How Covid made us leaner and smarter
JB Hi-Fi and BlueScope Steel were forced to get leaner and meaner through the Covid years and both have produced surprising profit results.
Terry McCrann
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The ‘Covid years’ are throwing up some crazy profit results, and in the process destabilising conventional investment analysis and expectations.
Cast your mind back to the early days of Covid – through that June quarter of the 2020 national lockdown, and the grim prospect seemingly stretching before us with no early exit in sight.
For the first time in our entire history, we had a government – indeed, all nine governments: federal, state and territory – ordering, yes ordering, the economy into immediate and deep recession.
Ordering businesses to close, ordering hundreds of thousands of workers to lose their jobs. There was a major shearing between those, workers and businesses, which could operate and even thrive from home, and those that operated out of bricks and mortar locations like most obviously retail shops, restaurants and the like and ordered to close.
GDP would plunge 7 per cent in the 2020 June quarter, way easily the biggest quarterly plunge in our entire history, not excluding the Great Depression of the 1930s.
Back in that dismal winter of 2020 - not that, in Victoria, 2021’s winter would be any less dismal - there were serious, legitimate, uncertainties whether the jobs and the businesses would ever come back.
Even despite the hundreds of billions of dollars of Reserve Bank and government stimulus spending. The carnage was that bad. Yet, now in 2022 we are seeing results all but unimaginable back then.
JB Hi-Fi. It went into Covid and lockdown as one of Australia’s great bricks and mortar retail success stories, with the decided emphasis on those yellow-framed iconic shops.
In the last pre-Covid 2019 year, JB’s online sales were just $400m out of its $7.1bn sales total. The stores were JB. Now in the 2022 year, in just three years, it has quadrupled online sales to $1.6bn. But in-store sales were also up from $6.7bn to $7.6bn in the three years.
The Covid lockdown forced it to build its online dynamic. But post-Covid the stores have come roaring back and it’s retained the online scale that it built.
It was an extraordinary life-defining challenge; and in seizing and besting it, JB has lifted itself to a whole new growth dynamic, combining both online and in-store.
And boosted its profitability and boosted it dramatically. Operating margin leapt from 5.3c in the sales dollar in 2019 to 8.6c in the dollar in the latest year.
A very different example of the surprising – and indeed extraordinary – profit boost from the Covid years came from steel company BlueScope.
As CEO Mark Vassella noted, the BlueScope operating profit in the latest June half was the second-best in its 20-year history since being separated from BHP.
And the only bigger profit was in the immediately preceding December half!
Put the two halves together and the operating profit for the 2021-22 year came to a staggering $3.8bn.
That was nearly three times the $1.3bn operating profit in the last pre-Covid 2019 year. And BlueScope finished the year with net cash of $367m after returning around $1bn to shareholders.
What makes the result especially amazing is what’s happened to iron ore. That’s to say the dramatic surge in the iron ore price, thanks again to – a very weirdly performing - Chinese economy through the years of Covid.
In the days when it was part of BHP, BlueScope would get its iron ore cheap – it was essentially an internal transfer.
Not any more. BlueScope now has to pay full market price, just like the Chinese and everyone else.
But so strong was the market as the US and local economies came roaring back, BlueScope was able to boost margins. Again, also like JB in its space, being also forced to get leaner and meaner through the Covid years.
Originally published as How Covid made us leaner and smarter
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