Corporate NZ’s accounts weather the Covid storm – PwC

Only four out of 22 S&P/NZX50 companies opted to take up a one-month extension to report their financial results, despite their businesses being turned upside down by Covid-19 lockdowns and border closures, PwC says.

The extension was among a raft of measures introduced by the NZX to help companies deal wth the effect on their businesses of Covid-19 measures.

“It was quite impressive that so few did, because the businesses in this group suffered through level 3 and 4 lockdowns and had some particularly difficult financial reporting matters to deal with,” PwC’s chief risk officer, Karen Shires told the Herald.

In most cases, companies reported their results within days of when they did last year.

PwC, in an analysis of those June 30 reporting stocks, said all 22 came through with “clean” or “green light” audit reports.

Among its findings, PwC said just under half those stocks recorded impairments of non-financial assets.

Many had to move early to make sure that they had enough funding and liquidity.

Auckland Airport, Sky City and Sky TV all raised capital, and Air NZ arranged a standby debt facility.

A number had pushed out debt covenant agreements with their banks to late 2021.

Ten of the 22 recorded impairments in their statements.

“That’s a large proportion and some of those numbers are big, so clearly there are lot of challenges around looking at those things,” she said.

In Air NZ’s case there were writeoffs of valuations of aircraft while Auckland Airport had to write off work in progress.

Sky TV, Fletcher Building, Vector and Sky City all had big write-downs.

“There were a large number of chunky writedowns which would have been difficult for the auditors and the management teams to work through,” she said.

Of the 22, 46 per cent of the NZX50 reporting stocks recorded impairment of non-financial assets.

Many closed out derivative positions, incurring losses.

In the auditors’ reports the key audit matters, or KAMs, tended to cover funding and liquidity matters and a large number around asset impairment.

“There is no need for panic, but I do think that it’s important for shareholders and investors to ensure that they have read those KAMs because they do highlight where significant effort is required, and there are some new areas this year that have not seen as a group in the past,” she said.

“They have definitely come through it well and I think the (June 30 reporters) have really responded to the challenge thrown down by the Financial Markets Authority and others to make it easier to understand the judgments that have been made,” she said.

“Generally, entities have done that.”

Looking ahead, Shires expected impairments to continue to be a big feature of financial reports, particularly if New Zealand goes into lockdown again.

Those that are clearly exposed to international tourism have made various predictions about when they might return to business as usual.

If those forecasts don’t come to pass, then that could be prove to be further challenge around how long those businesses can afford to operate.

At that point, it would come down to the real fundamentals as to whether the company is a going concern or not.

“That could continue to be a feature, maybe not in the NZX listed entities, but in the next couple of tiers below that,” she said.

In its analysis, PwC said 10 out of the 22 NZX-listed company’s took up the wage subsidy – $177.5m in total.

Most included “some kind of narrative” to explain it, Swires said.

Of the 10, four of them claimed a loss for the year and six did not.

Shires said Covid-19 had introduced an element of uncertainty around property valuations for the big, listed property trusts, due to a relative lack of property transactions on which to base them.

She said there was question as to whether that is going to continue through to September 30, when those March 30 reporting stocks report their half year results.

As it stands, she said there “less certainty”.

PwC findings:

• Of the 22 S&P/NZX50 stocks with June 30 balance dates, four took up the NZX’s offer of a one month reporting extension

• 15 of the companies included detailed Covid-19 related notes in the financial statements

• 46 per cent, or 10, of the June NZX50 reporters recorded impairments of non-financial assets

• 18 businesses reported close to or at the same time, as the prior year.

• 10 business claimed the wage subsidy – amounting for $177.5m.

• 6 companies with investment property highlighted material uncertainty clausesincluded by registered values in their valuations.

• An additional $50m of provisions for doubtful debts were recorded across these 22 businesses

• 9 businessesdid not declare a dividend as a result of Covid-19 uncertainty

• All 22 stocks had “clean” or “green” traffic light audit reports

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