Fund managers have voiced significant frustration during the recent reporting season, criticising some Australian companies for selectively highlighting favourable data while obscuring less palatable details. This practice, often seen in investor presentations, contributed to sharp share price declines for several firms, with counter-drone technology company DroneShield emerging as a key example. DroneShield, which develops advanced counter-drone systems for defence and commercial applications, saw its shares plummet 11 per cent despite initially showcasing a 74 per cent revenue climb to $125.8 million. Deeper investigation, however, revealed a negative earnings before interest, tax, depreciation, and amortisation (EBITDA) of $12.4 million and a $32.2 million net loss for the half-year, linked to heavy investment in research and development and increased employees. Cyan Investment Management’s Dean Fergie commented, “It comes across as a bit spivvy. Sometimes these companies just take investors for fools.”
Similarly, electronics retailer JB Hi-Fi’s share price dropped 12.3 per cent. While headline figures showed sales and net profit increases, a 1.4 per cent decline in Australian same-store sales for July was found only after 30 slides. Online luxury retailer Cettire also led with adjusted earnings of $17.1 million, though its $8.5 million statutory net loss was buried deeper. Seneca portfolio manager Ben Richards cited logistics software giant WiseTech Global altering its earnings definition to exclude recurring restructuring costs. He noted Flight Centre also excluded technology and HR system costs from underlying earnings resembling operational expenses, and Domino’s Pizza recorded a second consecutive year of substantial write-downs, raising capital allocation questions.
Phillip Li of SG Hiscock’s Australian Small Companies Fund emphasised “basic hygiene tests,” like ensuring earnings growth aligns with free cash flow, and warned against results buoyed by recurring “one-off” items. “There’s a difference between disclosure and transparency,” Li stated, adding that burying material items in footnotes “doesn’t pass the pub test.” This season underscored a clear preference among investors for transparent reporting over selectively presented highlights.
