Numerous listed corporations post record earnings growth last year
Combined ex-Nokia net income rises by over 50 percent
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By Anna-Liina Kauhanen
With the exception of Nokia, last year represented a year of record-high earnings and growth rates for Finnish listed corporations.
Now that two in three Finnish listed companies have published their income statements for 2004, it can be calculated that net incomes improved by over thirty percent in all sectors, which was in line with expectations.
Nokia ”ruins” the averages as an extremely large company that posted weaker profits compared with the previous year. Without Nokia, the growth rate in the net incomes of listed companies would be some 54 percent, calculates Hannu Angervuo, an Investment Manager at Fides Asset Management. His estimate is based on published figures and forecasts for the remaining companies.
The forest industry was the only sector to fail to produce growth in profits, but this was also expected.
When excluding the banking and insurance industry, as well as pharmaceutical company Orion, which announced its income statement yesterday, 26 of the 48 companies that Helsingin Sanomat analyses have published their results for 2004. Eighteen of the companies, or 70 percent, reported improved earnings.
When the net incomes of the 18 companies are combined are compared with the previous year, the growth rate amounts to 39 percent. "One must remember that companies such as Metso and Wärtsilä booked large impairment charges in 2003, so they affect any comparisons", Head of Research Antti Suttelin from the Mandatum investment bank points out.
Steel company Outokumpu produced the highest growth rate in its net income, rising from in the red to handsome net earnings. Machinery group Metso, mobile handset cover manufacturer Perlos, and food industry group Raisio all boast considerable growth rates. Electronics industry subcontractor Elcoteq nearly doubled its net result.
At present, the combined net income growth rate for all listed corporations is only 18.6 percent, but income figures are still on the way from Nordea, Sampo, and Rautaruukki, which are all sure to post sizeable growth rates.
During the first three quarters of 2004, Sampo already improved its net income by 100 percent, by virtue of deals in the shares of insurance company If. Rautaruukki had produced a gain of 235 percent after the year’s first nine months, Angervuo observes.
Operating margins also improved handsomely. The operating profit of even the median company nearly doubled from 4.5 percent to 7.8 percent of net sales.
Angervuo estimates that the combined net income of corporations on the main list of the Helsinki Exchanges will total 12.1 billion euros, with the record figure at 13 billion from 2000. In 2001 and 2002, the combined net income fell to some nine billion euros.
Nokia’s share of the tally of twelve billion was over three billion last year as well. The mobile giant’s figures considerably affect the averages and growth rates calculated across all listed companies, and with a drop of over 15 percent in net income, Nokia’s contribution is clear.
Angervuo believes that the general trend of earnings growth shows that corporations have returned to a growth phase in the economic cycle after a couple of years of downturn. "With an excellent past behind them, it is certain that this year will not produce similar growth rates", Angervuo points out.
According to Angervuo, the largest spike in earnings was witnessed in the third quarter of last year, with the last part of the year slightly weaker. However, Suttelin maintains that the revenues generated in late 2004 did not fall short of the year’s earlier quarters. He believes that Finnish companies will post good earnings this year as well, with a few exceptions. "For example, Fortum will be weighed by falls in the price of electricity and the margins on oil refinement."
Nokia continues to be a large question mark for analysts. "At least the first quarter will be quite weak", Angervuo says.
On the other hand, it will be easy for the forest industry, which has been in dire straits of late, to double its profits this year if the dollar begins to appreciate.
The analysts observe that Finnish corporations are being quite cautious in their predictions, considering the improvements in revenues. "There is a general air of caution in the companies’ comments regarding the future", Suttelin explains.
"Companies do not dare to expect growth with the same magnitude because the upward cycle has already lasted for two years, 2003 and 2004. This year we will observe a type of evening out in the growth rate, the phase of the cycle will normalise", Suttelin continues.
Angervuo’s guess is that shareholders will enjoy large dividends this year as well. Suttelin agrees: "Balance sheets are strong. Subcontractors are also participating in the investments in the entire production chain, so money is not being spent in the same way as before. Therefore, corporations are increasing share buybacks and distributing dividends."
Helsingin Sanomat / First published in print 15.2.2005
ANNA-LIINA KAUHANEN / Helsingin Sanomat
anna-liina.kauhanen@hs.fi
