The Australian June 30 profit reporting season ramps up this week and we will get a very good idea of how companies went in the final six months of the financial year, as well as over the full financial year.
Companies due to report including GPT (half-year) and Aurizon (today), James Hardie, Shopping Centres of Australia, Transurban and Challenger (tomorrow), Commonwealth Bank, Computershare, Downer EDI, Magellan Financial and Seek (Wednesday), AGL, AMP, Breville, TWE, Telstra, QBE (half-year)and Woodside (Thursday) and Newcrest, Iluka and Baby Bunting (Friday).
The National Bank provides its June 30 trading update on Friday (it balances its financial year on September 30).
Watch for a string of impairments, especially from the property and consumer-facing groups. Many have been already announced – the AMP for instance.
The AMP’s chief economist, Shane Oliver says this is going to be the worst reporting season in years with consensus expectations for a -21% slump in earnings due to the hit from coronavirus which will be the biggest fall since the GFC.
“Financials will be the hardest hit with an expected 28% slump in earnings led by insurers and the banks, followed by industrials with a 15% fall in earnings and resources with 13%.
Consumer discretionary may be the only sector to seeing a rise,” according to Dr. Oliver.
Meanwhile, Insurance Australia Group (IAG) on Friday confirmed a dramatic fall in net profit after tax for the year to June 30, caused by the catastrophic weather events over the summer and pandemic-induced investment losses in the second half.
IAG also confirmed it will not pay shareholders a final dividend for the first time since the company was listed in 2000, after revealing the weak result in an update last month.
IAG reported its net profit after tax was $435 million for the financial year, falling by 59.6% since the corresponding period last year.
The insurer said the financial year was a “tale of two distinct halves” as its operating performance for the first half was strong and broadly in-line with expectations but the catastrophic weather events and the pandemic in the second half had undermined the company’s bottom line.
The group’s insurance profit was down by 39.5% to $741 million, impacted by higher reinsurance costs and greater claims payouts after the summer bushfires and hail storms across NSW, Victoria, and Canberra.
IAG said it paid $904 million in natural perils claims in the year to June, exceeding its revised guidance of $850 million and original allowance of $641 million.
“The high level of natural peril activity over the year underscores the importance of climate action, and the mitigation of its effects, to help make our communities safer, and we continue to advocate for businesses, government and communities to work together on this important issue,” CEO Peter Harmer said in Friday’s announcement.
The insurer’s sliding profits were made worse by a “relatively severe hit” to investment income as a result of volatile market conditions brought on by the coronavirus pandemic, compounded by the historically low-interest rate environment.
IAG has made a $100 million provision for potential COVID-19 related claims, including landlord and travel insurance, but this could blow out pending the results of a test case to determine if the industry-wide pandemic exclusion for business interruption policies is valid.
