Business leaders back Gladys Berejiklian’s plan to unlock from Covid
The message from this company results season is that political leaders have been focusing on the wrong net zero. As the goal to eliminate the virus altogether looks increasingly misplaced, the goal of net zero carbon emissions for business is becoming more and more important to a social licence to operate.
Take the two results on Tuesday for Scentre Group, the owner of local Westfield shopping centres, and building materials supplier Boral.
At Scentre Group’s half-year results, chief executive Peter Allen said: “Nationally we are going to have to realise one day that we are one Australia or one New Zealand, but the reopening will be dependent on vaccinations across each state. If NSW is ahead of the curve then I would certainly welcome NSW easing restrictions earlier rather than later.”
NSW Premier Gladys Berejiklian is leading the way out of lockdown. On Tuesday she did not even mention daily Covid-19 numbers in her opening remarks. It was all about the 6 million vaccination milestone met ahead of time and a promise later in the week to reward state citizens with some easing.
Allen’s first-half results of $400m in net profit demonstrated how quickly foot traffic had bounced back to shopping centres as lockdowns lifted. In Queensland, South Australia, Western Australia and New Zealand, visitations were back above 2019 pre-Covid-19 levels and NSW and Victoria’s trajectories were heading that way before the latest Delta shutdowns.
The shift to online had not hollowed out the Scentre business model. From gyms to food halls and movies, Allen wants Westfield to be the third most popular destination after home and work, even ahead of the beach.
Not only did Allen provide guidance, but it was remarkably bullish guidance with a full-year dividend of 14c a unit. Shares roared up more than 7 per cent during the day. Were it not for the lockdown, he told analysts, that 14c would have been higher.
However, that guidance assumes shopping centres will be open for all by around late October, ready for peak season from Black Friday through to Christmas.
Allen is not calling for vaccine mandates or passports but says Scentre has proved it can provide a safe Covid-19 environment in shopping centres and he points to the Doherty 70-80 per cent thresholds for reopening.
“In other markets like the US and the UK, where they have a vaccination rate below 60 per cent and have been able to reopen, they have been able to manage the number of hospitalisations and also reduce the number of deaths, notwithstanding the higher bounce in terms of people infected,” he said.
Allen says business confidence during the current lockdown is higher than last year for a reason. “The mindset shift in looking at number of cases to the number of vaccinations gives a light at the end of the tunnel,” he said. “People know we are getting closer to the end. Like every other customer, I’m looking forward to watching James Bond in the cinema when it gets released later this year.” Elimination of the virus, net zero, is now mission impossible.
On climate change, Scentre joins an increasing number of companies with a target of net zero by 2030. “It’s important for our brand,” said Allen. “Each of the stakeholders is driving that change: our customers, our retail partners, our staff, our investors. Yes there will be a cost to that, but also a long-term benefit.”
Building products business Boral reported on Tuesday from one of the largest carbon-emitting sectors. Just one year into the job, CEO Zlatko Todorcevski has ridden a dramatic change in control of Boral to Ryan Stokes’s Seven Group and almost $4.5bn in asset sales. On results, he also committed Boral to a net zero emission target by 2050, a 46 per cent reduction of scope one and two emissions by 2030, and plans for recycling and low carbon concrete.
“We’ve done a lot in the last 12 months, asset sales, reorganisation and leadership roles, but frankly I’m most proud of the work we have done on understanding the pathway to decarbonise Boral,” he said.
“This is not pie in the sky. The targets are credible, the capital expenditure we have visibility on over the next five to 10 years is economic, irrespective of a carbon tax or other impost so we don’t feel like we are stretching business to do the right thing.”
Stokes astutely identified the value in Boral, which reported annual net profit of $640m, including gains on asset sales of $389m. After further US sales this year, Boral will be an Australian construction materials business with a target uplift of $200m-$250m in earnings before interest and tax by 2025, of which Todorcevski has delivered $75m.
At the moment a pure national play leaves Boral exposed to Australia’s lockdown risk. The company flagged a $50m EBIT hit to profit in the next quarter from the shutdown in construction, with southwest Sydney and South Australiaaccounting for $16m hit to EBIT just in July. Boral shares slid 5.5 per cent on the day.
“The environment is just very uncertain,” Todorcevski said. “All through last year with the pandemic hitting the country, construction remained open. It is really easy to run construction off. It takes four to six weeks to reopen it and get it back to where it should have been.”
Like Allen, Todorcevski fully supports a Berejiklian government opening up ahead of the rest of Australia if vaccine targets are achieved earlier than other states.
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