ASX50 Profits and revenues up, impairments down | KPMG | AU

Profits and revenues up, impairments down, ASX50 annual reports show

ASX50 Profits and revenues up, impairments down

Statutory profits almost doubled among Australia’s largest 50 companies in the year to 30 June 2017, a KPMG study of annual reports has shown.

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The large increase in profits, up by $61.3bn to $120.8bn, included a large surge in profits for the mining sector, up $27.7bn. Performance across the ASX50 was mixed but positive overall.

Profits were also boosted by a $23.3bn fall in impairment charges. In the previous year, reductions in commodity prices had led to large write-downs, but this year the largest impairments involved the oil and gas assets in the energy and utilities sector.

The sector summary of the 2017 results were:

  • Big Four banks – profits up 5 percent, revenue down 2 percent
  • Miners – profit up 426 percent , revenue up 13 percent
  • Energy & Utilities – profit up 127 percent, revenue up 6 percent
  • Property – profit up 13 percent, revenue up 5 percent
  • Insurance – profit down 19 percent, revenue up 5 percent
  • Materials and transport – profits up 92 percent, revenue down 2 percent
  • Consumer staples – profit up to $8bn from zero a year ago and revenue up 3 percent
  • Others – profit up 3 percent and revenue down 1 percent

Other key findings

  • The miners reported their lowest annual impairment charges since 2011 – as a recovery in commodity prices appears to have reduced the valuation pressure on mining projects. Impairment charges for the 12 months to 30 June 2017 of $1.1 billion were significantly lower than the $15.8 billion in the comparative period.
  • Revenue has increased for 62 percent of the ASX50 companies and by 3.8 percent overall. The Miners and Energy and Utilities companies performed strongly due to increased prices. The Consumer Markets sector also performed strongly.

Alternative measures of financial performance

The survey also shows 42 of the ASX50 companies using ‘alternative’ measures of earnings in addition to statutory profits in their annual reports – which includes measures reported internally for decision making purposes. But the gap between the two sets of figures was much closer than in 2016 – down from $35bn to $9.7bn, meaning that, overall, alternative profit figures were just 7 percent higher than statutory profits, compared with 61 percent in 2016.

Julian McPherson, KPMG Audit Partner said: “The practice of reporting earnings using alternative measures to accounting standards has become a well-established part of market communications by corporates. The gap between statutory and alternative profit measures goes up and down but has decreased noticeably by 59 percent this time compared to a year ago, which reflects the reduction in impairment charges and other significant items recorded outside of the alternative profit measure – such as costs related to restructuring, cost saving strategies and transformation programs.”

Accounting standards

KPMG also notes that in future periods, the results could well be affected by three new accounting standards which have the potential to materially impact some of the metrics included in this report. The new revenue and financial instruments standards will apply for periods starting from 1 January 2018 and the new leases standard from 1 January 2019.

Julian McPherson said: “ASIC has warned companies that AASB 15 (revenue), together with AASB 16 (leases) and AASB 9 (financial instruments), represent the most significant change to financial reporting since IFRS adoption in 2005.

“Approximately half of the companies have disclosed that they do not expect a significant impact from the revenue and financial instruments changes. But only 14 percent of companies have made a similar statement for leases.

“Very few of the ASX50 companies have so far provided detailed guidance on the quantitative impacts of the new accounting standards although many have included detailed qualitative disclosures that describe potentially material impacts. The disclosures suggest that many companies are still working through their implementation projects.”

Further information

Ian Welch
KPMG Communications
T: 02 9335 7765 / 0400 818 891
E: iwelch@kpmg.com.au

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