2021’s results – and some insights
This August, 171 companies reported their earnings result and 82% reported a profit. In an average reporting season, about 88% of companies report a profit – so the 2021 reporting season was lower than usual.
Interestingly though, those companies that did make a profit made more than on average, which has boosted their cash holdings. As a result, more companies have rewarded their shareholders by paying them dividends.
NOTE: dividends in the Game may not reflect market conditions and players should refer to the dividend information in the Game for more details.
Despite the positive results, companies expressed a very cautious outlook due to the ongoing pandemic.
Who did well and why?
The 2020 lockdowns had a positive effect on some industries because consumers spent more on food and household goods. Supermarket retailers like Woolworths (ASX: WOW ) performed well, although profits decreased in the second half of the year as the economy began to open up. Online furniture retailer Temple and Webster saw revenues rise by 85%, electronics business JB Hi-Fi (ASX: JBH) reported a 60% lift in profits, and Bunnings owner Wesfarmers (ASX: WES) also performed strongly.
Healthcare companies that provided goods and services related to the pandemic outperformed this year. Ansell (ASX: ANN) prices rose on the back of high demand for PPE – although temporary supply chain issues in Asia may affect their future earnings.
While travel and tourism have been heavily impacted by border closures, Flight Centre (ASX: FLT) has some recovery in North America and Europe as countries slowly open up. Whether that growth can be sustained will depend on how well the world contains the ongoing COVID-19 pandemic.
Other events besides the pandemic also affected companies’ earnings this year. Fintech company Afterpay’s (ASX: APT) sales increased by 90%, but its earnings fell and it posted a loss due to increased expenses as it focused on global growth.
Mining company Fortescue Metals (ASX: FMG) posted record earnings, revenue, and profits – largely on the back of strong demand for steel from China, which boosted iron ore prices. As well as paying dividends, the profits are helping the miner decarbonise by producing green electricity, hydrogen, and other green industrial products.
Meanwhile, China’s falling birth rate along with border closures weighed down on a2 Milk Company (ASX: A2M), whose net profit slumped by 79.1%.
Shares: risk and benefits
As an asset class, shares tend to perform very well over the long term. But individual shares come with many risks and benefits. Shares are:
- liquid – which means they’re easy to sell and turn into cash
- comparatively cheap to buy – unlike (say) property, which requires a large deposit, stamp duty, conveyancing costs and other ongoing expenses
- tax efficient if you own them for more than 12 months – if you sell your shares after owning them for 12 months or more, you only have to declare half of any capital gains you make on your shares.
However, like any investment shares come with risks. These include the risk that:
- you may lose some or all of your investment
- your shares could be highly volatile, and the market may perform poorly just before you are ready to sell your shares
- your shares could be affected by changing legislation, or by moves in currency if you’ve bought international shares
- The advice you receive does not match your risk appetite or your strategies underperform.