Profits and revenues up, impairments down: ASX50 - KPMG Australia
close
Share with your friends

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

Profits and revenues up, impairments down: ASX50

Statutory profits rose by 15 percent to $138bn and revenues by 4 percent to $659bn, among Australia’s largest 50 companies in the year to 30 June 2018, a KPMG study of annual reports shows. This compares with a doubling of profits in the 2017 report.

1000

Also on home.kpmg

The increase in profits was led by the miners ($10bn rise) and energy and utilities ($5bn). Top companies in other sectors reported more modest profits growth. Profits were also boosted by a large 45 percent fall in impairment charges – to $7.6bn – KPMG’s ASX50 financial reporting insights finds.

Notably, for the first time since KPMG began producing this annual study in 2008, statutory Profit before Tax (PBT) figures exceeded underlying profit. Just two years ago, ‘alternative’ measures of earnings included by companies in their reports were 61 percent higher than PBT figures.

The sector summary of the 2018 results were:

  • Energy & Utilities – profits up 359 percent, revenue up 7 percent.
  • Miners – profits up 28 percent , revenue up 10 percent.
  • Materials and transport – profits up 33 percent, revenue down 5 percent.
  • Real estate – profits up 13 percent, revenue down 1 percent.
  • Consumer staples – profits up 15 percent and revenue up 2 percent.
  • Big Four banks – profits up 2 percent, revenue up 3 percent.
  • Insurance – profits down 25 percent*, revenue up 1 percent.
  • Others – profits up 8 percent and revenue up 5 percent.

The significant increase in profits for the energy and utilities companies reflects a significant reduction in impairments and one-off expenses compared to the prior year. Increased oil price and demand for gas were also significant factors, the report finds.

The reduced profit in the insurance category reflected the impacts of catastrophes from global weather events and wildfires along with impairment charges impacting the international operations of one international insurer. This was in contrast to domestic general insurers who again benefited from another relatively benign year in terms of natural hazards in Australia. KPMG’s recent General Insurance Industry review shows a 4 percent rise in profits across the sector.

Alternative measures of financial performance

The survey also shows 40 (42 in 2017) of the ASX50 companies using an ‘alternative’ measure of financial performance, in addition to statutory profits in their annual reports. Measures used include underlying profits, cash earnings, and profits before significant, non-recurring, distributable income or material items.

Andrew Yates, KPMG National Managing Partner – Audit, Assurance & Risk Consulting, said; “It is interesting that in the previous ten years of this study, the profits recorded under alternative measures to accounting standards have always been higher than statutory profits before tax (PBT) – but for the first time this year PBT figures are higher, by 6 percent. The main reason is that property gains and one-off gains have been excluded from underlying profits.”

The lower non-statutory profits were driven by:

  • only $2bn of impairment charges being reported outside of non-statutory profits ($8bn in 2017)
  • upward revaluations of property fair values of $6 billion 
  • gains from one-off significant items, namely the sale of assets
  • favourable movements in financial instrument fair values.

All of these were excluded from non-statutory profits.

Key Audit Matters

The study also includes an assessment of Key Audit Matters (KAMs), where the auditors describe the issues that were their key focus areas in the independent auditor’s report sections of annual reports. Australia is now into its third year of ‘long-form’ auditor reports.

Last year, KPMG reported that goodwill was by far the most common source of KAMs – but this year it is in second place after taxation issues, although the study shows that KAMs tend to vary greatly between industries. For example banks’ reports included KAMs on loan provisioning, while mining companies, operating in multiple jurisdictions and tax regimes, tended to have tax-related KAMs.

Revenue was the third largest source of KAMs, spread across multiple sectors.

Eileen Hoggett, KPMG Head of Audit, said: “The KAMs are notably sector-specific – it makes sense to focus on the issues of particular concern in each industry. Assessing goodwill is always challenging, involving judgements on forecasting and discounting future cash flows. Revenue is also a key area of focus for auditors, including significant judgements on volume of transactions and percentage of completion, and involving heavy reliance on IT systems, processes and controls. KAMs are now an established part of the assurance approach.”

For further information

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

Connect with us

 

Want to do business with KPMG?

 

Request for proposal