Australia’s largest listed businesses, the ASX 50, have suffered their lowest collective profit since the GFC, but this fact has been partly disguised by the way results are being reported.
The big end of town posted a combined statutory profit of $68 billion for the 12 months to December, compared to $111.9 billion the year before, a drop of almost 40%.
The main cause was a massive 185% rise to $41 billion in impairments and falling commodity prices shrinking revenue in the resources sector, according to analysis by KPMG.
The results were so low that almost three quarters (74%) of the companies took to using alternative measures of profit including underlying profits, cash earnings, and profits before significant, non-recurring or material items.
Giving prominence to non-statutory standards, rather than those required by regulation to be lodged with the ASX, had the effect of showing the results in a better light, stretching and massaging the concept of profit in the right direction.
“The practice of reporting earnings using alternative measures to accounting standards has become a well-established part of market communications by corporates,” says KPMG audit partner Julian McPherson.
Using underlying profit, the companies collectively posted a $105 billion result for 2015, down from $123.7 billion, a fall of only 15%.
The 37 companies using non-International Financial Reporting Standards in 2015 could then show their profits 54% higher than statutory profits, as this chart shows.
Nine companies recorded impairments of more than $1 billion compared to three in 2014. Most were resources industry-related. Another 21 companies reported impairments of more than $50 million each.
Mining companies accounted for 62% of the non-current asset impairments and the energy and utilities companies another 20%. Among them, there was $15 billion from BHP Billiton in relation to the fatal Samarco mine disaster in Brazil and to US oil shale assets. South32 and Rio Tinto both recorded $4 billion of impairments.
Large write downs by non-mining companies included Woolworths which reported a $2 billion impairment in relation to its exit from its home improvement business Masters.
The big four banks, which top the ASX 50 by market capitalisation, are currently exposed to $3 billion from a handful of recent high profile corporate collapses. UBS calculates the provisions required against the exposure is a combined $1.19 billion across the banks.