Key points
- CEO performance often correlates to a company’s performance.
- Don Meij of Domino’s was once a pizza delivery guy but is now one of the best-liked CEOs in the business by those in the know.
- Clive Rabie, of Reckon, has a difficult job but has proved he probably has the skills to turn his company around.
A high-profile chief executive officer (CEO) is not always a good thing when you are an investor in a company – the press coverage of the CEO does not always correlate with good shareholder returns. But what does usually correlate to performance is a CEO that is good at his or her job. There are 2,200 CEOs of listed companies – and some are definitely more “under the radar” than others. Here are five that are doing a really good job.
Don Meij, Domino’s Pizza (DMP)
There are plenty of believers in Don Meij now, but when Domino’s Pizza listed on the Australian stock exchange in May 2005 at $2.20 a share, there were far less. Many institutions passed on the float, wondering where the profit was in a pizza. With the shares now trading at $26.24 and a profit of 50.5 cents a share in the bank for FY14, they now know.
Domino’s Pizza (DMP)
[1]Source: Yahoo!7 Finance, 2 February 2015
Domino’s Pizza now has 908 stores, 112 company-owned and the rest franchised. The Australian business has now established Domino’s operations in New Zealand, Germany, Belgium, the Netherlands, France and Japan.
CEO Meij was once a pizza delivery driver, who became a Domino’s franchisee and built a network of 17 stores, before selling his stores to the company and joining it, becoming CEO in 2002. Meij’s passion for the pizza business is well known, but what really impresses the market is how he has harnessed technology and innovation to drive growth in a highly commoditised market.
In 2014, for example, Domino’s launched its interactive visual pizza builder Pizza Chef, introduced an online-only ordering strategy, rolled out its hugely successful Offers app and partnered with PayPal in a “digital wallet” arrangement. Fund managers talk of Meij as if he were running a technology business. And the growth numbers fit: Domino’s has returned 43% a year over the past five years.
Andrew Grech, Slater & Gordon (SGH)
Law firm Slater & Gordon is another stock that has had to prove that it belongs on the share market: listed in May 2007, it was the world’s first publicly-rated law firm. But it has delivered, in spades – turning its issue price of $1 a share into $6.64. Slater & Gordon has generated a total return of 35% a year over the past five years.
Slater & Gordon (SGH)
[2]Source: Yahoo!7 Finance, 2 February 2015
Along the way, the personal injury and commercial law specialist has well and truly expanded from its Victorian base, creating a national brand and a thriving operation in the United Kingdom. This process has involved about 50 acquisitions, and the market expects this growth to continue. And it’s this ability of the management team, led by Andrew Grech, that really impresses fund managers.
Making any acquisition involves integration risk, but dealing with lawyers and intellectual property is probably even so – simply put, you are dealing with very healthy egos. But Grech’s ability to negotiate, execute and integrate these deals – particularly outside Australia – marks him down as a very skilled manager of people, which, when it is all said and done, is all that a law firm possesses.
Paul Flynn, Whitehaven Coal (WHC)
If the job description of a CEO is to control what you can control, and not worry about the things you cannot control, Paul Flynn, CEO of New South Wales-based coal producer Whitehaven Coal and his management team should be much better known than they are. Anyone can look good with a tailwind bolstering performance, but when you’re a coal-miner, faced with falling coal prices – with the additional negative of a high-profile campaign by activists hoping to shut down your major expansion project, as well as your industry – controlling everything you can control becomes even more critical.
Whitehaven Coal (WHC)
[3]Source: Yahoo!7 Finance, 2 February 2015
In December, Whitehaven’s $770 million Maules Creek shipped its first trainloads of coal, three months ahead of schedule, and under budget. The mine, near Gunnedah in north-western NSW, has been the target of protests and legal challenges for years, because of concerns about environmental damage and dislocation of farmers. It was famously the subject of a forged ASX release in 2013, purporting to state that ANZ Banking Group had withdrawn its financing for Maules Creek, temporarily wiping $314 million from Whitehaven’s market value.
Maules Creek will have to comply with more than 100 state government conditions: Whitehaven says it will operate under the highest environmental standards and requirements in the NSW mining industry. As well as shepherding Maules Creek through to an accelerated start, Flynn – a former accountant who has been running Whitehaven since March 2013 – oversaw the cutting of the company’s production costs by $8 a tonne to $63 a tonne in 2014, and he says the company can “squeeze the lemon a little bit further,” in the current half, possibly by another $2 a tonne, trying to do everything possible to get back to profitability. Coal is not everyone’s cup of tea, but shareholders can’t fault Paul Flynn for leadership and hard work.
Brian Benari, Challenger Group (CGF)
Investment management firm Challenger Limited, which manages more than $54 billion in assets, has pioneered the annuities market in Australia. It is one of the best examples you can find on the Australian share market of a company identifying an unmet need and grabbing first-mover advantage: Challenger saw that the superannuation system was overly focused on accumulation and that nobody was really looking at the draw-down phase – when people enter retirement and begin to take their money out – and they have built a strong business on the back of that.
Challenger Group (CGF)
[4]Source: Yahoo!7 Finance, 2 February 2015
Challenger controls about three-quarters of the Australian annuities market share, and while this is under threat from the big banks and AMP, Challenger doesn’t mind this – in fact it has been demanding that new entrants come into the market, to improve competition. At the heart of the company’s strategy is the knowledge that annuities, as a retirement income product, are only just getting started – there is massive growth still available to Challenger.
CEO Brian Benari has been an integral part of this strategy. He has been with Challenger since 2003 and in the top job since February 2012. Benari and his management team deserve full marks for innovation, for identifying a market niche and grabbing a wave as it was building – and riding it.
Clive Rabie, Reckon (RKN)
Another of Australia’s small but influential population of ex-South African CEOs, Clive Rabie, head of accounting software supplier Reckon, has a big task to convince the market his strategy is right – but there are certainly fund managers who think he can do it.
Reckon (RKN)
[5]Source: Yahoo!7 Finance, 2 February 2015
Reckon’s business model has been fairly simple over the years: it has held the rights to distribute the Quicken and QuickBooks products of US giant Intuit, which provided the biggest chunk of its revenue. But since March 2012, when the company announced that its Intuit deal would cease in February 2014, Reckon has had to convince the market that it could develop its own products, and its own ‘cloud’ strategy.
Rabie has embarked on a strategy to diversify the revenue base through refreshing the core products and making a string of acquisitions in related businesses, and moving the sales strategy to online sales and subscription revenue, rather than big upfront fees. The company is in bitter competition with MYOB (which may float on the ASX this year) and New Zealand cloud giant Xero, but it has about 40% of the Australian market in accounting software.
The market “jury” is still out on Rabie’s strategy – and the share price performance reflects that – but he is widely admired for seeing the need to change direction, outlining a strategy and then “walking the walk” in executing it.
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