This is episode number eighteen in our series for 2020 and today’s date is Friday, June 5.
First I talk to LiveTiles co-founder Karl Redenbach about remote working.
And then I’ll be talking to RMIT economist Jonathan Boymal about the downturn in Australian property prices because of COVID-19.
But first, let’s talk to Karl Redenbach.
Global stocks are trading at a three-month high as businesses continue to reopen around the world and manufacturing gauges show economies stabilizing following coronavirus shutdowns. That’s despite a slew of risks still on the horizon, including tense U.S.-China relations that may jeopardize a hard-won trade deal. The sometimes-violent demonstrations across U.S. cities over the killing by police of George Floyd, an unarmed black man, aren’t yet seen as a major drag on the economy and corporate profits.
ABS figures show the Australian economy shrank by 0.3% in the March quarter, amid bushfires and the early stages of COVID-19. Annual growth shrunk back to just 1.4% from 2.2% in the December quarter. The latest figures from the Australian Bureau of Statistics show household consumption expenditure decreased -1.1% in the quarter, with through the year growth down 0.2%. This makes it certain Australia will suffer its first recession in 29 years.
The Reserve Bank of Australia has kept the official cash rate on hold at 0.25% and said the economic downturn arising from the COVID-19 pandemic may not be as bad as first feared.
Almost two-thirds of the cash withdrawn by Australians from their superannuation early during the coronavirus crisis has been frittered away on alcohol, take away food and clothes. A further 11% of the retirement savings was spent on gambling. New spending data shows 40% of those accessing their super experienced no drop in income during the pandemic, or their loss was fully offset by government payments, raising questions about whether they really needed the money.
The analysis by credit bureau illion and consultancy AlphaBeta, a part of Accenture, is based on the bank transactions of 13,000 people who have withdrawn superannuation since the coronavirus outbreak. It showed those withdrawing super used it to increase, not just maintain, their spending. Their purchases nearly tripled, on average, in the fortnight after the money was received compared to an average fortnight before the money was received. As part of its response to the pandemic, the Morrison government is allowing people to withdraw up to $10,000 from their super accounts tax-free now and up to $10,000 next financial year. When the scheme was announced in March Treasurer Josh Frydenberg said: “This is the people’s money and this is the time they need it most.”
Australian Bureau of Statistics figures showed better-than-expected company operating profits but worse-than-expected inventories muddying the picture on whether the country avoided contraction in the first quarter. The first-quarter company operating profits rose 1.1% quarter-on-quarter, beating economist forecasts for a 0.5% increase. Inventories fell 1.2% over the quarter compared to forecasts for a 0.6% drop. The current account balance hit $8.4 billion, surging past economist expectations for an increase to $6.1 billion, according to the Australian Bureau of Statistics.
In the past month, another 300,000 people joined the dole queues, pushing the total close to the number that had been expected by September. Acting deputy secretary of Social Security Shane Bennett said 1.64 million people were on the JobSeeker and Youth Allowance payments on May 22. Numbers have doubled in two months since the lockdown began. On, March 22, 812,000 people were receiving unemployment benefits. At the same point in April, the number was 1.346 million. Now it is 1.64 million, with another 45,000 claims for unemployment benefits that are still outstanding. Of the 300,000 people to have joined the dole queues in the past month, 50,000 are on the Youth Allowance, figures inquiry chairwoman and Labor Senator Katy Gallagher described as “pretty staggering”.
Cash grants of about $25,000 to build new homes will be on offer until the end of the year and will be uncapped as part of the federal government’s post-pandemic construction stimulus package aimed at saving the building industry. The package, likely to be launched this week, will also be means-tested to include those potentially earning up to $150,000 but will be available for only several months to avoid inflating house prices across the country.
The grants to stimulate the residential construction sector will be means-tested to include upper-middle-income singles and couples and will be in place for only a short period to try to avoid causing a blowout in house prices. The construction package signed off on Tuesday by the expenditure review committee, is one of several industry-specific packages being drafted by the government, as it moves away from economy-wide broad assistance measures and targets sectors that will take longer to recover, or have fallen through the cracks. After weeks of resistance, the government is also working on a package to assist the entertainment industry.
It is examining capital injections to enable stage and screen productions, which collapsed almost immediately when the pandemic struck, to get started again. Leaked draft communique from a robust meeting last week of state and federal cultural ministers shows the states have pushed hard to help the sector. The communique, which was never released because the Commonwealth would not agree, called for a range of measures including underwriting arts and cultural sector operations until full audiences were again allowed, to broadening the eligibility of the JobKeeper scheme “to support the significant number of organisations, freelance and casual artists and arts workers, and employees of publicly owned or operated arts and cultural facilities that have been unable to access the program”.
The government will not be offering these workers JobKeeper. Prime Minister Scott Morrison said on Monday that an entertainment industry package based on capital investment was in the offing as the government’s economic response moves “from the big, big, broad strokes of JobKeeper and JobSeeker” to a focus on sectors “which need that longer-term support”.
Major banks and insurers have recruited Australia’s top climate scientists from the CSIRO, the Bureau of Meteorology, and major research universities to help build the nation’s first comprehensive set of common climate change risk disclosure standards. The Climate Measurement Standards Initiative (CMSI), the latest in a string of initiatives that address corporate Australia’s growing concern about the financial risks posed by climate change, will begin by conducting a detailed assessment of the physical risks to residential and commercial property and infrastructure.
While the broad nature of climate risks are known – they include damage and disruption from fire, flooding, extreme heat, sea-level rise, and heavy rain – there is a huge amount of uncertainty over when and where they will occur, and how extreme they will be. Much rides on whether efforts to reduce global greenhouse gas emissions are successful. The new initiative will engage with this complex, uncertain, and ever-evolving picture, giving financial firms a much more granular and realistic sense of the nature of climate risk in Australia. The CMSI is led and funded by the National Australia Bank, the Commonwealth Bank of Australia, Westpac, Suncorp, QBE, and IAG among others, and will draw its scientific expertise from the Earth Systems and Climate Change hub, a partnership of five universities, the CSIRO and the BoM. The initiative will use up-to-date science to develop reporting standards of the sort set out by the International Taskforce on Climate-related Financial Disclosure, but with a specifically Australian focus. The first draft of a new standard will be published in July.
The new owner of Virgin Australia will be a New York hedge fund or a global private equity group, but the person who could swing the deal either way is fun-loving Virgin Group founder Richard Branson. Virgin founder Branson is the key player lurking in the background as Virgin Australia administrator Vaughan Strawbridge sells the business to either Bain Capital or Cyrus Capital Partners.
Both bidders have been in close contact with Branson’s right-hand man, the London-based and New Zealand born Josh Bayliss. As chief executive of the Virgin Group, Bayliss is in the middle of managing the most significant crisis in the company’s history. Australia remains one of the four key markets in Branson’s empire. He will be keen to preserve the annual $15 million to $20 million in license fees paid to Virgin Group by Virgin Australia for the use of his iconic brand.
Branson will inevitably match up with whoever is the successful bidder. But getting him onside during the next three weeks could well help in influencing the outcome of the sales process. Both companies have strong links with the Virgin Group. Bain helped develop the Virgin cruise ship business, which launched in January and is now in mothballs. Cyrus has as one of its key advisers Jonathan Peachey, who was formerly CEO of Virgin Group North America.
Construction employers are pushing to scrap Saturday penalty rates and cut casual shifts to as few as two hours, warning that up to one-third of businesses in the industry could shut down if conditions do not improve in the next year. The bid to apply changes to “restrictive” industry awards for the rest of 2020, however, is being resisted by powerful construction unions, who have accused businesses of exploiting the coronavirus pandemic to attack workers. The standoff between builders and unions comes as the Morrison government prepares to seek consensus for industrial relations changes and industry groups demand a minimum-wage freeze for the nation’s low-paid workers to be imposed for 12 months.
Australia’s biggest medicinal cannabis extraction and contract manufacturing plant will be built at a secret location in Melbourne’s south-east in a $50 million project aiming to help the local industry become more self-sufficient. The facility will be owned, funded, and operated by The Valens Company, a Canadian medicinal cannabis business listed on the Toronto Stock Exchange.
However, an Australian distributor of medicinal cannabis, Cannvalate, is managing the project, hiring staff, and fitting it out with the necessary equipment. The 4500 square metre facility will process raw material and produce a range of finished medicines, including soft gel capsules, tablets, and ointments. It will have double perimeter fences, 24 hour CCTV and a range of other security measures, including a vault where finished products will be stored. Under licensing requirements, the plant’s address cannot be disclosed but it will be in close proximity to cannabis cultivation sites.
QBE Insurance Group has been named as one of eight insurers that Britain’s financial services watchdog will call to court as it tests whether their business interruption policies should payout for the COVID-19 pandemic. The Financial Conduct Authority (FCA) announced on Monday that it would launch the action on June 9, with insurers expected to file their defences by June 23 for a court case in the second half of July.
QBE is one of eight insurers that will participate in the FCA’s test case. The regulator’s plan is to try and prevent a flood of individual claims, through holding a single case that will cover 17 of the most commonly used policy wordings for non-damage business interruption insurance. Britain has been in lockdown since March 24 , and its shuttered bars, pubs, hotels, and clubs look set to feel the economic blow with particular force.
QBE is in the thick of it: it’s also facing a separate class action in Britain, alongside Aviva, from the hospitality sector. Law firm Mishcon de Reya hopes to marshall a critical mass of litigants for that by the end of this week. QBE told the ASX its reinsurance practices would limit the cost of coronavirus-related business interruption insurance claims in Britain to $US75 million ($112 million). The insurer also said that it’s business interruption policies “do not typically cover claims arising from COVID-19”.
Clive Palmer’s failed Queensland Nickel refinery was insolvent in the days before administrators were called in, a judge has found. But Justice Debra Mullins dismissed the liquidators’ claim against Mr. Palmer’s flagship company Mineralogy that it was indebted to Queensland Nickel. The judgment follows a mammoth Supreme Court civil trial into the company’s 2016 collapse, which left 800 people out of work. The insolvency ruling could now attract the attention of the Australian Securities and Investments Commission. Mr. Palmer settled the majority of the $200 million lawsuit last year — including agreeing to repay $66 million in taxpayer funds forked out for sacked worker entitlements. But general-purpose liquidators continued to pursue his companies in court for the remaining claims.
They wanted to claw back about $120 million from Mineralogy. However, liquidators could be left empty-handed after the Supreme Court in Brisbane dismissed any further claims against his parent company Mineralogy. They were pursuing the former politician and Financial Review Rich Lister for $102 million in outstanding debts from QNI as well as their fees.
Brickworks says Australian sales revenue has declined 10% year-on-year in the four months to the end of May while warning the riots sweeping the US have emerged as a “potential disruption” to its US business. Brickworks’ Australian business generated positive earnings before interest and tax in the period, with the closure of its plants benefiting cash generation but weighing on earnings. In the US, sales revenue is up 26% compared to the same time last year but this has been bolstered by acquisitions over the past 12 months. Brickworks Ltd managing director Lindsay Partridge said the company had made 200 people redundant across its operations after cutting back production because of reduced demand.
Woolworths will emerge with the largest number of employee shareholders in Australia after rewarding at least 100,000 staff with shares worth more than $50 million. The bonus scheme, foreshadowed by chief executive Brad Banducci in April, is in recognition of employees’ efforts over the last year, arguably the most challenging since Woolworths listed in 1993. It was marked by panic hoarding during the COVID-19 pandemic, which boosted Woolworths’ Australian supermarket sales by as much as 40% in March, and disruption from bushfires, drought, and floods.
Australia’s universities are flagging the ongoing impact of COVID-19 pandemic could cost them billions in revenue over the next four years. The higher education sector has been hit hard by a drop off in international students as the pandemic led to border closures. The federal government’s early move to stop people coming from China was especially damaging, with that country the largest source of international students in Australia. New modeling by Universities Australia, released on Wednesday, predicts the sector could lose $16 billion in revenue between now and 2023.
And that’s it for this week. And next week I’ll be talking to leading Australian barrister Ian Neil SC on the implications of COVID-19 for the Gig Economy. And I’ll be talking to economist Nicholas Gruen on the challenges of making forecasts about health and the economy.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook, and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.