What’s in a profit? Metal-basher Bradken is an early contender for profit confuser/spinner of the year. Yesterday, in its interim financial results, media release and presentation, it had multiple goes at telling the market just how it went in the half year. Badly is the short answer, so much so that shares fell 24.4%, which tells you that investors looked through the company’s clumsy attempts to fudge the real financial result for the six months. According to Bradken, it had an underlying profit, an unadjusted profit, or a statutory profit for the six months to December 31. Got that?
The 2014-15 interim results from the company yesterday were a classic example of spinning what was a very bad result as the company cleans up its balance sheet. The real story from the report was that the losses were so large the company dropped its interim dividend, but if you read the multiple definitions of profit, it was very easy to be confused. There was EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation which were $14.5 million, down 83%); Underlying EBITDA ($72.3 million, down 16%); NPAT (Net Profit After Tax, a loss of $92.6 million compared to a profit of $38.1 million in the six months to December, 2013); and Underlying NPAT ($13.8 million, down 64%); .
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In a presentation, NPAT was also described as “Unadjusted NPAT” (though that was not included in the table called “Financial Highlights”, in the presentation to analysts). And when you look further, there was a third description of this figure: Statutory Net Profit After Tax: And guess which figure(s) Bradken chose to emphasise in its presentation and media release … You guessed right; not the one with the multiple descriptors, the big loss. It wasn’t until the top of the second of a four-page media release that we learned that the actual result for Bradken for the six months was a loss:
“Statutory Net Profit After Tax was however significantly impacted by a number of one-off charges and costs totalling $122.1 million before tax, more than 80% of which were non-cash, that related to the manufacturing restructure and to impairment of goodwill resulting in a Net Loss After Tax of $92.6 million, compared with a $38.1 million Net Profit After Tax in the previous corresponding period.”
And the result isn’t a “Statutory Net Profit After Tax”. It used to be called net profit (simple). It’s profit, after all deductions — interest, tax, depreciation, amortisation and the impact of impairments and one-off losses (which totalled $122 million for the half year). To pay a dividend, it’s always helpful to have a net profit larger than the dividend payout, otherwise you have to dip into reserves to make the payments. Desperate companies do that as they try to keep their shareholders happy. And it’s not a good look for a company reporting such a big blob of red ink to be paying shareholders a dividend. Makes bankers and other creditors nervous, and they start asking questions about being paid, quickly. — Glenn Dyer
There’s gold in them thar stores, Louise! Recently floated jewellery retailer Lovisa this week reaffirmed full-year earnings guidance after lifting first-half profit by 66% to $12.3 million for the six months to December 31 on a 33% jump in revenue as customers went for their collections of cheapish, garish geegaws and other products. But there was one figure mentioned in the company’s release that was a real eye-opener. Lovisa said that in December it had sales of $21.7 million and “a gross profit margin of 80.2%”. That’s like picking gold from trees — for every $1 of sales, just over 80 cents were gross profit. Better than Apple (mid-40s) and better than our most profitable big businesses, the WA iron ore businesses of BHP Billiton and Rio Tinto (which reports its full-year figures tomorrow afternoon). And management had a charmingly naive approach to the impact of the falling Aussie dollar (Lovisa imports its geegaws) — it says it will stick prices up for “new products” as the year progresses. That’s a novel move in the current stagnating retail environment in Australia. Lots of luck, Louise (that’s the English translation of Lovisa). GUD Holdings is another reporting company to confess to the ambition of raising prices to cover the impact of the falling dollar. Good luck. —Glenn Dyer
An Apple a day. Apple is now worth just over US$710 billion as the shares close at US$122.02 this morning. That means the Apple share price has risen, wait for it, more than 23,600 times since it listed in December 1980 — its actual value is up 50,800 times, according to Marketwatch. All this is due to bullish comments from CEO Tim Cook, who reckons the giant can grow like a start-up. Heady stuff, perhaps he’s still dazzled by the massive surge in iPhone sales in the December quarter. Since Cook became CEO in August 2011, the market value has doubled. It is up 119% from its most recent low of US$55.79 in mid April, 2013. Next the sun, Icarus? — Glenn Dyer
Prices down, down, down. The January inflation figures for China yesterday were not good for anyone — a rise of just 0.8% for the month, compared with January 2014, and almost half the annual rate of growth in December of 1.5%. And producer prices fell at an annual rate of 4.8%, compared with the 3.3% rate in December. The fall in January was the 35th month in a row that Chinese producer prices have fallen — that’s deflation, Japan style. Now some foreign analysts claimed the bigger fall was because the Lunar New Year/Spring Festival was in January last year and it’s in February this year (next week). And yet Chinese New Year fell on January 31 in 2014, so most of the holiday was in February last year, so that excuse doesn’t apply and is grasping at straws. Coming as imports fell 19.9% in January (with prices and volumes falling, especially commodities such as oil, copper, iron ore and coal). Exports were down 3.3% and, the slowing of the Chinese economy seems to be heading in unintended directions. — Glenn Dyer
Deflation = Squeeze. So what happens if Chinese consumer inflation becomes a prolonged bout of deflation? Well, it will be bad news, not only for the Chinese economy, but for suppliers of goods and services in China and offshore — such as Australia. Japan, a smaller economy, has been crunched by years of deflation — and now seems to be heading for another bout. We’re hoping it won’t happen in China. It is still hard to see it happening, but if it does the stakes rise for economies such as Australia’s and for suppliers like BHP, Rio, Fortescue and the myriad other groups. Activity doesn’t stop in a bout of deflation, but demand does — it slows, as consumers cut back and interest rates rise. Sectors dependent on interest rates suffer, and China’s embattled property sector will be the first hit by deflation, which could unsettle the rest of the economy. That’s because consumers and companies start deferring purchases (once they become convinced deflation is in place) because they think the goods and services will be cheaper. China’s debts have soared since 2008 — up around 80% or so of GDP, according to some estimates. Deflation makes those debts a bigger burden on the economy, borrowers and banks. The portents are not good; let’s hope they change soon. It’s very hard to get your head around the idea that an economy so large and vigorous could slide into a deflationary squeeze. — Glenn Dyer