Adapt and survive: How companies are dealing with the new reality

Organisations have adapted well to the challenges of the pandemic, according to the incoming CEO of the Australian Investment Council Navleen Prasad. Prasad, who officially starts on November 7, emphasised the theme of the conference – ‘adapt’ – and how in a post-COVID environment, the demands and expectations of private capital are greater than ever.

“In our industry, and across the businesses in which you invest, we saw remarkable examples of adapting, often with little to no notice under the enormous pressure of uncertainty,” she says. “ Some were short-term responses such as changing product lines; others seem to be more structural such as flexible working becoming mainstream. It was a time in which investors not only contributed financial capital, but know-how and supportive management.”

Prasad outlined the national skills shortage that exists and how it will lead to even higher demand for infrastructure and services that are already in short supply. “Sectors such as healthcare and education are under crippling pressure to meet demand,” she says, “and there is a chronic shortage of affordable housing in Australia.”

Already stretched public balance sheets can only do so much, she added. “Much of the heavy lifting will be done by private capital, including through direct investment, backing entrepreneurs, investing in technologies and partnering with governments.”

Turning it around

A highly anticipated talk from Christine Holgate, CEO, Toll Global Express, focused on how she helped turned the company around, with the help of a supportive board and loyal employees, after it was sold to Allegro Funds. “This was one of those acquisitions that come along once in a lifetime,” Holgate says. “It was a tarnished brand, but the people attracted me to the business.”

There was no focus on cash, no balance sheet, there was $168 million in overdue payments, and 30% staff turnover, she says. “We could see the biggest issue was culture and we profiled over 20,000 stakeholders to see what the key issues were.”

Holgate came up with three action points to turn the business around:

1. Bring home credit management from where it had been outsourced to India.

2. Transform customer service, which had been outsourced to Manilla where there was no accountability.

3. Fix the drivers’ scanners. Freight needs to be scanned seven times during the delivery process, but scanning had dropped to 60% because of the poor equipment.

Holgate says thankfully, customers and employees gave Allegro the benefit of the doubt and stayed with them during the transformation. One year on, capability has been rebuilt.

“We have had 17% revenue growth in the past year, which is amazing for a business that was going backwards for five years,” she says. “And in the FY to March, we made a positive EBIT contribution – this felt like a massive achievement, along with halving employee turnover and recording positive customer NPS.”

Managing through the pandemic

A panel discussion of institutional investors then offered their insights into managing through the pandemic and rebalancing portfolios. All agreed that there were many more Zoom and Teams calls but now face-to-face meetings are returning, and with it a readjustment of portfolios.

Crystal Russell, Partner, Private Capital, QIC, says not much has changed in the way of QIC’s portfolio construction and they remain overweight in healthcare and technology. Jenny Newmarch, Senior Portfolio Manager and Head of Private Equity, Aware Super says they’re seeing a lot of red in their portfolio, “which is not surprising. We allocate 20% to Australia and invest for the long term – around eight years,” she says. “A bright spot is in domestic sector – food and agriculture has done well, so there have been some inflation benefits.”

One issue under discussion was the consolidation of super funds to create mega funds. Serge Allaire, Head of Private Equity at CBUS, says while this type of consolidation is good for members, it needs the right people on the ground to deliver capability.

Inflation remained a key topic of concern for the panellists. “The biggest effect for us of inflation is the impact on technology valuations,” Newmarch says. “About 40% of our portfolio is in the technology sector, so from a valuation perspective they’re coming back to earth. What we’re considering now is defensive versus non-defensive companies. We’re also seeing increases in labour costs and labour shortages having an impact.”

Russell adds that where the challenges are is on the supply side – not necessarily the price points but the availability of supply. “Companies have been able to pass on price increases but when it comes to supply, we need to bring in supply chain experts,” she says.

Rate rises to continue

Always popular, Westpac Chief Economist Bill Evans reiterated the message regarding the issue of inflation. “It’s a major issue at the moment and we got the big shock with the US core inflation figure overnight,” he says. “My expectations are for the Fed to first lift by 75 basis points followed by a couple of 50-point rises as there has been no progress made with the numbers coming down.”

Time to collaborate on cybersecurity

In the last session of the day, a panel discussed the importance of collaborating to ensure cybersecurity protections are in place. A report from ACSC states there is a cyberattack every eight minutes. ACSC’s Matthew Thomson says these types of threats are increasing and collaboration between private and public collaboration is needed to combat them.

Rosie Johnson, director, ESG Pacific Partners says cybersecurity is following trajectory of OHMS, which traditionally was looked at through a small lens but is now important for all organisations to consider. “Everyone is equally aware of what’s going on in this space,” she says. “The consequence being that more people are working through how to protect their portfolios to the best of their ability.”

Panellist Richard Williams, Managing Director, PSG, says many horror stories abound in this area and one of the biggest outcomes is reputational damage. “Some small companies have had to fold because of the reputational damage following an attack,” he says. “But even bigger companies have to deal with the result of cyber-attacks; they take a massive toll.”

Collaboration is the most efficient way to deal with the problem, the panellists say. “There are different types such as public-private as well as industry and portfolio level,” Williams says. “It could involve the sharing of intelligence or knowledge. The cost efficiencies of doing this are pretty clear and it helps avoid duplication.”

Johnson adds that having higher maturity companies sharing their skills and knowledge to the less mature companies will pay dividends for all. “This type of sharing will help people reach a base level of maturity with their cybersecurity plans,” she says. “Not everything can be tackled by every company but cybersecurity at a base level is something that all portfolio companies need to achieve.”

And how about revealing to the public if you pay a cyber ransom. Should you? Williams says the government’s position is not to pay but the reality is that for organisations that need to get their business back online, it may be a different consideration. “The important point is that they need to be in a place where they’re not in this position so don’t need to pay,” he says.

Johnson agrees it’s a challenging situation. “I probably wouldn’t tell anyone if I’d paid but as to whether to pay or not, then if there’s no other way out and you have thousands of customers, then maybe it’s the only way,” she says.

The Australian Investment Conference 2022 continues tomorrow at the JW Marriott on Queensland’s world-famous Gold Coast.