operating environment, whereas others didn’t, I think that’s probably the key thing I draw from it.”
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