Aussie firms' guarded approach gives local investors useful guide

Friday 30th August 2002

Comments from Australian companies are a useful guide for New Zealand investors who want to follow international business trends, writes PETER V O'BRIEN

Recent profit announcements from large Australian groups included views on current and future prospects for their overseas markets.

There were too many to allow more than a brief summary of those in which New Zealanders are likely to hold shares, whether directly or through participation in managed funds.

The preliminary report from packaging and consumer products company Amcor was relevant in that context, both for the involvement of New Zealand shareholders and the range of its operations in Australasia, Asia, North America and Europe.

Amcor said recent acquisitions and other matters meant about 90% of sales would be to the non-cyclical food and beverage industries.

That was a significant point, given concerns of various international commentators about future business trading prospects.

Amcor partly reflected those concerns, with a comment that, although economic conditions remained uncertain, the company was extremely well-positioned to deliver solid earnings growth again in 2003, after a 17.8% profit increase to $A280.5 million, before "significant items."

The latter related mainly to $A553.4 million after tax arising from disposal of the company's remaining shares in Kimberly-Clark Australia.

There was excellent progress in a three-way flexible merger in Europe, with the business meeting all major key performance targets.

The Australasian metals and plastic packaging operations performed well, improving returns from 13.8% to 17.6%.

Amcor Asia, operating 16 plants in five countries, lifted profit before interest and tax 17.5% to $A43.8 million and return on funds to 16% from 13.1% in the previous year.

A slowdown in the UK economy reduced activity levels in Asia, affecting the overall sales level, which was down 5% in the region.

Economic conditions in Asia appeared to have stabilised and "although there is no immediate sign of an upturn, the Asian operations are well positioned to benefit as the economy recovers."

Amcor also reported improved returns from New Zealand's corrugated packaging on higher sales into the "fruit and produce sectors," although the company did not refer to any rural easing here.

New Zealanders are well aware of that possibility, given comments from our companies.

Burns Philp, a company well known to New Zealanders through the shareholding activities of Graham Hart, operates in several countries, although no longer here.

The group had a "recovery year," reporting good operations in its major markets, although quiet about the immediate future.

Ansell (formerly Pacific Dunlop) was in a similar situation.

These companies are involved in activities that have defensive elements and therefore are attractive to equity investors concerned about international economic developments.

Media giant News Corporation is always a guide to what is happening internationally, due to its reliance on consumer spending, particularly in the US.

The company had a massive write-down of an investment but its other comments were relatively buoyant.

News Corporation's preliminary report for the year ended June 30 included figures and analysis of the fourth quarter.

It was worth noting that the company said fourth-quarter operating income increased 16%.

Revenue in the quarter was 4% higher "driven by rebounding strength of US advertising markets on all US television and cable network properties."

Miners, including oil producers and explorers, are sensitive to price and demand changes arising from international and political conditions, a point in the preliminary half-year report from oil company Santos.

Managing director John Ellice-Flint said oil price and exchange rate factors were outside the company's control. Recent strength in oil prices and the weaker Australian-US rate were both favourable for the full-year result.

Mining and metals processor Billiton was more sanguine than other companies about the future, saying there was cause for concern about the global economy.

"Although OECD industrial production continues to post small monthly rises, it remains below the level of a year ago."

"After some early gains, the US economy is struggling to maintain momentum; growth prospects across Europe remain subdued; and a rising yen threatens to derail Japan's export-led recovery."

"Business investments and non-residential construction remain weak in the developed economies."

"Only across Asia does production continue to improve, particularly in South Korea and China where annual growth is approaching 8%."

"In recent weeks, extreme volatility in equity markets, falling business and consumer confidence and heightened risk aversion have cast a pall over the global economic outlook."

The prices of many traded commodities had fallen to or near multi-month lows.

The various comments from broadly based Australian companies were a mix of guarded optimism and concern about a possible downturn arising from lack of confidence.

New Zealanders saw similar views expressed here as Kiwi companies assessed prospects.

It behoves New Zealand equity investors to be very cautious and selective about their shareholdings.

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