Company reporting trend defies professional pessimists' views

By Peter V O'Brien

Friday 22nd February 2002

Buoyant half-year and full-year profit results from New Zealand listed companies sit oddly with the constantly regurgitated views of imminent economic disaster from well-entrenched lobby groups.

The ability of spokespeople for various trade organisations to change their views at the drop of a paycheque has been a wellknown phenomenon for years.

The New Zealand investment world heard dire predictions from vested interests in the past three months. Company results belied the pessimism.

Some reports could be discounted given the nature of the companies.

Tranz Rail, for example, said on February 7 it earned $43.3 million for the six months ended December 31. The company said the result was a $50 million improvement on the $6.7 million net loss recorded in the same period of the previous year.

Tranz Rail's result included net profit of $58.3 million on the sale of the Auckland rail corridor (which had been bought for $1) and $5.8 million from sale of the Tranz Scenic business.

The financial statements were prepared in accordance with appropriate accounting standards for the years since privatisation.

Only a hardy soul would be prepared to reckon who got what from the company over the years.

Tranz Rail's recent reports to the Stock Exchange had a change, which could be either significant or immaterial.

Comments were previously attributed to the chief executive and/or chairman. They now come from chief financial officer Mark Bloomer, who at best ranking could be no more than third, or fourth assuming a deputy chairman, in the corporate hierarchy.

It was interesting to note that listed companies with substantial local shareholdings performed well in the six months/year ended December 31, while those with dominant overseas-based shareholders tended to return relatively poor results.

Some local companies failed to help their images when they emphasised minor matters in reports.

Genesis Research and Development Corporation began with a headline and an opening sentence proclaiming the company's feat in completing the year ended December 31 with cash reserves of $47.9 million to fund continuing research.

Almost as an aside, the company said it had a total deficit of $9.55 million in the period, including $1.61 million of unusual items before and after tax.

Companies like Genesis can validly emphasise their capacity to fund ongoing research while writing off the costs of current-term research. That emphasis should not be at the expense of bottom-line results, irrespective of the necessity to distinguish between sustainable losses and cash resources.

Most of the companies reporting so far in the December 31 round started their documents with the bottom-line result.

It became a guide to further delving when they highlighted other definitions of "profit," cash-flow movements and/or results before massive writeoffs.

The resultant figures were subject to adjustments for accounting standards in various jurisdictions (see the O'Brien column, p35 )

The overall trend in results showed favourable trading conditions, which could irritate the professional pessimists.

A balancing PR operation comes from the union side of the divide and those who get media coverage due partly to the weirdness of their views.

Reality, as always, was somewhere between the extremes.

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