We all know how ugly it’s getting out there. Corporate collapses, widespread job cuts, entrepreneurs going bankrupt – the bad news shows no signs of ending.
Well, it’s time to get a bit more optimistic about life. Here at SmartCompany, we’ve combed the first half profit reports released over the last six weeks in order to find 10 companies that are defying the downturn with strong revenue and profit growth.
They are an eclectic bunch, including retailers, food companies, software groups and online organisations. But they all have one thing in common – a clear strategy, a tight focus on costs, and a finely-tuned understanding of what their customers need.
The next six to 12 months will undoubtedly test many of these companies, particularly those at the sharp end of consumer spending. But we’re prepared to bet that these companies will emerge from the recession best-placed to pounce on the opportunities provided by the recovery.
Few first-half profit results were as impressive as that of electronics retailer JB Hi-Fi. Despite an ever-worsening retail environment, the company managed to post net profit of $59.04 million, up 40.8% on the previous corresponding period.
Revenue for the six months ending 31 December rose 27.6% to $1.6 billion, and the company also reported that 2009 had started well, with sales in January and February meeting internal expectations. The company plans to open six new stores in the next six months, after opening 14 in the previous six.
JB H-Fi has carefully constructed its image as a “value” retailer. It’s pricing is always cheap, it advertising is cheesy and loud, and each store feels more like a second-hand record shop than part of a national retail chain.
This brand positioning is always attractive to consumers, but particularly so in a downturn, when shoppers are always hunting for bargains and inexpensive treats.
By the way, don’t be fooled by JB H-Fi’s discount, even amateurish feel – behind this facade, chief executive Richard Uechtritz has built a tightly-controlled retailer super-machine, where costs, stock and labour are tightly controlled. The perfect recession-proof chain.
Beverage giant Coca-Cola Amatil was one of the few companies to post a profit result that pleasantly surprised analysts, with net profit for calendar 2008 climbing 24.1% to $385.6 million.
Somewhat surprisingly, revenue for the year actually fell 5.9% to $4.2 billion, although the hot summer months helped the company post “single digit” revenue growth in the first six weeks of the year.
Professional investors always look to invest in companies that have pricing power – the ability to raise prices without causing sales and profit to plummet. CCA is one such company.
Because of the strength of the Coke brand and the nature of the product (you could argue Coke is an essential item to many Australians), Coca-Cola Amatil has been able to raise prices and cut costs to keep profit and cash growing strongly, despite the economic slowdown.
While Coke might be a special sort of product, the lesson for business owners is clear: if your product is a “must have” for your customers, your chances of surviving and prospering in a downturn are much higher.
The Reject Shop
While most retailers are struggling with the downturn, discount chain The Reject shop is revelling in the conditions. Sales in the six months to 31 December increased 16.6% to $221.6 million, while net profit increased 10.1% to $15.6 million. The company opened 15 stores during the period and is confident of posting a full-year profit of at least $18.6 million. The second half will be tough, with margins coming under pressure due to the higher cost of imported goods as a result of the falling Australian dollar, but the company will launch a new SAP enterprise management system.
It’s no shock that The Reject Shop would do well in a downturn – the chain’s very clear brand and market positioning make it an almost automatic choice for bargain hunters. But running a discount chain isn’t a guarantee of success, as the collapse of Australian Discount Retail (owner of the Crazy Clark’s and Go-Lo chains) proves. The Reject Shop stays extremely close to its customers (for example, it has increased its focus on food and cleaning products, which customers are apparently hunting for) and is also investing in overseas purchasing facilities that will help it keep an even tighter rein on costs and protect margins.
IT spending is under severe pressure in this downturn, but software provider IBA Health has bucked the trend by posting solid growth. In the six months to 31 December the company posted a net profit of $10.3 million, compared with a loss of $1.1 million in the previous corresponding period.
Chief executive Gary Cohen expects the company will post revenue of $540 million to $560 million in 2008-09, with earnings before interest, tax, deprecation and amortisation set to rise around 25% to $120 million to $130 million.
IBA’s focus on the healthcare sector gives it a natural buffer from the recession. Gartner research forecasts that between 2007 and 2012, global health IT spending will grow at an annual compound rate of 5% to $US100 billion – the fastest expected growth among all major global industries and more than four times the growth in IT generally.
The company’s focus on government spending will also provide it with insulation. While government budgets are under pressure, stimulus packages being launched around the world are all contain measures for health spending.