CEOs want Morrison to get states in line

Wesfarmers managing director Rob Scott at his office in Perth on Thursday. Picture: Colin Murty

The national unity evident back in May has broken but corporate Australia has gone out of its way to praise the work of state and federal governments in their handling of the pandemic.

Corporate earnings season is not normally the time to sing the praises of politicians but the steady stream of bouquets to Canberra continued on Thursday.

Qantas boss Alan Joyce and Wesfarmers’ Rob Scott both made special mention of the way Canberra has handled the crisis.

There is obvious self interest involved but given Prime Minister Scott Morrison is privately frustrated at the states’ short-term focus it helps to have big business backing.

This is especially as October beckons and business is looking for some more help.

A better investment allowance tops the wish list and Scott earlier this week called for more tax cuts.

It is good short-term politics for WA and Queensland to have borders locked to satisfy parochial wishes and clearly Victoria has some work to do on pandemic control, but South Australia, Northern Territory and Tasmania are looking fine.

After March, the JobKeeper goes and unless everything falls into place WA and Queensland may be wondering where their next dollar comes from, but will only have themselves to blame because they shut the gates to interstate travel.

Joyce wants some sort of consistent guidelines so we know where we stand.

There is a perceived gap between WA’s Mark McGowan who seems to want total eradication of COVID-19 and the rest of the country which is working towards managed suppression.

Joyce wonders why borders can’t be opened between states and territories where new cases are low.

Scott can’t work out why 30 staff from his Bunnings store in Mt Gambier can’t get to work because they live on the Victorian side of the South Australian border.

Joyce is confident demand will return given intrastate routes like Brisbane to Cairns, Sydney to Ballina and Perth to Broome are booming.

Everyone understandably wants to get back to some normality.

Joyce has every reason to be pleased with Canberra given it backed him to the tune of $515m in the last half with special airline assistance and JobKeeper payments.

He was still hit with a $4bn COVID revenue hit.

One of the most successful programs the airline has run recently was selling Qantas pyjamas with Tim Tam biscuits for $25 a pop and after the initial run it was increased to 10,000 netting $250,000.

Trouble is the airline needed to sell 100 million to make up for the COVID losses.

This shortfall aside the program was a marketing coup, maintaining customer loyalty at a time when no-one is flying.

The feds kicked in over half billion dollars to help Qantas and its star performer was its loyalty division with $1.2bn in revenues and $341m in earnings.

Freight in the third quarter at least was running at Christmas type activity levels with the national lockdown sparking a flurry of online sales.

Online push continues

Online sales at Wesfarmers increased 60 per cent to $2.1bn, including its Catch group which is an online retailer.

Some divisions like Officeworks have led the way, with online sales increasing over the year from 27 to 30 per cent of sales, compared with Bunnings at just 2 per cent.

Target now stands at 9 per cent, increasing from 7.2 to 11.5 per cent of sales over the year, and from 3.7 to 6.7 per cent at Kmart.

The lockdown in New Zealand fast-forwarded the online push out of necessity so it now accounts for 6 per cent of total sales.

Home Depot, which is the US Bunnings, has 9 per cent of its sales online which is obviously where Bunnings is headed, and chief Mike Schneider says he will be guided by customer demand.

During the pandemic customers were encouraged to look at the website before going to the store to speed up sales turnover and, as with JB Hi-Fi, more efficient consumers helped increase stock turnover and in the process reduce working capital.

This in part helped Bunnings to increase returns on capital by 11.5 per cent to a stunning 62 per cent.

Bunnings accounts for half of Wesfarmers revenue and 62 per cent of earnings, and in all the different retail bands accounts for around 78 per cent of earnings.

The company is better described as a retailer with a chemical plant tacked on than a true conglomerate, and chief Rob Scott is doing his best to sharpen performance through among other initiatives his Advanced Analytics centre under Alan Lowthorpe and acquisitions like Catch to spread the online religion.

The aforementioned Home Depot has just posted its best sales performance for 20 years which shows the COVID-inspired home maintenance boom is a global phenomenon.

The question is whether the sales boom is short term or whether consumers have really changed.

Schneider is non-committal and says products like paint, outdoor furniture and BBQs are more pull-forward sales because you are only going to paint your deck in Eltham once this year. The international trip you has planned is off so why not spend the $10,000 you had saved on a new bathroom?

Garden sales are booming which is good for Bunnings and good for mental health and maybe that’s a long-term trend.

Medibank margin

COVID trends are everywhere in areas like digitisation, telehealth and maybe private health insurance with Medibank enjoying a mini boom in the first few weeks of the financial year with new policy sales totalling 21,000 against the full year norm of around 10,600.

It’s early days but a trend to watch and Medibank has performed well with pre-tax margins last year at 7.8 per cent against the industry average of 2.8 per cent, down from 4.9 per cent a year ago.

Having just acquired its first hospital in Sydney, providing $9m in capital, the strategy is to reduce time spent in hospital so your next knee operation is done and you’re home a couple of days later.

Next focus is hernias which tend to be overnight jobs in Australia but day procedures in other markets.

The hope is budget reforms increase coverage of at-home medicine and the industry also wants an increase in the Medicare levy to push people into private health and an increase in the cut-off for family plans from 25 to 30 years old to keep younger people involved in private health.

Musical chairs

Elizabeth Alexander took Medibank public as chair and after seven years will hand over the reins to former IAG boss Mike Wilkins. There is something in the tea leaves because Origin chair Gordon Cairns has also decided to leave after seven years, handing over to former investment banker Scott Perkins.

Cairns was on the board for 13 years and presided over Grant King’s 16-year reign before handing over to Frank Calabria four years ago. Cairns will keep the chair at Woolworths

Both new chairs will have the job of finding the next CEOs of their respective companies.