##{"id":89027,"date":"2020-10-02T10:59:43","date_gmt":"2020-10-02T00:59:43","guid":{"rendered":"https:\/\/www.fnarena.com\/?p=89027"},"modified":"2020-10-02T10:59:45","modified_gmt":"2020-10-02T00:59:45","slug":"rudis-comprehensive-2020-results-review","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2020\/10\/02\/rudis-comprehensive-2020-results-review\/","title":{"rendered":"Rudi\u2019s Comprehensive 2020 Results Review"},"content":{"rendered":"

By Rudi Filapek-Vandyck, Editor FNArena<\/p>\n

Ultimately, share markets are guided by corporate profits; more specifically by growth in profits, or by the threat to or absence of growth – whichever scenario applies in the moment.<\/p>\n

FNArena has built up a reputation for dissecting and reviewing corporate results in Australia.<\/p>\n

Usually, once a February or August season is finished, I put together a general overview of previews and intermediate assessments, to be revisited whenever handy in the future, but this year in mid-February all attention went to the spreading global pandemic, and very little else.<\/p>\n

Which is why, post August, we’re doing things differently by combining all commentary and analysis on both reporting seasons in one 2020 overview. In reverse chronological order.<\/p>\n

The initial idea was to combine all three Monitors (February, August plus in between) in one document, but that idea was scuppered by technical limitations as it would create too big a file to download. Hence, only the August Monitor in PDF is attached. For the two other reporting seasons, paying subscribers can visit FNArena's Corporate Results Monitor at https:\/\/www.fnarena.com\/index.php\/reporting_season\/<\/a> – look for the archive going back to August 2013.<\/p>\n

In addition, we already published the Wrap in early September: https:\/\/www.fnarena.com\/index.php\/2020\/09\/09\/august-2020-result-season-the-wrap\/<\/a><\/p>\n

****<\/p>\n

Stats, Damn Lies, And Corporate Profits?<\/span><\/span><\/span><\/u><\/strong><\/p>\n

One of the under-reported observations from the recent August reporting season is the ever-widening gap between statutory profits and “underlying” profits, with the latter increasingly being promoted by ASX-listed businesses as the true marker of overall performance.<\/span><\/span><\/span><\/p>\n

It goes without saying, there can be multiple, valid reasons why companies switch to underlying profits, and it does not by default indicate fraud or deception is now high on the agenda.<\/span><\/span><\/span><\/p>\n

But on calculations published by the AFR’s James Thomson<\/span><\/strong> on 31 August, the gap between statutory and underlying profits has grown as wide as $28.6bn -76.5%- for the 172 members of the ASX200 that reported during the month.<\/span><\/span><\/span><\/p>\n

$37.3bn versus $65.8bn “underlying” – it’s hard to fathom this is not an all-time record and surely it must act as a warning to shareholders that more scrutiny might be required during times of corona and lockdowns.<\/span><\/span><\/span><\/p>\n

Within this framework, ASIC last week reported it had intervened in four cases of financial reporting by four local companies.<\/span><\/span><\/span><\/p>\n

These four in question are (with quotes from the official ASIC communication):<\/span><\/span><\/span><\/p>\n

-Nitro Software Limited<\/span><\/span><\/span><\/strong> ((NTO<\/span>)) – The decision to reduce both its contract assets and deferred revenue balances relating to client software subscriptions by $14.7 million in its financial report for the half-year ended 30 June 2020. ASIC had raised concerns on the recognition of the equal and offsetting contract assets and deferred revenue from the inception of multi-year subscription contracts at 31 December 2019.<\/span><\/span><\/span><\/p>\n

–Kresta Holdings Limited<\/span><\/strong> – The decision to reduce the gain recognised on a sale and leaseback transaction by $997,000 in its financial report for the half-year ended 30 June 2020. ASIC had raised concerns on the amount of the gain on the sale and leaseback of a property under a new standard on lease accounting in the financial report for the year ended 31 December 2019.<\/span><\/span><\/span><\/p>\n

-Elixinol Global Limited<\/span><\/span><\/span><\/strong> ((EXL<\/span>)) – The decision to impair goodwill, inventories and other assets by $60 million in its financial report for the half-year ended 30 June 2020. ASIC had raised concerns about the reasonableness and supportability of free cash flow forecasts used in assessing goodwill for impairment at 31 December 2019 having regard to historical performance and market conditions.<\/span><\/span><\/span><\/p>\n

–LawFinance Limited<\/span><\/strong> ((LAW)) – The decisions to reclassify $41.6 million of liabilities from non-current to current and to restate comparative information to recognise $19.6 million of fair value gains on liabilities in the following period in its financial report for the half-year ended 30 June 2020. ASIC had raised concerns on the classification of liabilities and recognition of fair value gains on liabilities in the financial report for the year ended 31 December 2019.<\/span><\/span><\/span><\/p>\n

According to Thomson’s analysis, by far the largest contributor to the gap between statutory and underlying profits came from asset write-downs by the likes of Boral, Qantas and Woodside Petroleum.<\/span><\/span><\/span><\/p>\n