Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number seventeen in our series for 2019 and today’s date is Friday May 24
First I talk to Chris Balazs, CEO and co-founder of Provenir , an ag-tech company which has built Australia’s first vertically integrated, commercially licensed mobile abattoir to process livestock at the point of production – on the farm where they were raised.
And then I’ll be talking to Indeed economist Callum Pickering about Australia’s wages and labour force figures.
But for now, let’s talk to Chris Balazs.
Ford Motor Co. will cut roughly 10% of its global salaried staff by August as part of a companywide “redesign.” The move will eliminate 7,000 white-collar jobs and save the U.S. auto giant about $600 million annually. “We will continue to work collaboratively and respectfully with our teams and other partners to ensure our designs are effective and fit and that our employees are treated fairly and with respect,” the company said in a memo to employees obtained by the Detroit News.
Ford is also looking to restructure its ranks globally, including in Europe, China and South America. The 7,000 job cuts include salaried employees who took buyouts within the past year, as well as jobs that were never filled and later eliminated. About 20 percent of the positions were senior-level management role. Ford is not alone. General Motors has laid off roughly 4,500 workers since early 2017. In March, GM shut down production in Lordstown, Ohio, an area where manufacturing jobs have declined in recent years.
Further escalation in the yearlong trade war between Washington and Beijing would hammer away at growth at a time when the global economy is already set to slow, the Organisation for Economic Cooperation and Development warned Tuesday. The Paris-based think tank said in a biannual report that broader trade barriers between the largest economies would further slow trade flows and damage sentiment.
The US and China have together levied steep tariffs on roughly $US360 billion worth of each other’s products. If trade relations continue to deteriorate, the OECD forecasts that global gross domestic product would fall by as much as 0.7%, or roughly $US600 billion, by 2021. Bloomberg Economics has made similar estimates. “Further uncertainty about trade policies, and a growing concern that new restrictions might be applied on a much wider range of items affecting many economies, is likely to check business investment plans around the world,” the report said. By increasing investment risk premia in financial markets and the cost of capital for companies, the OECD said greater uncertainty could be particularly costly in advanced economies.
President Donald Trump has threatened to extend duties to all remaining Chinese imports to the US, which are valued at about $US300 billion. Tensions between the US and China escalated further last week after the Trump administration banned telecommunications gear from “foreign adversaries” in a move seen as targeting certain Chinese companies. This all comes at a time when the world economy is expected to cool. The OECD estimates that world global gross domestic product growth will slow to 3.2% this year – down from 3.5% in 2018 and 3.8% in 2017.
British celebrity chef Jamie Oliver’s restaurant chain said it was entering administration on Tuesday, threatening jobs at the firm’s 25 sites in the United Kingdom. Oliver, 43, who became a well-known figure in Britain and beyond for his popular TV shows, founded his Jamie’s Italian brand of high street restaurants in 2008. His restaurant group also includes Barbecoa, a steakhouse, and Jamie Oliver’s Diner. The insolvency will leave 1000 people out of work and reignited worries about local retail and food outlets in Britain, which are struggling to attract customers much like downtowns in the United States.
The Jamie Oliver Group said it had appointed Will Wright and Mark Orton of KPMG. Oliver, who was discovered by the BBC while working as a chef in London’s River Cafe, gained widespread fame for his Naked Chef show, which was broadcast in dozens of countries. Oliver’s restaurant chain is the latest victim of a brutal trading environment on Britain’s high streets. Jamie’s Italian restaurants in Australia went into administration last year with the closure of one site in the capital Canberra. KPMG, which will oversee the process, said all but three of the group’s 25 eateries will close.
Jamie’s Italian was launched in 2008 “with the intention of positively disrupting mid-market dining” with higher quality ingredients, animal welfare standards, better service, and good value. But the launch came just as local businesses throughout the UK were squeezed by the onset of the 2008 financial crisis. Rising food prices, increasing rents, and competition took a toll. The company had been in trouble for at least two years, despite Oliver’s global fame on the back of his cookbooks and television shows.
Last year, it shuttered 12 of its 37 sites in Britain, while five branches of the Australian arm of Jamie’s Italian were sold off and another put into administration. Will Wright, a partner at KPMG and joint administrator, said that the directors at Jamie Oliver Restaurant Group had worked hard to stabilize the business, but costs were rising and consumer confidence was brittle. He said the priority now is to support those that have been made redundant. Simon Mydlowski, a partner at Yorkshire law firm Gordons and an expert on the hospitality industry, said Jamie’s is the latest brand that has failed to keep pace in a rapidly changing sector where a business needs to keep evolving.
The Reserve Bank of Australia says a softening in the jobs market will force it to cut interest rates, just days after official figures showed unemployment starting to increase. The minutes of the RBA’s May meeting show there was a serious debate among members about whether to cut the official cash rate less than a fortnight out from Saturday’s federal election. The cash rate has been on hold at 1.5% since August 2016, but markets put the chance of a cut at more than 66% because of growing concerns about low inflation and the strength of the jobs market.
The minutes of the meeting, which was held before official figures showed a lift in the national unemployment rate to 5.2%, show RBA members alert to the problems of very low inflation that has so far failed to lift despite ongoing jobs creation. “As in the previous meeting, members discussed the scenario where inflation did not move any higher and unemployment trended up, recognising that in those circumstances a decrease in the cash rate would likely be appropriate,” the minutes showed.
The Reserve Bank governor has given the strongest indication yet that interest rates will be cut in June. In his speech on The Economic Outlook and Monetary Policy, RBA Governor Philip Lowe was upfront about the decision facing the Board in June: “At our meeting in two weeks’ time, we will consider the case for lower interest rates,” he said. This is as clear a signal as the RBA ever delivers. But in a message to the newly elected Morrison government, Dr. Lowe also warned that cutting interest rates was not enough to boost the economy. With the federal government now having a strong mandate for tax cuts, Dr. Lowe called for additional spending on infrastructure and structural policies that support expanding, investing and employing people.
The six month annualised growth rate in the Westpac- Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, declined from -0.13% in March to -0.47% in April.
Spending across the Australian economy remained firm ahead of the federal election, according to patterns observed by the Commonwealth Bank, Australia’s largest retail bank. Sales were particularly strong at amusement and entertainment businesses and accommodation providers, likely reflecting the timing of the Easter and Anzac Day holidays.
Sales at clothing stores went backward, possibly due to warm weather across many parts of the country. The Commonwealth Bank’s spending measure slowed sharply in the second half of last year, mirroring official household consumption data released by the ABS. The recovery in early 2019 suggests household spending may have firmed in the March quarter. It’s Business Sales Indicator (BSI) — a measure on economy-wide electronic spending through the bank’s payment platforms — grew by 0.5% in April in trend terms, leaving total spending up 5.3% from 12 months earlier. The April increase was marginally below the 0.6% trend growth seen in both February and March but remained above average levels.
APRA, Australia’s banking regulator, has signaled it may relax serviceability assessments for new residential mortgage loan applications, potentially allowing home buyers to borrow more to fund the purchase of their property. The regulator has proposed removing the minimum 7% floor rate that all new mortgage applications are assessed by.
Prime Minister Scott Morrison has been told it is “very unlikely” he can convene Parliament before June 30 in a danger sign for his ability to legislate income tax cuts for millions of workers due to take effect on July 1. The delay has forced the government to look at retrospective action to ensure ten million workers receive a tax offset in their tax returns worth up to $1080 a year and promised in the April 2 budget.
One option is to pay a “supplementary” offset to workers after the law is changed in the new financial year to account for the tax relief promised to them for this financial year. Mr. Morrison said voters wanted their politicians to go “back to work” after Saturday’s election but cautioned on Monday night that it would be difficult to convene the Parliament next month.
“There’s a lot of work to do and we’re getting about it straight away,” Mr. Morrison told Sky News. “We hope to convene the Parliament again as soon as we can. We obviously have to wait for the writs to be returned and there’s a formal process for that. At the moment that’s not looking until very late in the back end of June, so that really does make very narrow that opportunity to do it before the 30th of June.”
No election promise was as important to the Coalition as its pledge to cut personal income taxes by $158 billion over the decade ahead, on top of a cut worth $144 billion announced in last year’s budget. A key measure was an offset that would be paid to taxpayers when they lodged their tax returns for the financial year ending on June 30, with the cash flowing to ten million workers.
Some of the tax relief was legislated in 2018 and will deliver an offset worth up to $530 a year. The Coalition went to the May 18 election with a plan to increase the offset by $550 as soon as it returned to power if it won the election. But Mr Morrison chose an election date that made his tax promise difficult to deliver. The issue of the writs for the election named June 28 as the date for the return of the writs, raising doubt over whether the Parliament could sit in time to legislate the higher tax relief from July 1.
Pay-TV provider Foxtel is locked in some tough negotiations, as it seeks to cut costs while simultaneously securing more broadcast rights. Foxtel, which is battling falling revenue as it faces increased competition from a slew of online streaming services, has entered tough contract conversations with BBC, Discovery and NBCUniversal. Foxtel needs to build its catch-up library ahead of the launch of a new user interface in July and its planned drama and entertainment streaming service.
Incitec Pivot says its flagship ammonia plant in the United States has resumed operations while a struggling Queensland fertiliser plant remains in danger of closure, as the company reported a better than expected half-year profit. Incitec’s first half was marred by bad weather and mechanical outages at important operations, but the results published on Monday morning were still better than analysts had expected in terms of revenue, earnings before interest and tax and underlying earnings. The $41.9 million underlying profit was well below the $147.1 million for the same period in 2018, but better than the $33.35 million expected by analysts surveyed by Bloomberg.
Blue Sky Alternative Investments has fallen into receivership and been suspended from trading on the Australian share market. Blue Sky’s market value has plummeted from $1.2b to $14m. ASIC investigated the company for potential breaches of continuous disclosure obligations. Three major law firms are trying to launch class actions against Blue Sky.
The Brisbane-based fund manager, which manages $2.8 billion in investments, appointed Pilot Partners as its voluntary administrators on Monday. It came after the former market darling breached a $50 million funding deal with US hedge fund Oaktree Capital Management — which then led to Oaktree appointing KordaMentha as Blue Sky’s receivers. At its peak, Blue Sky was worth almost $1.2 billion, when its share price was $14.54 in late December 2017. But its market value plummeted to just $14 million within one-and-a-half years, with its shares last trading at 18 cents.
Lynas Corporation has bowed to pressure from Malaysian authorities and abandoned plans to continue accumulating low-level radioactive waste at its $1 billion Kuantan rare earths processing hub. The rare earths producer instead will look to build an upstream processing plant close to its Mount Weld mine in Western Australia to remove radioactivity before sending the product to Kuantan as part of a $500 million capital works program that includes increases in downstream processing capacity.
Seven West Media has blamed a soft advertising market and uncertainty surrounding the federal election for a lower-than-expected profit. On Tuesday morning, Seven warned it now expected earnings before interest and tax in the 2018-19 financial year will fall to between $210 million and $220 million, from last year’s result of $235.6 million. It had previously forecast EBIT growth to come in between 0% and 5%.
The nation’s second-largest private hospitals operator has fallen into private equity hands once again after shareholders overwhelmingly backed the $4.4 billion takeovers by Canada’s asset manager Brookfield Capital Partners. It was a battle of the books, with rival bidder BGH Group locking up Healthscope’s biggest shareholder AustalianSuper to its competing offer, leaving shareholders unhappy. But shareholders finally voted in favour for the $2.465 per share cash offered by Brookfield, which was led by Len Chersky, head of its private equity group in Australia.
AMP Financial Planning has admitted its clients were not provided with appropriate advice on insurance policies, nor did it act in their best interests. The company will be taken to court by the Australian Securities and Investments Commission (ASIC) from June 19 to 21. ASIC is seeking civil penalties against AMP, and will also ask the Federal Court to make a “compliance plan” order. “AMP has made these admissions of wrongdoing prior to a contested liability hearing to be held in June which would have lasted two weeks,” ASIC deputy chair Daniel Crennan QC said.
BHP has raised its expectations for electric vehicle sales and market penetration. In a blog published on Tuesday by BHP’s market analysis and economics vice-president Huw McKay, the miner upgraded its expectations for the minimum adoption of electric vehicles in coming decades. BHP now believes electric vehicles will comprise at least 7% of the world’s light-vehicle fleet in 2035, up from a minimum of 5%. The miner says electric vehicle sales in 2035 will be at least 16%, up from 10%.
And BHP says it has no appetite for new investments in thermal coal, regardless of how lucrative those investments may be, but has also signaled it is unlikely to invest in commodities like lithium and cobalt. The hardening of BHP’s attitude toward the type of coal used for power generation was revealed in a slide pack published ahead of a strategy briefing by chief financial officer Peter Beaven. The presentation declares that the decarbonisation of the energy sector will see thermal coal ”phased out, potentially sooner than expected”. BHP then added that it had “no appetite for growth in energy coal regardless of asset attractiveness”.
And that’s it for this week. And next week I have a terrific interview with Adam O’Neill, the CEO of Y Soft, explaining how companies need to change their print services to support the rising trend in the number of mobile employees.
And I’ll be talking to RMIT economist Sinclair Davidson looking at what the economic challenges are for the newly elected Morrison government,
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.