Global insurance giant QBE Insurance (ASX: QBE) has released an uninspiring set of full-year results that saw net profit increase 8% on 2011 but still well down on profit levels achieved in 2010. Of more interest was management's plan to improve QBE's future earnings. In what is turning out to be a common theme this reporting season, the answer was cost savings, largely via job cuts. Management expects to create annual savings of $250 million by (in their words) "optimising process efficiencies". Stage one of this process involves creating a hub in the Philippines for back-office operations. In the first instance, this is expected to lead to around 700 job cuts globally, with no indication given as to the number of Australian employees to be affected.
QBE's announcement follows on from Telstra's (ASX: TLS) decision to cut 700 jobs from its Sensis division, with roughly half of these roles being outsourced to an overseas supplier. Other job cuts to have been recently announced include Boral (ASX: BLD) – 790 retrenched, Bluescope Steel (ASX: BSL) – 170 retrenched, Santos (ASX: STO) – 100 retrenched, and Iluka Resources (ASX: ILU) – 200 retrenched.
Many of these companies currently face declining prices for their goods and their respective management teams have had the unpleasant task of reducing costs by retrenching staff. A follow on concern from this cost cutting is the effect it may have on the Australian economy as unemployment rises and disposable income shrinks even further.
Foolish takeaway
For shareholders, cost cutting can improve bottom line profits in the short term. In the long term though, top line revenue growth is the sustainable way to grow profits and what shareholders really want to see their company achieving.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Tim McArthur does not own shares in any of the companies mentioned in this article.
