Crisis? What crisis? If Scott Morrison needs a positive story heading into the election, he should spend a bit of time on investor calls.
Despite the most extraordinary challenges over the past six months from supply shortages to the labour squeeze, corporate Australia in the main is in strong health. Better-than-expected profits and a commodity surge translates to tax dollars and will go some way to repairing the budget bottom line.
For the first time in this cycle companies and households are aligning on the same page. The two sectors are sitting on piles of cash, paying down debt and confidence is growing.
A string of companies including Breville, Corporate Travel and Vicinity that should have been more bruised following east coast lockdowns have worked with their staff and customers to shrug off the worst of the Covid pains of the past six months.
In general, Australian businesses with overseas operations are doing better than purely domestic players but it all comes home in the form of a tax and dividend windfall.
On Wednesday companies from CSL, Treasury Wine, Breville, Ororaand Nearmap surprised with profits or dividends on the upside. Few were talking about the need for restructuring or slimming down, which bodes well for unemployment and wages growth.
Grant Kelley of Vicinity Centres, which owns stakes in Melbourne’s giant Chadstone shopping mall and Sydney’s QVB, said consumers were starting to come back. While foot traffic was down, cashed-up shoppers were spending substantially more per visit.
Heavyweight CSL, while delivering a slight dip in headline profit, also beat the market and was tipping higher sales. Mapping and construction services player Nearmap is entirely debt free and lifted its full year profit guidance.
Oil prices are driving Santos which posted a threefold increase in underlying profit to $US946m and lowered its long-term debt target.
Winemaker Treasury is in the process of reinventing itself as it learns to live without selling Penfolds to China, but has weathered the storm and is now talking up revenue growth as it sits on more than $600m of cash.
Fortescue delivered its third highest profit result at $US2.77bn, although Andrew Forrest’s spending on his green moonshot Fortescue Future Industries and lower iron ore prices during the December half took the edge off the headline result which was down 32 per cent and saw dividends underwhelm.
Packaging company Orora and kitchenware maker Breville both delivered market beating results in the face of supply chain disruptions.
In the past fortnight National Australia Bank, JB Hi-Fi, Commonwealth Bank and Woodside have each had a rash of earnings upgrades from analysts. The big end of town which are the big employers can shape the economic story.
Thursday is shaping up to be the bigger test with “real world” barometers including Wesfarmers, Transurban, Telstra, The Star, Crown, Cleanaway and Beacon scheduled to deliver results.
The key will be to watch cash and debt. Companies have been cashing up or using idle funds to pay down debt. This puts them in a strong position coming out of the Covid cycle either to invest (Santos), undertake M&A (CSL), or like BHP return the funds right back to shareholders.
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Back in town
CSL boss Paul Perreault flew into Melbourne on the weekend from the US, marking the first time since the onset of the Covid pandemic two years ago that he has stepped foot in the headquarters of the pharma major.
It was a board meeting and then on to present a profit result for the nation’s third largest company that oversees complex vaccine manufacturing operations straddling Australia, Europe and the US.
With its CEO in exile over the past two years, CSL has launched a $16.4bn acquisition of Swiss-based Vifro Pharma, pushed ahead with the construction of a $1bn vaccine manufacturing facility near Melbourne Airport, signed off on a new corporate offices in the CBD all while making tens of millions of AstraZeneca Covid vaccines under contract for Canberra.
On Wednesday, Perreault outlined a 5 per cent dip in the December half profit to $US1.76bn ($2.46bn). CSL declared a dividend of $US1.04 which was steady with last year. But shares surged 8.5 per cent to $263.69 on an upbeat full-year outlook.
The opening of the international borders will allow for a greater degree of normality in the day-to-day running of business. CEOs and senior executives need to be on the road meeting investors, the need to hear directly from staff on the ground as well as run the ruler over potential acquisitions or size up growth projects.
By all means Perreault hasn’t been the only one. For months early in the pandemic Lynas chief executive Amanda Lacaze was grounded in Sydney despite the miner’s operations being in Western Australia and Malaysia. BHP boss Mike Henry was based in Melbourne during that city’s multiple lockdowns running a business that spans the world. More recently Wesfarmers moved its executive team to the east coast to move away from Western Australia’s hard border.
“It’s been an interesting couple of years, I would say that nobody really expected to be operating in this type of environment,” Perreault says after splitting his time between CSL’s operations in Utah and Pennsylvania for much of the past two years.
“The agility and resiliency of the employee base is what really has gotten us through. We have very strong people at all of our sites across the globe. And, you know, they continue to stay focused on the mission,” he says.
The past few years involved a lot of Zoom and Microsoft Teams meetings but Perreault says the “connections with people” was key which isn’t always the case without face-to-face meetings.
“It was really a matter of still trying to maintain that connection,” he says.
Perreault has been able to travel around the US where CSL generates nearly 50 per cent of its sales and also made a couple of trips to Europe as well.
CSL’s chief financial officer Joy Linton relocated to Melbourne from London early last year where she previously worked with health insurance major BUPA while other senior executives have been on the ground.
Perreault, who has been in the role for more than eight years, says he is the type of person that likes to manage by “walking around”.
“I’d like to be able to be out with the people and really understand what’s going on in business. But I’d say that where we were able to connect we did some speed dating on Teams, which was quite interesting, where I would just show up in somebody’s Teams call and we’d have a chat.”
While CSL’s office staff have been working from home on and off, all staff were at the manufacturing sites, the plasma centres and research facilities every day.
“It was a difficult environment but everybody pulled together because at the end of the day, we’re here to deliver life-saving products and life-extending products and the protection of human health for people around the globe. And everybody was expecting us to be there,” Perreault says.
johnstone@theaustralian.com.au
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