Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, 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 or at Banking Day.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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 11 in our series for 2024 and today’s date is Friday April 12.
First, I’ll be talking to Paul Bevan, the CEO of Melbourne based agrifood startup Magic Valley with its development of cultivated beef and pork.
And I’ll be talking to AMP Capital chief economist Shane Oliver about Australia’s latest inflation figures.
But first, let’s talk to Paul Bevan.
So what’s happening in the news?
In an important report, the IMF has found Australian households are more sensitive to changes in interest rates than virtually any other consumers globally because of the dominance of variable-rate mortgages, high levels of household debt and lax lending rules. In new research on the effects of monetary policy on housing markets, the Washington-based IMF found significant differences across economies on the potency of interest rate changes. The authors found that monetary policy was stronger in economies where fixed-rate mortgages were not common, home buyers were more leveraged, national household debt was high, housing supply was more restricted, and house prices were overvalued. Not surprisingly, Australia was near the top on almost all of these metrics except for overvaluation. “Countries such as Australia and Japan appear to have stronger housing channels of monetary policy transmission, with low shares of fixed-rate mortgages, less-restrictive [loan to value] limits, high household debt (only to some extent Japan), and a somewhat elevated proportion of the population living in housing-supply-restricted areas,” the IMF said. Heh report showed that more than 80% of the Australian mortgage market is typically priced at a variable interest rate, meaning most home owners see their mortgage rates adjust soon after the RBA changes the cash rate. Only Chile and South Africa, where fixed-rate lending is essentially non-existent, had a greater proportion of variable loans. In an economy like Australia dominated by variable rate lending, a 100 basis point increase in interest rates caused consumption to fall by 0.5% over two years, the IMF estimated. But in an economy dominated by fixed rates such as the United States, consumption increased by 1.5% since the majority of households did not feel the pinch of rising borrowing costs. Australia’s 112% household debt-to-GDP ratio was the second-highest in the world to Switzerland, according to the IMF. In countries with above-average household debt ratios like Australia, a 100 basis point increase in interest rates caused house prices to fall by 5% over two years. In countries with low levels of household debt, the price decline was a more modest 2%. The IMF said Australia’s sensitivity to interest rate changes meant the RBA and the government needed to closely monitor economic conditions to ensure the central bank had not doled out a larger-than-necessary amount of pain to the household sector.
Medical glove maker Ansell is expanding into new markets like medical device makers, university laboratories and manufacturers of semiconductors and pharmaceuticals.and increasing its product offerings to include protective clothing and safety eyewear for industrial use by striking a deal to acquire US giant Kimberly-Clark Corporation’s personal protective equipment business under the Kimtech and KleenGuard brands for $US640 million ($A974 million) in cash. The company will raise $400 million in capital through a fully underwritten placement priced at $22.45 a share and aims to bolster its balance sheet further with up to $65 million from a share purchase plan. The integration of the business would generate $US10 million in annual synergies by the third year of ownership. Ansell chief executive Neil Salmon said the company had been eyeing the Kimberly-Clark protective equipment business for a decade, and had to move fast when the target began a competitive sale process a few months ago after many years of being an unwilling seller. The deal makes sense for Ansell. Kimtech makes gloves and other safety equipment for scientific laboratories, and KleenGuard specialises in protective clothing and safety eyewear for industrial use. Mr Salmon said the acquisition would broaden Ansell’s portfolio of products in the scientific and pharmaceuticals industries, where customers include medical device makers, university laboratories and manufacturers of semiconductors and pharmaceuticals.
The Albanese government will push insurers to cut costs for households that take steps to reduce their risks amid soaring double-digit premium growth that is expected to continue in 2024. This coincides with Jarden equities analysts predicting home insurance premiums to rise more than 15% in the year to June 30, before moderating to 5% in 2024-25. Despite the losses in home coverage, insurers have recorded healthy after-tax profits of $7.3 billion over the past four financial years. The National Emergency Management Agency is building a database of “validated and evidence-supported” steps people could take to reduce risk from floods, bushfires and cyclones. Steps could include roof replacement, upgrading garage doors and frames, boosting window protection, tying down external structures such as sheds, and replacing flimsy hollow doors. The database will be released by the end of 2024. Labor MP Daniel Mulino, who is chairing a parliamentary inquiry into the insurance industry, backed discounts for homeowners who take steps to protect their properties against damage from natural disasters. The inquiry will hold public hearings in the flood-prone areas of Brisbane on Tuesday, Logan on Wednesday and Lismore on Thursday. Submissions to Dr Mulino’s inquiry suggest few insurance companies offer premium reductions for mitigation efforts, but a new industry disruptor Honey Insurance is looking to attract customers by doing just that. Honey offers its customers an 8% discount on premiums if they use in-home sensors (which Honey provides) to monitor for risks such as water leaks under sinks, and activated smoke alarms. QBE insurance said it offered a discount to owner occupied homes in Queensland that had certified cyclone mitigation upgrades under the Household Resilience Program. It also offers lower premiums for households in flood-prone areas that raise their floors. But Dr Mulino said it was also crucial local governments did not approve new developments in areas with an inappropriate level of natural disaster risk. His inquiry is exploring calls for the government to expand its taxpayer-backed reinsurance pool for the riskiest homes, in return for local councils not approving building in high-risk areas. The Financial Rights Legal Centre and consumer group Choice also back premium discounts linked to mitigation, and want insurer decisions to be reviewable by the Australian Financial Complaints Authority. “Reducing risk, where possible, is a vital response to living with more frequent and intense extreme weather,” the pair said in a joint submission to the Senate inquiry. They said premiums need to be commensurate with reduced risk, and insurers should commit to multi-year discounted premiums. A single year of reduced insurance cost is not commensurate to raising a house or replacing a roof.
It’s kind of good news for supermarkets! An independent review has rejected the forced break-up of Coles and Woolworths. The review by economist Craig Emerson found the “populist” idea, backed by the Coalition and advocated by the Greens, lacked “credibility” and could trigger store closures and job losses. The not-so-good news is that new penalties would require updating the ACCC with legislation. This sets up a barney in the Senate with the Coalition and Greens who could move to amend the bill to include the supermarket divestiture powers they have called for. Emerson has proposed supermarkets and suppliers abide by a mandatory code of conduct backed by stiff penalties of up to $5.2 billion for the largest chains. These fines are no small matter. For Woolworths, with turnover of $50.2 billion in 2024, that could mean a maximum whack of $5.2 billion which could take a significant chunk out of their sales. For Coles, the maximum would be about $3.8 billion which would slice into last sales of $41.4 billion. It would be $1.3 billion for Aldi and $880 million for IGA supplier Metcash. Under draft recommendations, supermarkets could be asked to sign on to mediation that would allow suppliers to seek awards of up to $5 million. They could also be blocked from negotiating out-of-code contracts. Dr Emerson found the voluntary code now covering the supermarkets was “not effective”. His report said it lacked fines and there were power imbalances which left suppliers too scared to challenge the two giants that control 65% of the market. This voluntary Food and Grocery Code of Conduct applies to Coles, Woolworths, Aldi and Metcash, and sets out minimum obligations and behavioural standards for their conduct with suppliers. The Emerson review seeks to change that. Woolworths wants the beefed up rules to be extended to other major retailers, including global heavyweights Amazon, Costco, along with Bunnings and Chemist Warehouse. The federal government on Monday offered its in-principle support to Dr Emerson’s recommendations, but will consult with industry before a final report is delivered by the end of June.
Treasury Wine Estate chief executive Tim Ford says the company will decide within months whether to de-merge or sell off its less expensive brands, with the trend toward more premium products only accelerating. A demerger would concentrate Treasury’s efforts on its premium wines business and on its lucrative Penfolds label which make more money than cheaper wines. Treasury knows that drinkers around the world are increasingly steering clear of wines in the under $10 to $15 a bottle price segment, and opting for higher-priced brands. The demerger decision will be made by December. The wine brands that could potentially be de-merged into a separate entity, or offered for sale, sit in the group’s Treasury Premium Brands unit. They include Wynns, Pepperjack, Lindemans, Seppelt, Rawson’s Retreat, Squealing Pig and Wolf Blass. Some of the other mid or lower-priced wine brands also included in the review include Sterling Vineyards, 19 Crimes, Matua, St Hubert’s. The company is weighing up how far it might go in shifting its business to luxury wines. It classifies these as bottled wines selling for $30 or more. If Treasury chooses to de-merge or sell its mid-market and lower-priced brands business, it will end up with a wine business with a much heavier reliance on luxury wines priced above $30 per bottle. About 75% of the company’s profits come from the Penfolds business and a luxury wine portfolio in the United States. So a demerger would take Treasury where the money is.
Australian companies are better preparing themselves for attacks by cybercriminal gangs, leading to a dramatic drop in successful extortion demands, according to a major security firm. BGH Capital-backed CyberCX, whose response team has been on the ground helping deal with some of country’s most high-profile cyberattacks, found ransom payments fell 50%, based on a sample of 100 major incidents handled by the firm in 2023. Why is this happening? Because there’s been a growing understanding of ransomware and hardening of defences against attacks to reduce their severity. This is playing a major role, said Hamish Krebs, executive director of digital forensics and incident response at CyberCX. Cybercriminal gangs use ransomware to try to overwhelm companies, so they’re “dead in the water”, giving them no option but to pay a ransom, and quickly, he said. Now, he added, “there are various types of technical controls.” High-profile attacks – including on Medibank Private, which CyberCX worked on, Optus, Latitude, Nine Entertainment and HWL Ebsworth – have put cybersecurity to front-of-mind for companies and the public. CyberCX, in its 2023 year in review, recorded a rise in the number of companies that did not pay, and found their data was not leaked publicly. Around 53% of companies that refused to pay did not find their data leaked online, compared with 46% in 2023.
Seven’s investigative program, Spotlight, will make its return on Sunday April 14. That’s despite concerns that the beleaguered current affairs show could be hit by a public backlash over scandalous claims that emerged about the network last week. That sent Spotlight into crisis management with Spotlight staff discussing the show’s future in recent days. They reckon that if Nine’s 60 Minutes survived the “Beirut scandal” in 2016 – when four Nine staffers were arrested in Lebanon on allegations of child abduction – then Spotlight could weather the storm surrounding the Bruce Lehrmann interview. Still, some Seven insiders say they are “shocked” that Spotlight was returning so soon after allegations that Seven reimbursed ex-producer Taylor Auerbach and Mr Lehrmann for expenses relating to the use of prostitutes and drugs. Seven denies it paid for prostitutes and drugs for either of the men, and Mr Lehrmann denies he was with Mr Auerbach on the night in November 2022 when the payment for the services of two Thai masseuses was allegedly put on a network credit card. Federal Court judge Michael Lee is expected to hand down his findings in the defamation action brought by Mr Lehrmann against Network Ten and Lisa Wilkinson on Monday, and his assessments of Seven’s conduct in relation to its handling of Mr Lehrmann will be closely scrutinised by Seven executives. It’s understood Spotlight executive producer Mark Llewellyn has not faced any disciplinary action over the revelations aired in court last week, and the network is standing by him. That’s at least for now. It would be a mistake to describe the revelations of the past week as a one-off. The Lehrmann-Spotlight scandal is the latest in a thick binder of morally questionable actions at Seven over the last decade and begs whether the judgment of its leaders – topped by chairman and largest shareholder Kerry Stokes – is out of step with modern society. Auerbach’s allegations of Seven paying for cocaine and sex workers, which Seven denies, paint a newsroom crossing the line of what is acceptable, leaving societal norms far in the rearview mirror. CEO James Warburton has already announced he will be leaving Seven West Media by the end of June, with the industry anticipating a May exit. If the judge rules against Lehrmann, the biggest favour Warburton can do for his colleagues, and boss Kerry Stokes, is to clear his desk.
Chinese investment in Australia continues to fall as Beijing takes a more strategic view of offshore spending and its companies exhibit caution about Australia’s tighter foreign investments law. Why is this happening? Because for the first time, the share of China’s offshore direct investment is going to the so-called “belt and road initiative” countries which has exceeded 20% of its total global ODI. The latest report from KPMG Australia and the University of Sydney shows that new Chinese investment in Australia in 2023 was down to its second lowest level since 2006. It fell by 36% to $1.34bn in 2023, compared with $2.1bn in 2022, with healthcare overtaking mining as the key industry – the second lowest only after Covid-19 in 2021. This is a far cry from the heady days of 2009 when new Chinese investment in Australia topped $21bn. There were only 11 transactions recorded in 2023, which was the same as the Covid-19 year of 2021 and only a fraction of the more than 100 deals in one peak year. The annual KPMG/Sydney University Demystifying Chinese Investment in Australia report analyses Chinese overseas direct investment (ODI) into Australia for the calendar year January to December 2023. The fall in investment in Australia came despite a pick-up in China’s overall non-financial direct investment offshore in 2023 during the year – rising by more than 8% to $US130bn. Australia was once the biggest single destination for offshore Chinese investment but it now prefers the US and countries linked with its belt and road investment initiative. This has included investments in Indonesia’s nickel processing sector which has reduced world prices and challenged Australian producers.
The boss of a failed Queensland tourism investment scheme is facing a lengthy time in jail after he was arrested in Melbourne and charged with four counts of dishonest conduct amid an escalating stoush with Australia’s corporate regulator. In a case brought to court by the Australian Securities and Investments Commission, James Mawhinney was charged with dealings relating to IPO Wealth, an unregistered investments scheme promoted by his company Mayfair. Mayfair burst to public prominence after Mr Mawhinney announced a $1.6bn redevelopment plan for Dunk Island and Mission Beach in Far North Queensland in late 2019. Mr Mawhinney snapped up a number of homes across the coastal community under the Mayfair plans, with plans to turn Mission Beach into a tourism hotspot. This came after an advertising campaign touting Mayfair’s “bank-like” investment schemes, raising $210m from 128 investors. But ASIC pursued Mr Mawhinney over the scheme, alleging Mayfair engaged in misleading and deceptive conduct and made false or misleading representations when promoting investment note schemes. The 4 criminal charges against Mr Mawhinney end the battle between the corporate regulator and the boss of Mayfair. Each charge carries a maximum sentence of 15 years prison.
And that’s it for this week. And next week, I’ll be talking to Justin Seskin CEO and Co-Founder of The DOM – Australia’s newest online retail outlet. Justin is particularly poised to speak about how more young Aussies are turning to outlet shopping to reduce both landfill waste and price point.And I’ll be talking to EY economist Cherelle Murphy about Australia’s inflation figures.
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Wishing you all a safe and healthy week, And looking forward to bringing you Talking Business next week
