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Speaker 1: The information provided in this program is of a general

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Speaker 1: nature and is not intended to be personalized financial advice.

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Speaker 1: We encourage you to seek appropriate advice from a qualified

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Speaker 1: professional to suit your individual circumstances. Most of our major

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Speaker 1: listed companies are releasing there for your finances this month,

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Speaker 1: and expectations are for it to be ugly again, likely

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Speaker 1: marking the sixth season in a row of net negative

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Speaker 1: revenue growth.

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Speaker 2: We've yet to see, obviously the bottom of this earning cycle,

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Speaker 2: so this next couple of weeks we've got thirty plus

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Speaker 2: companies reporting. That's going to be a really important as

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Speaker 2: to have we found the bottom yet.

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Speaker 1: High interest rates have put our economy in poor shape,

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Speaker 1: setting the scene for rate cuts this year. While that

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Speaker 1: may provide some hope for investors down the line, the

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Speaker 1: pain is still having an impact on company profits. The

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Speaker 1: number of profit downgrades in our market have exceeded any

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Speaker 1: upgrades over the last three months leading into.

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Speaker 3: The earning season.

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Speaker 1: According to Forsyth Bar, retailers tied to consumer spending are

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Speaker 1: specifically doing it tough, with the warehouse Katmandu and Michael

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Speaker 1: Hill all warning sales a week. Cyclical industries such as

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Speaker 1: construction are also challenged with demand for building products like

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Speaker 1: steel lower than the GFC, impacting Vulcan steel, steel and

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Speaker 1: tube and of course Fletcher building. A slow down in

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Speaker 1: house sales and little sign of price recovery is a

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Speaker 1: struggle for some retirement village operators, while commercial property companies

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Speaker 1: have been selling down assets to help handle higher rates.

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Speaker 1: Travel demand is also down and could cause a New

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Speaker 1: Zealand to cut dividends to shareholders. Throughout this period, companies

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Speaker 1: have had to keep a very close eye on costs

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Speaker 1: and ekeop efficient games where possible to protect margins and

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Speaker 1: ride out the storm. Just how much longer they can

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Speaker 1: keep it up will all be revealed this month when

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Speaker 1: about thirty of the interdex listed company's release financial statements.

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Speaker 1: Shane Solely from Harbor Asset Management has a view on

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Speaker 1: when we could see a revenue recovery. Shane, so good

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Speaker 1: to see you, Thanks having us appreciate it.

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Speaker 4: Nice to see you too.

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Speaker 3: Earning season upcoming.

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Speaker 2: What are your expectations, Well, not super high, to be

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Speaker 2: honest with you, We've got Marcu's got pretty low expectations.

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Speaker 2: I think this is what we've seen in the last

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Speaker 2: few quarter half year results and four year results and

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Speaker 2: obviously every three months we get a band of these results.

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Speaker 2: Market expectations have been quite minus and this time round

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Speaker 2: they're pretty modest.

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Speaker 4: You know, we're still.

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Speaker 2: Lapping a very low economic activity period of time. Cost

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Speaker 2: structures is still pretty full, so marcus are a little

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Speaker 2: bit so there.

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Speaker 4: There's not a lot of excitement out there about earnings.

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Speaker 3: We've had what three years of this starche It's like

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Speaker 3: we can.

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Speaker 4: Agree to that.

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Speaker 2: Yeah, yeah, well, I think we're getting closer to a

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Speaker 2: go one and this could be a bit of a

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Speaker 2: turning point, I think, you know, assumably there's a we're

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Speaker 2: wary about how bad this last half has been, and well,

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Speaker 2: last twelve months have been, but we've seen some green

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Speaker 2: shoots of labor costs not the problem they were. Energy

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Speaker 2: costs still a bit of a headwind. You till there's

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Speaker 2: a bit of a head wind. Maybe we see the

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Speaker 2: peak in those energy costs, Maybe we see a peak

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Speaker 2: in interest costs. So we're getting a few maybees and

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Speaker 2: sumly the.

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Speaker 4: Tone has changed.

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Speaker 1: How have we seen this economic pain to date actually

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Speaker 1: flow through to profits?

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Speaker 3: How bad has it been in percentage terms?

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Speaker 2: Yeah, we're seeing a lot of companies that are very

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Speaker 2: cyclical exposed, so companies that depend on activity in their equantumy,

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Speaker 2: those are the ones that have been hit really hard,

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Speaker 2: down fifteen to twenty thirty forty percent in some cases,

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Speaker 2: and their any so been gapping down. Of course, a

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Speaker 2: lot of their own new ze income there is their utilities,

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Speaker 2: their growth stops, they have a global face and they've

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Speaker 2: been less impacted. So it's been very much haves and

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Speaker 2: hair knots. So it's been a very bipolar market.

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Speaker 3: Those cyclical stocks.

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Speaker 1: You're talking construction, building products, retailers, just how poor have their.

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Speaker 3: Performances last few years.

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Speaker 2: You know, Fletcher Building has been unfortunate to post a

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Speaker 2: child for this earning's reset very challenging and a major

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Speaker 2: shake up for the business. And assume we feel for

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Speaker 2: the people involved in the business, but there was a

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Speaker 2: company that was doing quatibly well, strong demand, and then

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Speaker 2: we've had a cost blowout and then we've.

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Speaker 4: Had a solid reduction in demand.

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Speaker 2: So they're assuming that's the sort of business that has

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Speaker 2: been really put through the mill. The only good thing

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Speaker 2: is we've seen somewhere else changes in terms of how

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Speaker 2: management goes on in that business and other businesses that

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Speaker 2: are similist that comes like bulk and steel still in tube.

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Speaker 2: They've really been in the under pressure some of the

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Speaker 2: transport companies and definitely the retailers.

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Speaker 4: Some of the retailers have done really well, others less.

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Speaker 3: So it's been interesting to watch, hasn't it. Especially on

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Speaker 3: the retail front.

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Speaker 1: You've got the likes of Brisco it's coming out with

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Speaker 1: record half your sales, and then you have others the

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Speaker 1: warehouse catman do the complete opposite direction. What do you

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Speaker 1: think resulted in such a variance, And even those types

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Speaker 1: of industries where really they should be all performing the same,

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Speaker 1: but they're not.

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Speaker 2: Yeah, competitive environments are quite different. So soon we we're

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Speaker 2: seeing a very intense competition in a lot of different

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Speaker 2: parts of say, for example, competitors for the warehouse, competitors

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Speaker 2: for CAMMANDU. Risco's really carved down a niche where they

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Speaker 2: continue to pick up market share.

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Speaker 4: It's been a big driver.

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Speaker 2: There's a few other businesses like that, but even in

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Speaker 2: tough times, they can continue to grow market share.

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Speaker 1: If there's been any silver lining about the cycle that

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Speaker 1: we are very much still in. But on our way

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Speaker 1: out of as you say, is that when this tide does.

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Speaker 3: Go out, you do start to see who's swimming naked.

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Speaker 1: Right. This has really put pressure on management teams to

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Speaker 1: keep an eye on costs, to protect profits and eke

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Speaker 1: out some efficiency gains. Who have you been impressed by cycle?

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Speaker 4: I think you just hit a really key point.

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Speaker 2: I'm really excited about the structural changes that we're seeing

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Speaker 2: inside businesses. This is if I look back through history

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Speaker 2: when we have tough times and management and boards are

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Speaker 2: forced to really look back and say, what are we

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Speaker 2: good at? What do we make decent returns? How do

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Speaker 2: we use capable? Well, invariably it's the two, three, four,

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Speaker 2: five years after those events when the returns that are

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Speaker 2: really quite attractive. So I think there are some businesses

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Speaker 2: that are really taking some tough medicine. I'm not going

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Speaker 2: to name them, but you know, assuming some of the

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Speaker 2: companies in some of the businesses we've talked about already,

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Speaker 2: retirement age Q sector, that's the space where there's been

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Speaker 2: some being changes and looking quite optimistic on that medium term.

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Speaker 2: So definitely the tone has changed that we might be

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Speaker 2: lapping the bottom.

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Speaker 3: It's been tough medicine for investors though, too, with some

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Speaker 3: of those evaluation.

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Speaker 1: Receipts and pretty poor returns from our market over the

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Speaker 1: past few years.

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Speaker 3: Is this the bottom? Is it all upside from here?

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Speaker 2: Shame? I think we've still got to fit bumps in

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Speaker 2: the road to come along. We've yet to see obviously

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Speaker 2: the bottom of this earning cycle. So this next couple

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Speaker 2: of weeks we've got foody plus companies reporting. That's going

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Speaker 2: to be really important as to have we found the bottom.

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Speaker 2: Mit I think interest rates, while they don't solve everything,

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Speaker 2: lower interest rates will provide a little bit of relief.

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Speaker 2: I think that might attracted a little bit more capital

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Speaker 2: back to the market, and I think this reset but

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Speaker 2: we talked about in terms of companies have to use

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Speaker 2: capital better. That's that's where the real money is made,

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Speaker 2: the earnings growth medium terms. So I think we're near

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Speaker 2: the bottom if we haven't seen the bottom, but I'm

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Speaker 2: unfortunately we have to tell you after the reporting c sorry.

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Speaker 3: I look forward to that.

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Speaker 1: As Shane, you mentioned a bit more interest into capital markets.

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Speaker 3: Are you seeing some investors, more investors.

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Speaker 1: With a bit more capital knocking on your door saying yeah,

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Speaker 1: we're keen to come off the sidelines, take some money

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Speaker 1: out of cash and savings for old into markets.

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Speaker 2: Yeah, something happened a few weeks ago, this Reserve baconcy

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Speaker 2: On Monitored Policy Release, the MPR.

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Speaker 4: The tone changed in there.

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Speaker 2: There is more dubbish, more about we might be thinking

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Speaker 2: about thinking about cutting rates, and that soonly has gotten

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Speaker 2: investors thinking about maybe these high interest rates that we've

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Speaker 2: been able to park money in cash park may intended deposit.

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Speaker 4: Maybe that's not around any year's time. We've got to

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Speaker 4: start putting it to work.

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Speaker 2: So we've already seen a little bit of a little

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Speaker 2: bit of a spark. I think as the Central Bank,

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Speaker 2: as the Bank and USI ON and other central banks

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Speaker 2: cut rates, that will indeed open up a bigger hopefully

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Speaker 2: not whether it's a dam, whether it's a river, just

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Speaker 2: a bigger flow of capital.

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Speaker 4: Back to our market. So we haven't seen that for

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Speaker 4: a long time either.

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Speaker 1: I was going to say any liquidity at this point

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Speaker 1: would be nice, wouldn't it. Well, we may be seeing

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Speaker 1: a little bit more investor interest in our market sharing.

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Speaker 1: There's also interest from people launching takeover offers, especially private

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Speaker 1: equity firms.

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Speaker 3: Can we surpass that threat? Do you think?

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Speaker 4: Yeah?

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Speaker 2: Look, I think you know takeovers are part of capital

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Speaker 2: markets just like initial public offerings that IPOs are, they're

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Speaker 2: either any of the spectrum. We're at the point where

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Speaker 2: at the moment, for many businesses it's easier to buy

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Speaker 2: a business rather than to build your business. You know,

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Speaker 2: where similar businesses are being valued by sheer markets. It's

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Speaker 2: actually more attractive just to go and buy the competitor,

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Speaker 2: to buy the bolton. And so we've had a little

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Speaker 2: bit at already, but some I think it's interest rate

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Speaker 2: to stabilize more. Wouldn't be surprised to see a little

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Speaker 2: bit more of it.

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Speaker 3: CEOs. We need some more of them. Do you think

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Speaker 3: it will.

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Speaker 1: Get some appointments with announcements this financial ending season?

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Speaker 2: Yeah, Look, I think there's a few appointments that we

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Speaker 2: desperately need. The only thing I say is I prefer

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Speaker 2: boards to take the time and get the right people in.

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Speaker 4: It's hard.

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Speaker 2: There's a lot of these roles that we think that

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Speaker 2: I should be able to fill those those particular opportunities.

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Speaker 4: It's difficult.

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Speaker 2: There's only a small number of people that actually meet

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Speaker 2: the requirements. There's some really challenging roles out there. It's

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Speaker 2: any people with.

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Speaker 4: The right attitude and also the right mandate.

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Speaker 2: Boards need to give them a basically opening to fix things,

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Speaker 2: to do the things they need to do, and not

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Speaker 2: be hindered by history to be able to get in

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Speaker 2: there and really make the changes they need to do.

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Speaker 2: Remuneration is another important thing, how they are paid, as

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Speaker 2: how we as investors need to make sure that they're

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Speaker 2: actually working for us. So I think it's as important

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Speaker 2: as how they are appointed as to when they're appointed

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Speaker 2: assumably who will be crucial, but we want to see

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Speaker 2: that they're the right people.

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Speaker 1: What I've noticed the cycle is how active boards have

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Speaker 1: had to be, not only in trying to find executives

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Speaker 1: to lead these companies that they lead from the board table,

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Speaker 1: but also just having to be active in operations more

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Speaker 1: so than usual and be across the box more so

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Speaker 1: than usual.

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Speaker 3: What have you kind of taken out of this?

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Speaker 2: I think if we go back to COVID, it's been

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Speaker 2: a really challenging time for boards, and I think there's

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Speaker 2: a lot of boards that get you know, I'm fairly

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Speaker 2: tainted with things that've done or not done, and I

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Speaker 2: think sumly some have done a much better.

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Speaker 4: Job than others. Others have got a lot of work

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Speaker 4: to do.

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Speaker 2: But in the context of what has been probably one

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Speaker 2: of the most challenging times to be a board member.

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Speaker 2: You know, some companies have done incredibly well. We are

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Speaker 2: looking forward to a little bit more change in some

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Speaker 2: of the boards I feel that are endue a bit

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Speaker 2: of a refish and suminingly, that's something that I think

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Speaker 2: is good for investors in the medium tom It has

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Speaker 2: to be bedlight management. It has to be done in

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Speaker 2: a way that's constructive and aligned with what investors need

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Speaker 2: to see. So I think and boards have done it tough,

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Speaker 2: and they've certainly someone that have done a good job.

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Speaker 2: Others know they need to work a little bit harder,

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Speaker 2: and maybe that suggests it's time for a refresh.

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Speaker 1: Can I read into that any further shape about any

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Speaker 1: particular companies where performance has been poor that you think

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Speaker 1: boards are responsible for.

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Speaker 2: Look, I think there's as many that have done phenomenally well,

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Speaker 2: it's done phenomenally badly. So I don't want to sort

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Speaker 2: of name anybody. It's not reasonable. There's a lot of

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Speaker 2: companies that are doing a tough job. They're doing it tough,

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Speaker 2: it's hard work, and so I think rather than throwing

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Speaker 2: shade on anybody, you know, there's a couple that have

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Speaker 2: done phenomenally well, and I think we need to champion

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Speaker 2: them as much as we need to belittle the others.

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Speaker 3: Neit net.

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Speaker 1: How do you think we'll look back on this in

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Speaker 1: a few years time. Will this be one of the

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Speaker 1: tougher economic periods that our listed companies have ever had

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Speaker 1: to go through?

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Speaker 2: Well, Look, I think companies have to be ready for

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Speaker 2: a bunch of different scenarios, a bunch of different economic

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Speaker 2: scenarios and trading scenario. So I think this is just

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Speaker 2: what companies have to do. But it's definitely been more

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Speaker 2: challenging in terms of volatility, the ups and downs. And

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Speaker 2: this is why I think, you know, when we look back,

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Speaker 2: it'll be who use this as an opportunity to really

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Speaker 2: reset their business and think about where they create value

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Speaker 2: and how they create value in the medium turn. And

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Speaker 2: I think that's, as I said, why I'm getting quite

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Speaker 2: excited about the outlook from New Zealand. The tone has changed.

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Speaker 2: I think we're probably have hit first year. Recently we

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Speaker 2: sort of found out we could go forward. Maybe we

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Speaker 2: do a bit of idling during this reporting season and

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Speaker 2: as a central bank before they really get going on

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Speaker 2: the cutting. But I think we've found out that we

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Speaker 2: can actually move forward.

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Speaker 1: And this is love certainty, but there isn't much of

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Speaker 1: it in global stock markets at the moment.

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Speaker 3: If you can give us a definitive.

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Speaker 1: Time frame, if you could look into your crystal ball, shame,

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Speaker 1: when will we be out of this? When can we

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Speaker 1: expect to see some positive revenue growth from New Zealand.

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Speaker 2: Here in New Zealand, I think in the next one

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Speaker 2: to three years is a reasonable time frame. But really

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Speaker 2: when you're investing in shares, you should be looking five

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Speaker 2: years plus. So's that's the time frame. If it's less

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Speaker 2: than five years, then probably not the.

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Speaker 4: Place for you to be globally.

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Speaker 2: Globally, I think, I think it's a similar framework. I think,

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Speaker 2: you know, we've got a really unusual time at the moment.

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Speaker 2: We've got some major geopolitical events going on, significant election

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Speaker 2: periods unfortunately, and Middle East tension is still high. We've

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Speaker 2: still got issues in terms of the Ukraine War. There's

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Speaker 2: a pretty challenging period of time. I've seen this before,

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Speaker 2: if you go back over the last twenty thirty, forty

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Speaker 2: fifty sixty plus years.

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Speaker 4: Unfortunately, ab things.

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Speaker 2: Occur again, and to get it again, we're just at

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Speaker 2: a very heightened period of time. So yeah, I think,

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Speaker 2: you know, it's appropriate for investors to demand to be

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Speaker 2: rewarded for risk. In some cases that risk is getting

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Speaker 2: more awardered and Sermainly, I think when we look at

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Speaker 2: New Zealand, we look relatively more attractive than we have

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Speaker 2: done for a little while.

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Speaker 1: Markets go up, markets go down, it's about time the

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Speaker 1: index went up.

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Speaker 4: I think it's about time the indets.

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Speaker 2: But we've appeared to be patient, you know, the same

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Speaker 2: that it's hitting, it's starting to feel like it's got

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Speaker 2: the right direction the tide. Maybe it's coming back and

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Speaker 2: rather than going out.

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Speaker 3: Patience is key. Thank you so much for your time.

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Speaker 4: Shan gets Treasure ready