The respective state of the economies of New Zealand and Australia were brought into sharp relief during the listed-companies reporting season. Business Reporter Simon Hartley and Craigs Investment Partners broker Peter McIntyre consider the two economies' effects on company fortunes and outlooks.
The resilience and buoyancy of the larger Australian economy was reflected in the results of listed New Zealand companies with trans-Tasman operations, while those with New Zealand exposure were flat and hopeful rock-bottom was at last behind them.
Australia was technically never in recession and its resource mining sector - worth billions in overseas export receipts and domestic spending - is looking to surge ahead again as Chinese and Indian economies tentatively loosen their reins of development.
Historically, forays into Australia by New Zealand companies have rarely found favour, such as The Warehouse which exited its toehold stores at a loss.
But for the past six-month reporting season, many companies with exposure in Australia have been positive, on the back of its surging economy.
Craigs Investment Partners broker Peter McIntyre said the reviving Australian economy, underpinned by its mineral wealth, also had stimulation from the Reserve Bank of Australia for infrastructure projects, plus other large infrastructure joint ventures, such as gas projects in West Australia.
"The primary driver for this wealth [of work] is China and Asia; Australia is truly blessed with its mineral wealth and commodities for those markets," Mr McIntyre said.
For National Bank chief economist Cameron Bagrie, China's economic growth and its two-year balanced introduction of a 4 trillion yuan ($NZ840 billion) domestic stimulation package is key to New Zealand and Australia's recovery.
At present, China was New Zealand's third-largest trading partner, but it could possibly be our largest export market within 18 months, he said.
"Exporting from China capitulated [during the global financial crisis] and the 4 trillion yuan is being used to stimulate domestic demand," Mr Bagrie said.
China's growth last year "slowed down" to 6%, and could be expected to be "an absolutely stunning" 8% or more, he said.
However, Mr Bagrie cautioned while China's present inflation rate of 1.5% was considered low, when annualised that was up to 6% and spending could be curtailed to control it.
A housing bubble could form, because lending growth was up 40%.
"With China's opportunities, they are also vulnerable to economic swings like everyone else," Mr Bagrie said.
Mr McIntyre said Fletcher Building, New Zealand's largest-listed company by market capitalisation, and casino operator Skycity both operated strongly in Australia, which was reflected in their results.
Last week, Fletcher booked a $154 million profit for its six months to December, down 10% on last year's result, but it beat brokers' forecasts by a range of $13 million to $21 million.
The Australian Government's home-insulation stimulus package helped underpin Fletcher's result there, staving off the worst of the recession, according to Fletcher's chief executive Jonathan Ling.
Mr McIntyre said SkyCity was another company to benefit from its Australian exposure.
In mid-February, SkyCity posted an almost 30% increase to its half-year to December after-tax profit, and appears set to deliver double-digit profit growth of up to 15% for its full-year result.
Its casinos in Darwin and Adelaide showed much-improved international business growth, contributing to revenue growth of almost 6%, at $446.9 million Much of the earnings before interest, tax, depreciation and amortisation boost of 7.8% to $160.1 million was from Australian operations.
In New Zealand, the operations of logistics companies Freightways and Mainfreight are considered good economic indicators, Mr McIntyre said.
"In a recession, these logistics companies tend to struggle," he said.
Freightways delivered a disappointing result for brokers, normalised operating revenue being down 4% at $165 million and after-tax profit down 8% at $14.5 million.
The company reported fluctuating customer acclivity through early and mid-2009, which began improving towards the end, but it needed to see a "more broadly based performance improvement", Freightways chairman Wayne Boyd said.
"We anticipate the recovery of the economy, and how it translates into the performance of Freightways express package business, will be gradual," he said.
Mr McIntyre said for Mainfreight the outlook was improving, but the "recovery still looked fragile".
Third-quarter revenues for Mainfreight had declined 17% to $306.4 million on the year before, but this was balanced by cost-cutting which saw earnings before interest, tax, depreciation and amortisation up 12.5% on the previous year at $27.4 million.
Mainfreight group managing director Don Braid said initiatives of improving margins, managing costs closely and aggressive sales campaigns for market-share growth, remained core to activities.
"It is still our belief that the apparent market recovery remains fragile, and we retain a cautious approach," Mr Braid said.
Mr McIntyre said: "It is still uncertain whether increased momentum in Mainfreight's business reflects restocking or a broader-based genuine sales uplift."
Global exposure guarantees little, as was seen with the result of Steel and Tube which reflected the woes of the steel world, being down 85% in after-tax profit.
The problem of declining steel consumption also affected Fletcher's steel division, the entire sector having come off record highs to wallow in recessionary constraints in the building sector.
The downturn was also seen in Australian steel companies, and some with exposure to the US markets, but most are expecting to glean a boost from an upturn in China.
Mr McIntyre concluded that regardless of positive results from Australian divisions and hopeful outlooks in New Zealand, most companies were still being extremely cautious on forward forecasting and were emphasising that cost controls were still being kept strictly in place.
"They are all still concerned and cautious about trading during the next couple of months and how that will affect their full-year results," he said.
