7 Feb 2011

Cost cutting and debt payments reduce company growth

6:13 am on 7 February 2011

Subdued consumer spending and a focus on repaying debt are likely to have constrained company sales, forcing many to continue to trim costs while they wait for a return to better times.

The half-year earnings reporting season for listed firms begins this week and Forsyth Barr expects modest revenue growth.

Head of research Rob Mercer is forecasting revenue growth to be a modest 2%, covering only inflation, in the reporting season over the next month.

Mr Mercer says that in terms of profitability, firms have been successful in reducing costs and margins are showing some improvement, but this won't drive profits for the current period.

He says most firms are positioning themselves for recovery over the next two to three years by ensuring they have the right capital investments and that underperforming businesses are being downsized or disposed of.

Mr Mercer says companies that sell their goods and services across the Tasman are also likely to have felt the pinch, as Australian households curbed their spending, particularly in the last three months of 2010.