There was more bleating this morning from the Business Council about high-cost, poorly productive Australia. Yes, productivity is low and has been low for a while, especially labour productivity. There are any number of explanations: high investment levels, especially in resources and power utilities in recent years; the rapid growth in labour intensive services, such as food, cafes, etc.
But multifactor productivity (which includes capital spending by companies) is even lower. Leighton Holdings is a prime example of big corporates wasting capital: the huge losses and write-downs it has taken on the desalination plant project in Victoria and the Brisbane Airport Link project represent capital wasted, half a billion in the Middle East where it is now involved in a bribery scandal. Those losses necessitated investors (including its German parent) recapitalising its business last year in a $750 million issue to shareholders. That’s extra capital taken from the market to cover a mistake.
There have been other big losses by business: last week the NSW government bailed out the Sydney passenger train contract 49%-owned by Downer. Write-downs and losses on the project have cost Downer hundreds of millions of dollars. Then there was the Sydney Airport rail link, the Cross City Tunnel and the Lane Cover Tunnel, all of which saw more than $3 billion wasted in capital and loans that were lost by the developers and owners. And then there are the tens of billions lost in dud loans that were exposed by the GFC, or capital raised and frittered away by the likes of Allco, Babcock and Brown, Opes Prime, ABC Learning and a long list of collapses.
There was no recognition of this from the media or the Business Council, whose board members were given an uncritical platform to demand that politicians and workers lift their game.
There is one area where business (including the locally listed member companies of Business Council) could do something that really will lift productivity, and that is the speed at which publicly listed companies report their interim and full-year results. Improving that and bringing it up to world’s best practice (which is to be found in the US), would have a dramatic impact on transparency, would help make the Australian stockmarket and investors better informed, and allow smarter decisions to be made about investing some of our huge superannuation cash flows each year.
At the moment Australian companies have two months to report their results after the closing of their books for the interim or full-year figures. So we see Woolworths, for example, the country’s biggest retailer, planning to report its December half-year profit on March 1. That will be two months after the company ruled off its books on January 1, and a month after the release of the sales figure for the December quarter and half year.
So what? Well a week tonight about 11 o’clock our time, the world’s biggest retailer, Wal Mart will reveal its 2011-12 results and sales figures. The company will release the figures just 21 days after ruling off its books for the year on January 31. (It takes about 15 days to release its quarterly sales and profits figures). Wal Mart operates in 22 countries and has to reconcile more than $US430 billion in sales and and operating profit of more than $US24 billion. It will also have to work out its fourth quarter sales and profit data and release that at the same time. It is a business more than eight times the size of Woolies (in sales terms) and far more complex and yet it is clearly far more efficient and has superior reporting processes.
Woolies takes two months to do that for an interim result, operating in Australia and New Zealand, with a small joint venture in India. That’s slovenly compared to Wal Mart, which isn’t alone. Alcoa, the aluminium giant, is the first major company in the US to report quarterly figures, usually within 10-12 days of the end of the quarter. Cosco, the tech giant took just 11 days to release its latest figures on February 8, after balancing on January 28.
Tomorrow, the Commonwealth Bank of Australia produces its December half-year profit figures. That’s 45 days after the balance date. In the US, JPMorgan Chase, the country’s biggest bank (and a monster compared with the CBA), took just 13 days to produce its fourth quarter and full 2011 figures.
Wesfarmers, which owns Coles, Woolies’ rival, reports its interim figures on Thursday, February 16. That’s 46 days, almost a sprint compared with Woolies’ limping effort. BHP Billiton’s results and accounts were far more complex than Woolies’ to reconcile, and yet it managed to do that in 40 days from balance date for the half year. Rio Tinto took a day longer for its profits for all of 2011.
But both companies released their sales figures for the December quarter and full year (for Rio) two weeks faster than Woolies: BHP took 18 days to release its December quarter and half-year sales figures, Rio 17 days for its full 2011 earnings.
Numerous surveys have shown US companies are the most efficient users of capital. They get more productivity from their investments and make them faster, with fewer losses. Australian companies should be aiming at that yardstick to play their part in boosting national productivity.
It should be a policy of the Business Council, ASIC, big investor groups and the ASX (not to mention the main Australian regulator, the Australian Financial Council, consisting of the Reserve Bank, federal treasury, ASIC and APRA), to force Australian companies to invest more in accounting and reporting systems to speed up the release of regulatory financial data, especially quarterly (where applicable), half-yearly and yearly sales and profits.
Reporting earlier would mean investors (especially those handling super money) would be better placed to make more informed, up-to-date decisions about investment, which would help reduce losses and wastage. It would also mean companies are on top of problems (such as Leighton’s 2011 litany of woes) much faster than they appear at the moment, and are able to warn the market at a swifter pace. It is one of those horrible win-win situations that is actually what it means.
And yes, it would involve companies spending more money on new systems and employing auditors and accounts and paying more to external auditors. But the ends do justify the added means and expense.
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