$2.5bn blow: Businesses count brutal cost of COVID

 

COVID-19 has slashed $2.5 billion from the balance sheets of 10 of Queensland's biggest companies forcing them to sack thousands of workers, close offices and cut salaries as they scramble to keep the doors open.

Flight Centre, Michael Hill Jewellers, Eagers Automotive, Star Entertainment and G8 Education are reporting some of the toughest trading conditions ever as the pandemic bites.

Hunter Green Institutional Investment director Charlie Green has warned of worse to come with companies that fail to adapt to the new environment falling by the wayside.

"There will be plenty that will fail especially those that have not pivoted to deal with COVID and are reliant on subsidies like JobKeeper," said Mr Green, one of the state's most experienced investment advisers for companies such as Suncorp.

"I think we have seen the end of the suburban travel agent and dress shop along with lots of high street activity."

 

Michael Hill Jewellers, Flight Centre, and Ardent Leisure which runs Dreamworld are among the big businesses hit hard.
Michael Hill Jewellers, Flight Centre, and Ardent Leisure which runs Dreamworld are among the big businesses hit hard.

 

By contrast, Mr Green said companies that took their business online, such as Dominos, would survive and thrive.

Queensland now has the highest unemployment rate in the country, with joblessness rising a percentage point to reach a 22-year-high of 8.8 per cent last month with 234,750 people officially unemployed in August.

More than 82,900 people have lost their jobs in the state since February, with companies such as Flight Centre, Eagers, Virgin and Corporate Travel Management combined retrenching more than 7000 workers.

 

A graph showing unemployment figures in Queensland.
A graph showing unemployment figures in Queensland.

 

"Flight Centre had shut half its retail stores and the employees there will never return," said Mr Green, "These jobs are gone for good and we have to see how travel emerges and when."

After decades of fat profits driven by the expansion of cut-price international travel, Flight Centre last week posted an eye-watering annual loss of $849 million with founder Graham "Skroo" Turner warning of the most challenging operating environment in the firm's 40-year history. "There has been a devastating impact on businesses and on people, particularly those in the aviation, travel, tourism and hospitality sectors, with tens of thousands of jobs lost in Australia alone and many businesses struggling to survive," said Mr Turner.

Gaming and tourism group Star Entertainment rolled out a full year loss of $95 million as COVID-19 shuttered its hotels and casinos in Brisbane, Sydney and the Gold Coast.

Star said it was pushing ahead with the $3.5 billion Queen's Wharf project in the Brisbane CBD even though international travel is unlikely to start up again within the next 12 month.

Ardent Leisure, the operator of Dreamworld and WhiteWater World, reported a full-year loss of almost $140 million as it was forced to close its theme parks during the pandemic.

Jewellery chain Michael Hill says store closures during the height of the coronavirus lockdown period has severely damaged sales and profits for the 2020 financial year.

Mr Green said there would be an increasing mental health impact of COVID-19 that companies would have to manage along with the financial hurt.

 

AP Eagers CEO Martin Ward in a showroom. Eagers Automotive has lost more than $30m. Picture: Mark Cranitch
AP Eagers CEO Martin Ward in a showroom. Eagers Automotive has lost more than $30m. Picture: Mark Cranitch

 

"The working from home phenomenon is having unintended consequences with no water cool banter and socialising," he said. He said this was having a strong affect on younger people who require mentoring.

Morgans equity strategist Andrew Tang said it was not all bad news with a recovery taking shape as borders reopened and economic activity increased.

Mr Tang said companies, particularly in the travel and retail sectors such as Flight Centre and Star Entertainment, could emerge with stronger balance sheets as they slashed costs.

"You never waste a crisis and companies are using this period to cut costs meaning they will emerge with stronger balance sheets," Mr Tang said.

CommSec chief economist Craig James said that as of last week only 75 per cent of Australian companies had reported profits, the weakest result in at least a decade.

"Companies are slashing or abandoning dividend payments and instead holding on to cash," said Mr James. "Clearly it has been the toughest year for some companies in living memory."

He said the companies supported by JobKeeper - especially profitable companies - are more likely to retain or hire more people.

 

The 107-year auto giant Eagers Automotive has collected more than $60 million in Job Keeper subsidies as it battled the worst trading conditions in its history. The company announced in March it was slashing 1200 jobs and cutting salaries of senior staff as new car sales slumped.

Eagers chief executive Martin Ward said the success of the company during COVID depended on its people who had met the challenges of the crisis head-on. "They

ensured the dealerships remained operational so that we could continue to support our customers while keeping everybody safe," said Mr Ward. He commend the Federal Government on the JobKeeper initiative which had saved many jobs, and kept the company connected with its employees helping to support a faster recovery

Fewer cars on the road has been a blessing for some Queensland companies and a burden for others. Suncorp booked a $140 million gain from lower motor insurance claims as fewer people drove during the height of the pandemic earlier this year.

But Gold Coast-based smash repair business AMA Group reported a $62 million full year loss as fewer cars were involved in accidents.

"School sports lockdowns have had a big impact," said Mr Green. "It's amazing the stats on Saturday smashes as parents turn into taxis for school sports and don't know where they are going especially for away games."

Even education has taken a hit. Gold Coast-based G8 Education, Australia's largest private sector childcare operator, reported a half-yearly $239 million loss as parents pulled out children from centres due to COVID-19 related lockdowns.

 

 

How much COVID-19 has wiped from Queensland's biggest companies:

 

Flight Centre $1.198b

$849m annual loss compared to $349m profit previous year

 

Star Entertainment $294m

$96m annual loss compared to $198m profit previous year

 

Ardent Leisure $79m

$136m loss compared to $60.9m loss previous year

 

Michael Hill $13.3m

$3.1m profit compared to $16.4m profit previous year

 

G8 Education $258m

$239m half-year loss compared to $19m profit previous half-year

 

Eagers Automotive $30.6m

$11.8m half-year profit compared to $42.4m profit previous half-year

 

GWA $50.1m

$43.9m annual profit compared to $94m profit previous year

 

AMA Group $83.74m

$62m annual loss compared to $21.74m profit previous year

 

Corporate Travel Management $100m

$10.6m annual loss compared to $89.4m profit previous year

 

Suncorp $351m

$749m annual cash earnings compared to $1.1b previous year

 

 

 

 

 

Originally published as $2.5bn blow: Businesses count brutal cost of COVID


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