Australian company gross operating profits tumble 12.4% In Q3, the biggest fall since at least 1994

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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 45 in our series for 2022 and today’s date is Friday December 9.

First, I’ll be talking to marketing whizz Maureen Barten about how companies can really make a difference with their marketing. And I’ll be talking to economist Alex Joiner from IFM Investors about the outlook for the economy next year.

But now, let’s talk to Maureen Barten.

Australia’s central bank raised its key interest rate for an eighth consecutive month and said it expects to tighten further as policy makers combat the hottest inflation in three decades. The Reserve Bank increased its cash rate by a quarter-percentage point to 3.1%, the highest level since November 2012, at its final meeting of 2022. Tuesday’s widely anticipated decision brings the RBA’s cumulative hikes since May to 3 percentage points, the sharpest annual tightening since 1989.

Australia’s economy grew by 0.6% in the September quarter, according to data released on Wednesday by the Australian Bureau of Statistics, lifting annual real GDP growth to 5.9% from 3.6%. The figures missed consensus. Economists polled by Reuters had forecast a gain of 0.7% in the September quarter and 6.2% year-on-year.

Soaring inflation, a jump in wages bills and cooling mining earnings helped drive a 12.4% collapse in Australian company profits in the three months to September – the biggest fall since at least 1994. The quarterly business data from the Australian Bureau of Statistics revealed an unexpectedly sharp and broadbased reversal in private sector revenue. With soaring energy prices heaping further pressure on businesses, the ABS figures showed total wages and salaries paid in the quarter were up 11% on a year earlier – the largest increase since 2007 – as more Australians got jobs and employers paid ­higher wages and offered incentives to attract and retain staff, even as their operating profits shrank. Over the September quarter, wages jumped by 2.9%.

A report by the Grattan Institute, which has been presented to the federal government’s Medicare taskforce, calls for a wholesale overhaul of Medicare and shift away from its current, fee-for-service arrangements to a blended funding model. The proposed new model would enable GPs to lead multidisciplinary teams of clinicians and prioritise the most complex cases. The report says Medicare is ill-equipped for 21st century doctor and patient needs. It recommends a drastic overhaul of Australia’s universal healthcare system to fix the frontline of general medicine and bring it up to speed with the country’s growing caseload of chronic disease. The report paints a grim picture of general medicine in which GPs are harder to access, patient numbers are up, and presentations are increasingly acute and complex. Patients need more time with GPs who are being encouraged to move in the opposite direction and trim down consultations. The report notes that general medicine in Australia is modelled on individual doctors serving individual patient needs. One of the institute’s key recommendations is to turn general medicine into a “team sport”. GPs make up about 74% of the clinical staff in Australian general practices and yet for every 10 GPs there are fewer than three nurses or other clinicians to support them. Compare that with England, which is at a ratio of 1:1 of GPs to supporting clinicians. In Australia, GPs do all the work, with supporting staff delivering close to 0% of primary care. The US (a health system Australia prides itself on beating in every way) allocates about 11% of the workload to nurse practitioners and physician assistants.

Lawyers for former Liberal staffer Brittany Higgins have given notice that they will sue former Liberal ministers Linda Reynolds and Michaelia Cash as well as the Commonwealth for about $3 million. While the criminal case alleging that Higgins was raped by former colleague Bruce Lerhmann will not proceed, her lawyers have indicated that they will pursue a claim in civil court this month. In documents sent to the two former ministers and the Commonwealth, Higgins’ lawyers have set out an intention to sue for sexual harassment, sex discrimination, disability discrimination, negligence, and victimisation. Higgins will claim about $2.5 million for future economic loss, past economic loss approaching $100,000, general damages of $100,000, future assistance with domestic duties of some $200,000, and past and future out-of-pocket expenses of a further $150,000 approximately.

National Australia Bank said business loans to finance electric vehicles (EVs) and plug-in hybrids had ballooned by 900% since 2020, and it expected further strong growth in EV lending. Loans for solar assets such as solar panels and batteries had jumped 600% since 2020, While the growth is off a low base, and NAB did not reveal the dollar value of these loan portfolios, group executive for business and private banking Andrew Irvine said the trend showed Australian businesses wanted to invest to lower their carbon emissions and curb high energy costs. Macquarie analysts said the big four banks’ sustainable finance commitments had hit $315 billion, and NAB’s targets for cutting emissions from its lending for oil, gas and cement manufacturing were the most ambitious of the big four. Westpac had the most ambitious target in the power generation sector, the analysts said.

Solar power is set to overtake coal as the world’s largest power source by 2027, and the uptake of hydrogen technologies will help Australia deliver its own net-zero goals, according to the latest report from the International Energy Agency. The IEA report said the war in Ukraine had accelerated the move to cheaper clean energy sources such as wind and solar. Renewable energy in total will overtake coal as the largest source of global electricity generation by 2025, according to the latest IEA update.  In Australia, new state-level auctions and high demand for corporate power purchase agreements are expected to boost Australia’s renewable power capacity by more than 85% over the next five years. “The first truly global energy crisis, triggered by Russia’s invasion of Ukraine, has sparked unprecedented momentum for renewables,” the report said. “Fossil fuel supply disruptions have underlined the energy security benefits of domestically generated renewable electricity, leading many countries to strengthen policies supporting renewables. “Meanwhile, higher fossil fuel prices worldwide have improved the competitiveness of solar PV and wind generation against other fuels.” The IEA report released in Paris predicted the total capacity of renewable energy is set to double in the next five years, leaving open the possibility of limiting global warming to 1.5 degrees — a key goal of international climate agreements. More than 2400 gigawatts of new renewables is expected to be installed around the world – the equivalent of the entire installed power capacity in China today. According to the IEA, this is an 85% acceleration from the previous five years and almost 30%  higher than what was forecast in last year’s report. While countries might be turning to coal-fired power to help them cope with a ban on Russian gas, the report showed renewables would account for 90%of global capacity expansion over the next five years.

Soaring iron ore, coal and natural gas prices are set to add $58 billion to tax revenue over four years and deliver Treasurer Jim Chalmers a Christmas miracle – a federal budget bottomline temporarily in balance. But while a boon for exporters, high commodity prices are driving domestic inflation, placing huge strain on household budgets, and forcing a major intervention in the energy market by the Albanese government. Better than expected thermal coal prices will add about $5 billion to the budget in 2022-23 and $15 billion in 2023-24, according to veteran budget forecaster Chris Richardson’s mid-year economic review. That will help the budget briefly get back into balance over calendar 2022, before structural spending pressures on social services and defence plunge the bottomline back into the red for the forseeable future.

The company behind Australia’s newest export industry is hailing the supply of high-grade phosphate as a boost for food security in New Zealand and Australia. Centrex started mining the fertiliser-making ingredient at its Ardmore mine in north-west Queensland in May and is supplying New Zealand’s two biggest fertiliser producers, Ballance and Ravensdown. The company has also supplied or has agreements to supply Australia’s biggest players in Incitec Pivot, Hobart-based Ameropa and Wesfarmers’ fertiliser division, CSBP. Centrex made its first export shipment from Townsville to New Zealand last month to agricultural co-operative Ravensdown. A second 7000-tonne shipment was due to leave the Queensland port on Sunday under a similar offtake deal with Ballance Agri-Nutrients. The high-grade phosphate will be turned into superphosphate essential to pasture growth needed in dairy, lamb and beef production that provides the backbone of the New Zealand economy. Centrex chief executive Robert Mencel said the company had the highest-grade known deposit in Australia “by a country mile” and now had contracts in place with every major superphosphate supplier in Australia and New Zealand at a time of growing concerns around food security. In big food producing and exporting nations like Australia and New Zealand, those concerns have been around the supply of essential farming inputs such as fertilisers and chemicals from overseas. Centrex, formerly an iron ore play, aims to supply up to 625,000 tonnes a year from the Ardmore mine for at least the next decade and is weighing up expansion options.

    ASX CEO Helen Lofthouse and ASX chairman Damian Roche were on the back foot during a Parliamentary Joint Committee on Corporations and Financial Services hearing on Monday morning as the committee’s chair Senator Deborah O’Neill described the CHESS replacement project as a “profound failure”. A report by Accenture last month pointed to problems including ASX’s relationship with Digital Asset, a start-up building the software, conflicts of interest and management operating in information silos. The report found only 62% of the software had been delivered, despite assurances from Mr Roche and senior executives that the project had moved into implementation phase. “The detail of the Accenture report was quite shocking,” Ms O’Neill said. “Everyone is watching ASX now [after] seven years to do a project and then pulling a pin at the end with 62% of original scope. Everyone is wondering if ASX is up to the job, did they take it seriously, and can any of the timelines be trusted?” When Mr Roche assured the committee ASX had adopted a transparent approach, Senator O’Neill questioned whether the reverse was true and ASX was attempting to cover up its failings.

    Australia’s top corporate cop said ASX’s failure to upgrade the CHESS system had “significantly shaken” his confidence in the market operator’s ability to manage technology projects. “This is an extraordinary example of hubris on the part of ASX,” Mr Longo told the parliamentary joint committee on corporations and financial services in Sydney on Monday. The failed project to replace CHESS has triggered a $250 million writedown at ASX and a similar level of losses across the rest of the market. Mr Longo said ASIC and the RBA want detail from ASX on how it plans to compensate custodians, registries and brokers, who invested in good faith to connect to a new system, which has now been mothballed. Because it would now take between five and eight years for a replacement for CHESS to be created, Mr Longo said ASIC and the RBA needed to “verify” commitments by ASX it will invest in the legacy system, which arranges payment and transfers ownership for $5 billion of equities traded each day.

Federal Energy Minister Chris Bowen is seeking urgent briefings from his department as the government seeks to limit the fallout from the collapse of engineering contractor Clough, amid a threat to almost $10 billion of projects critical to Australia’s energy transition. The failure of Clough has added another level of urgency to discussions among energy ministers due to take place in Brisbane on Thursday, regarding reforms to spur investment in infrastructure needed to keep the lights on during the shift to low-carbon energy. Industry observers warned that Clough’s administration, which occurred after a $350 million sale deal with Italy’s Webuild fell through, would delay and could drive up costs of the Perth-based contractor’s projects. These include some of Australia’s biggest projects, such as the $5.9 billion Snowy 2.0 storage venture and the $3.3 billion Project EnergyConnect electricity interconnector between South Australia and NSW, as well as one of the few gas power plants being built in the National Electricity Market.

Prime Minister Anthony Albanese has clashed with South Australian Labor Premier Peter Malinauskas, who wants to explore nuclear power for his state amid the nation’s energy crisis. Mr Malinauskas had argued that the possible assembly of nuclear submarines in Adelaide  was an opportunity for Labor, especially those in Mr Albanese’s Left faction, to rethink its opposition to nuclear power. But Mr Albanese, who inspected flood preparations in Renmark on Saturday with the premier, gave that short shrift. “I have a great deal of respect for Mali, but everyone’s entitled to get one or two things wrong,” Mr Albanese told Five AA radio. “I haven’t changed my view that it’s a huge distraction from what we need to do. It just doesn’t add up. That’s essentially the problem. “Every five years or so we have this economic analysis of whether nuclear power stacks up and every time it’s rejected. The popular Mr Malinauskas argued the planned construction of nuclear-powered submarines in Adelaide should ease public concern over nuclear energy. Under that proposal the reactors will be built overseas and delivered to Adelaide fully sealed for incorporation into the front part of the submarine hull.

Brisbane-based cryptocurrency platform Swyftx told staff on Monday that it was making 90 positions – or over one-third of all employees – redundant. This is the second round of redundancies for the crypto exchange this year, In an email, Swyftx co-founder Alex Harper said the redundancies, on top of 74 positions cut in April, were part of preparations for a “worst-case scenario” in cryptocurrency markets. “The truth is that Swyftx grew too fast,” Mr Harper wrote.  “Our world was very different at the start of the year and our forecasts were for global trading volumes to carry on rising for at least six months longer than they did. According to documents filed with the Australian Securities and Investments Commission last week, Swyftx has suffered a 23% fall in its after-tax profit due to a sharp downturn in crypto prices and a global investor rejection of riskier assets in a rising interest rate environment. Swyftx booked a $36.7 million profit after tax for the 12 months to June 30, down from $48.2 million in the prior period The platform has also moved to a more conservative arrangement as the cryptocurrency sector is buffeted by investor scepticism and a fall asset values, unwinding almost all fixed-term arrangements with third parties in the last five months. The Australian Securities and Investments Commission filings note the company would “continue to monitor recent market events, including in relation to the cryptocurrency exchange FTX and the impacts and risks its insolvency may present to the broader market”.

The competition watchdog says it is will “monitor closely” domestic airlines to ensure they add extra seats and flights to bring down airfares, which have hit 15-year highs. An Australian Competition and Consumer Commission airline monitoring report found December fares were about 27% higher than they were in October 2019. And with discount fares selling out quickly, the cost of flying had doubled since April to reach the highest level since 2007. “The ACCC will be monitoring the domestic airlines closely to ensure they return capacity to the market in a timely manner to bring downward pressure on airfares,” the report says. “In this context, the ACCC would be concerned if the airlines withheld capacity in order to keep airfares high.” Looking ahead, the ACCC says air travel will not normalise until supply and demand move closer to pre-pandemic levels.

And that’s it for this week. And next week, I’ll be talking to Andy Thiss, head of Anaplan ANZ, a planning software company used by leading ANZ enterprises across consumer packaged goods, retail, finance and healthcare to help them better plan for the future.  And I’ll be talking to CommSec chief economist Craig James about the market outlook for 2023.

In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website   

Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.