The banking oligopoly looks to be entrenched. It seems that the takeover of Suncorp bank by ANZ allowed by the Competition Tribunal despite ACCC objections. Competition law in Australia is a joke.
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 4 in our series for 2024 and today’s date is Friday February 23.
First, I’ll be talking to Matt Vitale, co-founder and CEO of Birchal, Australia’s leading equity crowdsourced funding platform which has just released its Equity Crowd-Sourced Funding Industry report.
And I’m talking to Indeed economist Callam Pickering about the latest unemployment figures.
But first, let’s talk to Matt Vitale.
So what’s happening in the news?
ANZ has won its $4.9 billion bid for Suncorp’s banking arm on appeal, overturing regulatory concerns about the takeover squashing competition in the banking sector. The decision to allow the takeover was handed down on Tuesday morning by the Australian Competition Tribunal. It marks the largest merger deal in banking since the global financial crisis triggered the purchases of smaller banks by big four lenders Westpac and Commonwealth Bank. The decision means Melbourne-based ANZ, one of Australia’s big four banks, will boost its push into home loans by absorbing Brisbane-based Suncorp’s middle-ranked banking arm, which has about $67 billion in loans. Suncorp will now continue as an insurer – it is already one of Australia’s two biggest insurers of cars and homes under brands such as AAMI or GIO. The cash from ANZ will also potentially result in money flowing back to investors as special dividends or share buybacks. But the takeover could also raise some concerns from customers wary about a big four bank taking over a smaller institution, and stoke concerns about whether Australian banking is too concentrated.
Migrants coming to Australia boost productivity and lift the wages of all locals, especially those with fewer skills or less education, international research into the nation’s immigration intake has revealed. Amid a growing debate about immigration after a record number of people entered the country over the past 12 months, four separate research papers by the OECD show parts of Australia with higher inflows of migrants gain an economic benefit of almost $1500 a person. The new OECD research – based on the payroll records of 27 million people collated between 2011 and 2018 during which a net 1.7 million migrants moved into Australia – found those parts of the country with higher migrant numbers tended to have higher productivity levels. That enhanced productivity was driven, in part, by the migrants moving into those regions. The OECD found almost 60% of Australia’s migrants had tertiary education compared to about 40% of the local-born population. Migrants to Australia had much higher levels of tertiary education than those in other countries. The organisation’s researchers found that, on average, a one percentage point higher share of migrants was associated with higher productivity worth $1490 per person. A one percentage point increase in annual migrant numbers boosts the employment levels of locally born Australians by 0.53%.
The ABC’s Four Corners has revealed that leaked emails show Coles has been profiting from higher prices at the check-out, despite repeated assurances from the supermarket giant that it is doing everything in its power to keep grocery bills down. The emails reveal for the first time the tactics Coles has employed with a supplier seeking a price increase and how it has taken advantage of inflation. Four Corners also revealed that Woolworths has used similar tactics to increase its profits over the last 18 months. Australia has a highly concentrated supermarket sector where Coles and Woolworths control 65% of the grocery market. The leaked emails show how supermarkets can exploit this lack of competition to push around suppliers, leading to higher grocery bills. The emails show Coles received a one-off payment from a multinational supplier for allowing a price increase, then passed on this cost to customers. The price increase of around 5%, which the supplier sought to cover its rising costs, was initially dismissed by the Coles buyer based on “customer needs” and the “competitive environment”. Four Corners also revealed that Four Corners that about 18 months ago, Woolworths began trying to increase its own profit margins, using economy-wide inflation as cover. Woolworths asked to share in any price increases granted to its suppliers. It would do this by requesting the supplier pay some of this price increase back to Woolworths. That meant consumers ended up paying more, suppliers did not get the full price increase, but Woolworths increased its profit margins. Woolworths buys a product at $2 and sells it for $3. It gets a 33% gross profit margin. Normally, if a supplier got its increase, Woolworths buys for $2.20 and sells for $3.30. Woolworths keeps its 33% margin. Everyone gets the same amount of the pie. But if Woolworths buys at $2.10 and sells for $3.30, it increases its margin to 36.4%. Shoppers pay more, but Woolworths passes on a smaller share of that to suppliers. Woolworths chief executive Brad Banducci, who retired from the supermarket giant this week after 13 years with Woolworths, including eight and a half years as CEO, said the company did not employ these tactics. Woolworths’ latest annual report shows that last financial year its pre-tax profit margin from selling groceries rose from 5.3% to 6%. That increase was worth an extra $318 million in profits last year alone. At the same time, its cost of doing business was flat. Mr Banducci denied this was evidence of price gouging.
Star Entertainment is on the verge of losing a lucrative licence to operate one of two Sydney casinos after the NSW regulator launched an independent inquiry into whether the company had fixed major cultural failures. Adam Bell, SC, the Sydney barrister who conducted an earlier inquiry into Star’s Sydney casino, has been appointed to run the review, a decision that blindsided the company’s executives when it was announced on Monday morning. Mr Bell’s 2022 report found Star was unsuitable to hold its licence, describing its operations as “a case study of unethical conduct and cultural failure” that may have evaded taxes and facilitated $900 million of banned gambling transactions. Over four months, his inquiry revealed Star hid criminal; gang-linked junket operator Suncity’s illegal cash cage and allowed it to operate a secret gambling room. Star and its chief executive Robbie Cooke did not respond except to note the review, which will run in private and conclude in May. The first Bell review, along with a similar investigation in Queensland, where Star operates casinos in Brisbane and the Gold Coast, led to the resignation of key figures including the company’s chief executive Matt Bekier. Star’s market capitalisation has shrunk by more than $2.4 billion – to $1.6 billion – since the start of the first Bell inquiry, and shares were suspended from trade on Monday. Still, the Sydney casino has been lucrative, with gaming revenues of $838.9 million last year. The new review will consider whether Star has enough money to operate properly, as well as its management, reporting lines and compliance with internal controls. The regulator said it was concerned about how much of the remedial action was due to the actions of a state-appointed special manager, rather than being driven by the company. The Bell inquiry went into extensive detail about the cultural failings of the company. It described the culture as one “which condoned unethical conduct, prioritised business goals over compliance objectives, courted risk and discouraged bad news”. In his report, Mr Bell noted areas that needed investigation, including the continuation and promotion of staff who were part of the culture that enabled misconduct. “The cultural dysfunction had significant adverse consequences for [Star’s] capacity to withstand the risks of criminal infiltration and money laundering,” he wrote. The financial crime watchdog is also suing Star, alleging it allowed 117 high-risk VIP patrons to churn billions of dollars of dirty cash through its casinos for years. Suncity, the Macau-headquartered junket operator, alone turned over $15.5 billion, and players recorded a total loss of more than $150 million, between December 2016 and September 2020, the Australian Transaction Reports and Analysis Centre alleged in filings with the Federal Court.
Seven Group, controlled by billionaire Kerry Stokes and his family, wants to buy all of Boral and has made an offer for the remaining 28.4% it does not already control in a bid to bring the concrete and asphalt company inside the diversified industrials group. Seven Group already owns the Coates Hire business, WesTrac mining trucks and machinery, and 30% of oil and gas group Beach Energy. It also holds 71.6% of Boral after a 2021 takeover attempt. Boral has made a strong turnaround under chief executive Vik Bansal, hired by the Stokes family in late 2022. Ryan Stokes, son of Kerry Stokes, is the chairman of Boral and the chief executive of Seven. The Stokes family since taking control in 2021 heavily influenced a shift in strategy for Boral to become an Australia-focused business, exiting North America, where it sold off $4 billion in assets “The integration of Boral as a 100% owned business is a natural evolution for Seven Group,” Ryan Stokes said on Monday, describing its offer as best and final. It will not pay more than $6.25 for Boral shares for at least 12 months. Seven Group chairman Terry Davis said its offer was attractive because it would facilitate dividends via the equity component. “Boral has not paid a dividend for two years and through a combination of limited franking credits and a significant investment program is unlikely to pay dividends for some time,” Mr Davis said. The letter from Mr Davis also outlined Seven’s intentions to push for more board representation at Boral in line with its existing 71.6% stake, and to steer the strategy further towards reinvesting free cash flow into long-term growth strategies such as upgrading its transport fleet and replacing short-life quarries. That would further constrict any plans by Boral to pay dividends. Boral urged shareholders to take no action. “The independent board committee notes the continued strong performance of the Boral business and the management team,” the statement said.
And the profit reporting season continues. Woolworths posted a massive loss of $781 million, after the company booked a $NZ1.6 billion ($1.5 billion) writedown in the value of its New Zealand grocery business and a $209 million reduction in the value of a stake in ASX-listed alcohol and hotels spin-off Endeavour. But excluding those one-offs, Woolworths announced a 2.5% rise in half-year profit to $929 million That was based on a 4.4% increase in revenue compared to the same period a year earlier. BHP’s $US6.6 billion ($A10.1 billion) underlying profit crashed to just $US927 million, Westpac reported net profit of $1.5 billion, down 6%. National Australia Bank’s cash earnings dived 16.9% in the December quarter to $1.8 billion. Bendigo and Adelaide Bank’s net profit was up 13.8% to $282.3 million. Cochlear reported its underlying net profit was up 35% to $191.8m. A2 Milk Company’s profit rose 15.6% to $NZ85.3 million. Lendlease’s pre-tax loss widened to $173 million from $122 million. Reliance Worldwide posted a 23.4% slump in its interim profit to $US51m ($A78m). Australia’s largest steel manufacturer BluescopeSteel reported a net profit of $439 million for the six months to December 31, down $160 million on a year earlier. Ampol reported a 25% drop in statutory profit to $549.1 million in the 12 months to December, down from $795.9 million in the previous year. However, Ampol’s replacement cost operating profit – the company’s preferred metric which removes the rise and fall in oil prices – rose 1.1% to $740.1 million. ASX-listed landlord and fund manager GPT Group recorded a full-year 2023 statutory loss of $240 million. The construction products supplier GWA Group posted total NPAT from ordinary activities up 8.9% to A$23.2 m. Nuix has reported a first-half loss of $4.8 million. Australian packaging manufacturer Orora’s statutory NPAT amounted to $68.2 million, down $39.9 million. Investment platform business Hub24 reported a 39% increase in statutory net profit after tax (NPA) to $21.5 million in the first half of 2024. Baby Bunting’s first net profit was flat in the first half at $2.7 million. Engineering company Monadelphous Group reported a 3.2% increase in net profit to $30.1 million. Sonic Healthcare reported a 47% slump in half-year net profit to $202 million. Tech company Megaport’s net profit was $4.4 million, from a $13.5 million loss a year ago. Judo Bank reported a profit before tax of $67 million for the first half of 2024, up 24% from the prior half year. Metals recycling company Sims reported $65.8 million in NPAT and underlying earnings dropped 86% to $13.4 million. Insurance broker AUB Group reported $53.1 million in net profit after tax (NPAT) in the first half of 2024, from a loss of $2.2 million a year ago. Ansell’s profit before interest and tax slid 14.5% to $US78.2 million. Financial services firm Netwealth posted a 28.3% profit increase in the first half of 2024 compared to the previous corresponding period, posting a profit of $39.3m. Car accessories maker ARB posted a 21% increase in reported profit before tax to $71 million in the first half of 2024. Coal miner Coronado Global Resources reported an 80% drop in net income in the first half of 2024 to $156 million. Buy-now pay-later operator Humm Group ended the first half of FY24 with cash profit after tax of $28.1m, down $10.4m on the corresponding period of FY23. Travel agency Corporate Travel Management’s net profit was recorded at $57.9 million. Domino’s Pizza Enterprises net profit fell by 9.2% to $58 million in the six months ended December 31. Software provider WiseTechposted a 5% increase in statutory net profit to $118.2 million. Westfield owner and operatorScentrehas recorded a 41.8% drop in its annual statutory profit to $174.9 million. Oil and gas giant Santos posted a 42% dip in underlying net profit to $US1.423 billion ($A2.2 billion) for the year to December 31. Stockland posted a half year profit of $102 million. Property fund manager Charter Hall has swung to a $190 million loss in 2024 first half. The Lottery Corporation has boosted profit by more than 26% to $217.4 million. Ventia Services’s annual net profits slipped just under 1% to $189.8 million. Iluka Resources reported a net profit of $342.6 million for the 12 months through December, down 41%, from A$589 million a year earlier. Iress has reported a statutory NPAT loss of $137 million in FY23 compared to a profit of $52.7 million in FY22. National Storage REI posted an IFRS profit after tax of $79.2 million. Peter Warren Automotive posted a profit before tax of $34.4 million. Smartgroup Corporation posted an NPAT of $63.2m, up 3%. Viva Energy posted a net profit after tax of $318.2, up 46.7%.
And that’s it for this week. And next week, I’ll be talking to Richard Kirkman, the CEO of Veolia. Research, undertaken by Veolia, the nation’s leader in ecological transformation found that climate distress and eco-anxiety have become the norm in Australia, with the majority of Aussies placing emphasis on the role that businesses must play in addressing these issues.
And I’ll be talking to AMP Capital chief economist Shane Oliver about the profit reporting season.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week
