Worrying tales from the top end of town

At times like this, every bit of intelligence an SME can get is like gold. So it always pays to keep an eye on the biggest data goldmine of all – the ASX.

Throughout the year, entrepreneurs in private companies can get regular batches of detailed intelligence on their biggest competitors and the state of their sector if they pay attention to the results released by the big listed players in their industry.

Reporting requirements mean these big businesses need to make their results public at least every six months and sometimes every quarter. The leaders of these businesses need to address shareholders at least once a year and update the market when trading conditions change.

And there’s a treasure trove of information in these releases.

You can see how sales grow in total and in various geographic and industry segments. You can see how margins are holding up. You can see where costs are blowing out. You can see how debt levels, cashflow levels, investment levels.

And almost always, you’ll get some commentary on the state of the market.

So it was yesterday when transport giant Toll Holdings revealed to the market a shock earnings downgrade that sent its shares diving 15.2% on a day when the broader market dropped 2.4%.

Toll chief Brian Kruger had a blunt message for the market.

“[I’ve] never seen or been involved in a market where there’s been so much noise from our customers about the need for us to help them manage their margin issues,” he told The Australian Financial Review.

“The general message would be that nobody’s expecting things to get worse but that there are no signs of things materially improving in the short term either.”

I’ve always thought of transport companies as providing a good indicator for the health of an economy, given they are involved in the machinery of so many sectors.

What Kruger is describing is an environment where consumer and business confidence – and more importantly spending – remains in some sort of twilight zone. Both groups are extremely cautious and not prepared to spend until they absolutely have to. The result is a clear slowdown.

Westfield’s Lowy family – father Frank and his two sons, Steven and Peter – fronted the retail giant’s annual general meeting yesterday and were also relatively cautious, signalling that retailers were being hurt by the squeeze between falling demand and falling prices.

On the 1,100 leases renegotiated or renewed in the last 12 months, Westfield was forced to reduce rates by an average of 1.5%. It’s not a big drop, to be sure, and the company still met market expectations in terms of its financial performance. But it is a sign that the pressure is not letting up.

(Westfield’s announcement from yesterday includes its first quarter results, breaking down retail sales across categories such as fashion, footwear, homewares and leisure. Well worth a look if you are in the retail sector for a great indication of the multi-speed retail landscape. Fashion and footwear, for example, are clearly struggling.)

There will be more tales from the top end of town in the coming days.

Today we’ve heard from the Commonwealth Bank, which says that conditions remain challenging and business credit growth is subdued.

A few days ago we heard from Coca-Cola Amatil, which reported very tough conditions in the food sector thanks to the high Australian dollar and the supermarkets’ push towards private label brands.

Overnight, BHP has delivered a warning on China, where the slowing economy is clearly weighing on the outlook for the resources sector.

Overall, the message is one of caution and concern, but every industry is different.

SMEs need to watch what the big guys are saying and study how conditions in their sector are playing out.