The stay-at-home economy is booming. Lockdowns, restrictions and the general state of fear in the COVID-19 pandemic have caused Australians to turn inward. Home cooking has soared in popularity, while the work-from-home shift has triggered an avalanche of spending on new laptops, office chairs and speakers.
With overseas travel dumped from future plans, disgruntled households are rewarding themselves with more lavish home-cooked and delivered meals, a new large-screen television or sprucing up their homes with a new paint job, or even a mini-renovation. Much of their spending is now done through e-commerce channels, with Australia Post making a staggering 2.3 million deliveries on August 17.
With a large number of ASX200 companies having now reported their profit numbers after the upheaval of the pandemic, a clearer picture is emerging of how corporate Australia has acquitted itself, as company bosses grapple with up-ended business models and a fragile economy propped up by JobKeeper payments and other subsidies.
Investors astute enough to have bought in to supermarkets giant Coles Group, electronic appliances group JB Hi-Fi or online retailer Kogan.com in the depths of the sharemarket slide in late March have been handsomely rewarded. The household sector is throwing off big profits.
JB Hi-Fi's store sales in Australia jumped more than than 30 per cent in the June quarter and a staggering 44 per cent in July as people used JobKeeper payments, superannuation withdrawals and international travel refunds to buy up. JB Hi-Fi shares have more than doubled to beyond $51 in the past five months since falling to $24.16 on March 23 in the depths of the sharemarket down cycle in the early stages of the pandemic.
But in stark contrast to the COVID-19 lifestyle winners, large parts of corporate Australia have found themselves in the wrong place and seen their profits smashed.
Prices for oil and gas have plummeted, triggering huge writedowns and deferrals on marquee oil and gas projects previously prized as future profit growth engines. Big players such as Woodside and Santos plunged into the red.
Tourism and travel-dependent companies like Qantas and Webjet have also been awash with red ink. Gambling group Tabcorp is among those raising fresh capital to help steer them through, via a $600 million raising, but that also comes with a new leaner and meaner approach as it embarks on a vigorous three-year cost-cutting program. Razor gangs are rife among companies whose earnings have been slashed.
But in the mining sector, producers of favoured commodities such as iron ore and gold are notching near record profits, even when production output stumbles.
Online retailer Kogan.com has been a standout performer as it lured hordes of first-time online shoppers for the first time. Co-founder and chief executive Ruslan Kogan says the pandemic has pulled forward four or five years of advances into several months.
"There is a retail revolution taking place as more and more shoppers learn about the benefits of e-commerce," Mr Kogan said. The company delivered a 56 per cent increase in net profit to $26.8 million in the year ended June 30. Even more impressive has been the fourfold rise in share price from $5 to $22 in the past five months. Kogan.com now has a sharemarket capitalisation of $2.3 billion. Listed skincare products group BWX on August 21 said it had generated a 26 per cent in sales led by its flagship Sukin range, as more people spent up on beauty products at home.
Coles Group's net profit from continuing operations rose 7.1 per cent to $951 million in 2020 as strong food sales during the pandemic offset the mounting costs and complexities of running a huge retail chain in the pandemic, and lower petrol sales in its convenience business as people stayed home. Coca-Cola Amatil has watched volumes returning in Australia in July and August as states outside Victoria re-open economies.
Wesfarmers reported a 7.4 per cent increase in underlying net profit from continuing operations to $2.08 billion, as strong profit growths at hardware giant Bunnings and Officeworks offset weaker earnings from Target.
Domino's Pizza shares have risen more than 72 per cent since March with the business generating a profit rise in 2019-2020 despite serious disruptions in some markets like New Zealand and France, where even takeaway pizza was banned temporarily in the depths of the pandemic.
The big iron ore miners such as BHP, Rio Tinto and Fortescue have taken over from the big four banks as a partial saviour for investors lamenting a dividend drought.
A small payout from ANZ Bank – which had previously deferred a decision because of pandemic uncertainty – of a modest 25¢ interim dividend was announced on August 19, in contrast with Westpac, which won't pay anything.
The rapid spread of the virus in Brazil has curbed supply of iron ore from that country, and triggered a 60 per cent rally in prices for the steelmaking ingredient since January.
The extraordinary rally has allowed miners working in pandemic-free Western Australia to extend the industry's golden era of shareholder returns into a fourth year, even though the dividends announced by BHP and Rio in the past month were a bit smaller than expected. BHP chief executive Mike Henry said the US55¢ (77c) final dividend announced on August 18 was strong by historic standards, but also prudent given the pandemic dragged the company's underlying profit down by 4 per cent to $US9.06 billion.
Fortescue is likely to pay the biggest dividend in its history on Monday.
The contrasting experiences of Brazilian and Australian iron ore miners neatly sums up the precious value of a virus-free workforce.
South Australian copper miner OZ Minerals is capitalising on a similar dynamic; the world usually gets about 42 per cent of its copper from Peru and Chile, but big virus outbreaks in those nations are severely limiting supply.
So even though copper demand has shrunk amid a global economic downturn, the supply shortfalls from South America have triggered a 40 per cent rally in copper prices to a two-year high.
Hope is not a plan. These are the prices that might be in place for a period of time and you have got to manage your way through.
— Graham Kerr, South32 boss
The virtual absence of the virus in South Australia has enabled OZ to fully seize on that opportunity, upgrading its production target at time when most copper miners are downgrading.
Australia's big gold miners have not been able to seize on commodity price tailwinds as efficiently as OZ and Fortescue.
Miners like Newcrest, Evolution, St Barbara and Northern Star all reported production downgrades over the past eight months, taking the shine off an era of record prices for the industry.
But South32 boss Graham Kerr reminded investors on August 20 that beyond iron ore and gold, times are tough in the mining industry.
Coal prices have retreated to the point where more than half the industry is losing money, while prices for alumina, aluminium, mineral sands, manganese, lithium, graphite and cobalt have all suffered amid expectations that global demand for raw materials will be depressed for years.
''COVID-19 is not a normal cyclical event. We have not seen something like this before, certainly not in my time in the industry,'' Mr Kerr said.
"Hope is not a plan. What you need to prepare for is that these are the prices that might be in place for a period of time and you have got to manage your way through."
Misery abounds in aviation and tourism. With much of its aircraft fleet grounded, Qantas Airways plunged to an enormous $1.96 billion loss. Chief executive Alan Joyce has been knee-capped because of international travel bans and state border restrictions. By the end of August, Mr Joyce said the airline would be operating at about 20 per cent of its pre-pandemic domestic capacity. The busiest route is now Brisbane to Cairns and he's hopeful that is a symbol of the pent-up demand that awaits once some semblance of normality returns.
"We have routes like Brisbane to Cairns, which is actually the top route in Qantas' network, and the traffic on that is bigger than the traffic we had pre-COVID-19," Mr Joyce said.
Restrictions have also played havoc with casino operator Crown Resorts, which also scrapped any final dividend payout as its net slumped by 80.2 per cent to $79.5 million for the 12 months to June 30. Crown's flagship Melbourne casino has been closed since March as a result of the pandemic, but its Perth property reopened on June 27 and has experienced a solid upturn since then.
Crown chief executive Ken Barton says once the doors are open, people do resume their previous leisure pursuits. "It does seem as though once people are given the opportunity to come back to casinos they will come back," he said.
Many Australians have become obsessed with epidemiology and the daily reports by state Premiers and health authorities on COVID-19 case numbers, and understand the extensive scientific hurdles before an elusive vaccine can be approved.
There's a soft spot for homegrown hero CSL, which could be a major beneficiary in the world's frantic race for a vaccine. CSL is in talks with British pharmaceutical giant AstraZeneca to manufacture a vaccine candidate being developed by Oxford University, after the Morrison government secured 25 million doses of the potential coronavirus vaccine for Australia.
CSL delivered an impressive result with its blockbuster immunodeficiency therapies Privigen and Hizentra helping to drive a 9.6 per cent rise in net profit to $2.1 billion for the year to June 30.
These are the engine of CSL's stellar profits growth, but COVID-19 threatens to limit the fuel supply because regular blood plasma donors are increasingly choosing to stay at home. In the June quarter those donations dropped by 30 per cent.
Lower levels of blood plasma donations are likely to crimp profits in 2020-21, with CSL predicting profits of between $US2.1 billion to $US2.265 billion.
Even normally consistent businesses like Medibank Private are feeling the pinch. Medibank Private reported a 30 per cent fall in full-year profit, driven by plunging investment returns, weaker insurance profit, and the cost of the health fund's COVID-19 hardship measures.
Oil and gas groups have been hit hard. Origin Energy's profits sunk by 93 per cent after heavy write-downs and charges it had previously advised, even though its underlying result was roughly steady as a record payout from its Queensland LNG project offset lower retailing earnings.
But the pandemic is hitting the group at a retail level because of partial shutdowns of the economy. It expects profits to be lower in 2020-21 because of a lower contribution from electricity and gas retailing, and weaker output of gas in Queensland in an economy which requires less.
Big blue-chip companies like packaging company Amcor and transport and logistics group Brambles, have also been steady performers in a volatile economy because so much of their businesses are centred on grocery items, beverages and healthcare products.
Amcor is the world's largest consumer packaging company and even though its primary listing is on the New York Stock Exchange and its 90,000 Australian investors have to settle for trading CDI's on the ASX, it delivered a solid dividend. It has 230 packaging plants around the world and generated an 8.5 per cent rise in profits to $US1.03 billion.
Brambles, also a global player, is integral in the supply chain in shifting around the goods sold by bricks and mortar retailers and e-commerce giants like Amazon.
Brambles owns 330 million pallets and crates and has been largely shielded from the worst of the COVID-19 pandemic because 80 per cent of its revenues come from customers in consumer staples such as food and beverages. It lifted net profit by 5 per cent in 2019-2020 in its core operations.