Interim reports The earnings season for listed companies begins, and corporate profits are expected to grow significantly – Analyst advises retail investors to watch one thing

Economic is recovering rapidly from the coronavirus pandemic this year.

Recovery has begun in fact in the spring, when restrictions on movement and business were lifted around the world.

All this knows good for companies whose business has been shaken by a pandemic.

The earnings period beginning this week will provide new information on the earnings development of listed companies: how much sales of the goods and services they manufacture have increased, and how successful they have been in managing their costs and risks.

On Thursday, for example, the airline Finnair will publish its interim report, whose very great difficulties have hardly been significantly alleviated.

Individual despite the difficulties of the companies, the overall picture for the financial year is very positive.

According to the forecast of the finance company Nordea and the information services company Refinitiv, the combined turnover of listed companies has increased by seven per cent to EUR 50.3 billion.

Total operating profit excluding non-recurring items is forecast to increase by 41 percent to EUR 3.8 billion.

The forecast does not include financial companies or the Swedish telecommunications operator Telia.

“Earnings development also looks very bright in the United States, where a record number of positive earnings warnings have been issued.”

The good earnings trend is largely explained by the fact that in the spring of 2020 the companies’ net sales and operating profits decreased sharply, emphasizes Nordea’s main asset management strategy Antti Saari.

“Since then, the outlook for the global economy has improved significantly. Earnings development also looks very bright in the United States, where a record number of positive earnings warnings have been issued. Market expectations may not yet be exactly what companies believe they will be able to achieve this year. ”

Listed companies a large proportion are industrial companies whose main market is abroad. In other words, the increase in their turnover and operating profit is above all an indication of the growth in demand abroad.

“Finnish industry has been in a good mood, and I believe that the earnings trend will be good. We have a lot of companies that depend on China, where the industry is doing well, ”says the Forecast Manager of the Business Research Institute. Markku Lehmus.

According to Statistics Finland, industrial production increased by 2 per cent in January to May and new industrial orders by 23 per cent over the same period. The comparison must take into account that new orders are always converted into industrial production with a delay.

It is also positive that, according to a survey conducted by the Confederation of Finnish Industries in June business confidence in the economy has strengthened in all key industries.

Positive assessments of the economy also do not apply only to companies. According to Statistics Finland, consumer confidence in the economy was strongest in June for more than three years.

Finland has survived the recession caused by the coronavirus pandemic with less damage than many other eurozone countries.

According to updated preliminary data, GDP, which measures the aggregate value of goods and services produced for final consumption, contracted by 2.9 per cent last year, while the euro area GDP collapsed by 6.5 per cent.

This year, the euro area is promising a significant recovery, which will inevitably affect the Finnish economy, as 40 per cent of the value of goods exports goes to the euro area.

European Central Bank evaluates in Junethat the eurozone economy will grow by 4.6 per cent this year and 4.7 per cent next year.

Last in recent weeks, however, the global economy has begun to be overshadowed by a new escalation of the coronavirus pandemic. It increases uncertainty and may, in the worst case, affect the business of companies.

Infections caused by the coronavirus delta variant in particular have even increased surprisingly.

“The effects of the delta transformation on the world economy are very difficult to predict. The effects are likely to become apparent only in the second quarter, ”says Lehmus.

“The economic recovery from the worst phase of the coronavirus pandemic has been exceptionally strong.”

Despite the shadows, the overall picture is still relatively clear: industry is recovering, driven by stronger growth in the global economy, and service sector companies are being boosted in particular by increased domestic demand.

“Quite a few years ago, in the spring, we were able to predict how strong governments and central banks would be prepared to curb economic damage. The economic recovery from the worst phase of the coronavirus pandemic has been exceptionally strong. It has also been surprising how much demand shifted from services to goods, ”says Saari.

Over the past year and a half, households have accumulated additional savings of around EUR 9 billion, according to the Bank of Finland. The big question is which households will use their savings.

“It will be interesting to see what happens when restrictions are completely lifted at some point, and how it then affects consumer behavior. At times, it is very difficult to predict consumer behavior: we do not know how much consumption habits have changed permanently and how it affects companies, ”says Saari.

Listed companies in the forthcoming earnings period, one major issue is the shortage of industrial intermediates. They are commodities without which companies cannot produce the end products they sell.

Various components are important intermediates, especially in the electronics industry. The importance of electronics and artificial intelligence in machines and devices is growing all the time as more and more of them are connected to the data network.

The root causes of the shortage of intermediate goods are faster-than-expected growth in demand and the fact that production in the pandemic may have been reduced even too much, as companies expect the recession to last much longer.

“I would believe that the effects of the shortage of industrial components have been overshadowed by strong growth. The problems in the semiconductor industry should affect the automotive industry the most, but at least there have not been any major effects on turnover yet. However, it is worthwhile for small investors to keep a close eye on what companies are saying about component shortages, ”Saari estimates.

For example Nokia, a manufacturer of networking equipment, has already assessed component shortages as one of its near-term risks in its previous interim report.

Indeed on Tuesday, the company announcedthat it intends to improve its assessment of its business development this year in its interim report.

Many other companies have also improved their estimates of their business during June and July.

“I do not think that the shortage of components will have a very large impact on Finnish industry based on the current information, because there is only one car factory in Finland,” says Lehmus.

In mid-June, the Bank of Finland estimated that GDP would grow higher in the autumn than in 2019.

The shortage of components and the stagnation of supply are also linked to the issue of rising costs, which some companies already drew attention to in their previous interim reports.

The rise in energy prices continued in the spring, and inflation has accelerated, especially in the United States.

As raw materials become more expensive, the key question is at what point do companies manage to pass on their increased costs to the prices of their end products.

Outlook are also bright from an economic point of view overall, at least in the short term.

Bank of Finland assesses in mid-Junethat the gross domestic product will grow higher already in the autumn than it was in 2019.

According to the central bank’s forecast, the economy will grow by 2.9 per cent this year and 3.0 per cent next year, mainly driven by household consumption. Another important factor in economic growth is the recovery in exports.

A key question from the perspective of both the national economy and companies is how to improve labor productivity.

According to the Bank of Finland, economic growth will slow to 1.3 per cent in 2023. This is mainly due to the aging population and weak growth in labor productivity.

Profit period every three months

  • Listed companies publish their interim reports on a quarterly basis, ie every three months.

  • The companies publish their April – June interim reports from mid-July to early August.

  • The information in the interim reports is unaudited. Therefore, they may still change slightly.

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