This article first appeared in the AFR on 16 March 2025
The recent reporting season was one of the wildest in memory, but companies like Coles, Suncorp and even WiseTech managed to set themselves apart from the pack.
The Australian reporting season was one of the most volatile we’ve seen in some time, with strong differentiation between companies even within the same sector. Those that beat earnings expectations were rewarded by the market, while those that fell short were harshly treated.
Earnings results were overall slightly disappointing and below market expectations, mainly driven by cost and margin pressure. While corporates are generally struggling to control costs, we’ve noticed that keeping expenses in check helped to set some apart.
We believe cost control will be an ongoing theme in 2025, given one of the main issues discussed by companies in their outlook for the year ahead was a continual focus on keeping expenses in check.
Looking at the broader economy, productivity has been in decline since 2022 and the gap between Australia and the US has widened substantially, impacting our relative competitiveness.
At the same time, private sector investment has been soft versus spending in the public sector, which has dominated. We will need to see the private sector have the confidence to invest to support GDP growth, and despite recent increases, consumer confidence remains under pressure from the ongoing cost of living concerns and limited wage growth.
With this as the backdrop, productivity, cost efficiency and self-help programs will be vital for companies being able to deliver good results going forward.
This will show up in two key ways. First, by what companies can do for themselves to cut costs and boost productivity, and second, in how they seek out the products and services from other companies to help with that cost reduction and productivity push.
Wheat from the chaff
Let’s look at a few examples of how these two aspects played out during the February reporting season.
Supermarket chain Coles delivered a strong result by investing in technology to lower shrinkage and theft across their stores. They achieved cost of doing business benefits of $157 million from their “simplify and save to invest” strategy, and continued to get cost savings from their automated distribution centres in Brisbane and Sydney and future savings from their Melbourne centre. These significant cost savings allowed the retailer to provide customers with lower prices and deliver better returns for shareholders.
Similarly, Suncorp has boosted efficiency by simplifying its business, which should lead to improved customer outcomes, better earnings growth, a higher valuation and significant capital returns to shareholders. The company sold its life insurance, wealth management, repairs business and bank, focusing on their key profitable business of being a general insurer.
When thinking about what products companies can sell that can help their corporate customers to drive productivity gains and cost efficiency, technology plays a key role.
Consider WiseTech. While it is currently going through corporate governance challenges, the underlying business is growing strongly by providing very significant cost efficiencies and competitive advantage to their customers in the freight forwarding industry through CargoWise, their key software offering.
It is becoming critical for freight forwarding businesses to lower costs (in a low-margin industry) and aggressively compete. Wisetech’s software upgrades will only drive this advantage further.
Similarly, Seek helps recruiters and corporates cut recruitment costs and talent acquisition. By assisting companies to have better and more targeted candidate profiling, Seek can considerably lower recruitment costs for corporates. This is important because corporates are increasingly focusing on the return on investment for their expenses.
Vista is another example where it is growing by helping its customers (cinemas) get better productivity through its software programs as well as loyalty from its patrons. This drives real stickiness for Vista’s software products and enshrines its very high global market share.
Finally, don’t discount the role that mergers and acquisitions can play in the drive for productivity and cost efficiencies. Australian companies are increasingly looking at both domestic and international opportunities for growth and consolidation, with significant cost-outs traditionally achieved from mergers within the same business area.
There is still much of 2025 to play out, but what is clear is that a focus on cost management and productivity will likely play an outsized role in delivering good company performance. These names and others like them will be ones to watch.
