Optus is laying off almost 200 staff from the company after cutting 600 jobs last year which the union says had a major impact during the telco’s national outage in November.
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 5 in our series for 2024 and today’s date is Friday March 1
First, 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 who summarises the profit reporting season which ended this week.
But first, let’s talk to Richard Kirkman
So what’s happening in the news?
The monthly CPI indicator has slowed, rising 3.4% in the 12 months to January undershooting analysts’ consensus forecast of a rise to 3.6%.
Universities could soon be facing major funding changes as the biggest review of the sector in decades calls for a radical reshaping of the tertiary education sector. The Australian Universities Accord has recommended funding be delivered on a needs basis, similar to primary and high school funding, where extra loadings would be provided based on student and institutional disadvantage to make the system more accessible. Its call to boost university attainment rates nationally to 80% would effectively create a demand-driven system for disadvantaged students. The review provides the federal government with a blueprint for long-term changes as it seeks to tackle skills shortages in health, child care, science, education and manufacturing. The Universities Accord said failing to increase student numbers would “do lasting damage to Australia’s prospects of national economic success” as well as damage social cohesion by locking out certain groups from higher-paid jobs. Also among the recommendations are calls to double the number of university places, force institutions to pay those doing compulsory placements, increase the tertiary attainment target to 80% by 2050 and abolish the former Coalition government’s “failed” Job-Ready Graduates policy that put costs up for arts degrees. The Universities Accord is a review of the entire sector, looking at everything from how to make unis more accessible, to student safety and the role the sector will play in Australia’s future. It lays out a blueprint for a widespread overhaul of a sector that teaches and employs thousands. The federal government commissioned the review to inform the changes it will be making to tertiary education. Key recommendations include more than doubling the number of uni places to 1.8 million in 2050. to needs-based funding for certain groups and courses to make the system more equitable. This would involve increasing access to university education for students who are First Nations, from poor backgrounds, have a disability and/or come from a regional, rural or remote area. Other recommendations include better financial support for students and paying them for compulsory placements, and moving towards a HECS/HELP loan system where contributions are based on future potential earnings.
Confidential Treasury analysis shows decade high wages growth that has pushed the average fulltime salary above $100,000 is now the biggest driver of consumer price inflation, undercutting claims widespread corporate profit gouging is to blame. Pay rises overtook import prices and supply shocks to form the lion’s share of headline CPI in the June quarter last year, according to Treasury analysis, a trend economists expect continued to the end of 2023 and into 2024. The analysis undercuts claims from the Greens, unions and former ACCC chairman Allan Fels that widespread price gouging has been causing price rises. Those claims have sparked a wave of inquiries, including a Greens-led Senate probe into supermarket pricing, a year-long inquiry led by the ACCC, and a review of the voluntary code by Craig Emerson. The inflation analysis showed labour costs made up almost two-thirds of headline CPI in the year to June 30, 2023. The remainder was made up of import prices, global price shocks and other elements. When annual CPI peaked at 7.8% in December 2022, wages made up about 30%.
The tax office is investigating a suspected $180 million tax fraud by a top formwork contractor in the construction industry that could end up as the biggest tax fraud in Australian corporate history. Administrators of collapsed NSW company Dalma Form Specialist have reported that the tax office alleges the firm was part of a group of 30 companies including labour hire that it suspects may have been secretly controlled by Dalma director Igor Cikes as they collapsed owing pay as you go tax over 15 years. The alleged tax scheme has yet to be substantiated but if proven would be bigger than any previous corporate tax fraud, surpassing Plutus Payroll’s $105 million fraud and the record $135 million fraud by former EY executive Anthony Dickson. Dalma is one of the largest formwork firms in NSW. Competitors say it repeatedly tenders prices 15 to 20% below other bidders for tier-one projects, including the state government’s $476 million Victoria Cross Station development at North Sydney. Formwork involves laying the structures into which concrete is poured during construction. Jones Partners principals Bruce Gleeson and Daniel Soire were appointed as voluntary administrators of Dalma Form Specialist (DFS) late last year and confirmed the ATO had notified them about its investigation after their appointment. Most of the companies involved in the alleged fraud, including a series of labour hire firms swapped out every two or three years, have been placed into external administration and are understood to have inadequate or poor records. The Dalma case follows a separate investigation into an alleged tax fraud of up to $70 million involving another NSW construction firm, Titan Cranes, which is headed by Sydney Olympic FC president Damon Hanlin. Titan denies any wrongdoing or involvement in the alleged scheme. The ATO is funding Helm Advisory liquidator Stephen Hathway to investigate the Dalma group and to take control of DFS after it emerged Mr Gleeson had been the administrator of other related Dalma entities in 2010 and 2011.
Major CBD office towers are selling at 20% discounts to their peak value, the best evidence yet that the correction in Australia’s office market is nearing the bottom. The latest deals in play include the 16-storey building at 628 Bourke Street, Melbourne. which was bought seven years ago for a little over $180 million by Swiss fund manager AFIAA and is now set to be acquired for $120 million. In Brisbane, US giant Brookfield found a buyer for its $300 million tower at 240 Queen Street, with boutique syndicator Quintessential Equity raising capital for a sale price at $257 million, according to a deal flyer. Also closely watched by the market are two proposed divestments involving ASX-listed Mirvac. The first at Sydney’s 255 George Street is held in a fund now managed by Mirvac. A half stake is under offer from Singapore’s Keppel at a price that values the entire tower at about $730 million. Two years ago as valued peaked, the tower was worth around $875 million, meanings its market value now is around 17% lower. In Melbourne, Mirvac is close to finalising a deal to sell a Collins St building, having written down its book value to around $340 million, representing a 20% discount to its peak value two years ago. The shift to remote work combined with uncertain business conditions and surging interest rates sent office values tumbling around the world. The shakeout arrived late in Australia, with some experts flagging values could drop 25% before it fully washes through.
Australia’s big four consulting firms have seen the value of contracts awarded by the Commonwealth nearly halve in value following the federal government’s cold war against the sector after the PwC tax scandal. The cold shoulder towards KPMG Australia, EY, Deloitte and Scyne Advisory, which acquired PwC Australia’s government arm in a $1 fire sale, has been a win for other firms which have enjoyed noticeable increases in business over the first half of the financial year. Amid the fallout from the PwC tax scandal, federal agencies cut spending at the big four firms by more than 42% to $308.2m in the six months to December 31 compared to the same period a year earlier, analysis of AusTender data reveals. Deloitte had the smallest decrease over the half, with the value of contracts awarded in the six months to December 31 down 20.6% to about $111m, followed by a 24.4% decline for KPMG to $147m. Business at EY dropped 56.6% to $49.2m from a year prior, according to AusTender. While the volume of contracts was similar, values overall were lower than the previous half when three agreements alone totalled $51.4m, including a $28.3m contract with the Department of Defence for program management services.. PwC secured $110.1m worth of government business in the first half of the 2023 financial year before details about its tax scandal came to light a year ago. There has been little work for the acquirer of its government business, Scyne Advisory, which secured a single $1.1m contract to support the Department of Health’s primary care work. There has been a slowdown in federal government projects and procurements, which has resulted in lower spending on specialist external advisers. The consensus was that smaller firms were getting more work on lower-valued contracts that would have previously gone to the big end of town.
The drums are beating louder about a Bendigo Bank acquisition of its $1.3bn industry peer Judo Bank. Bendigo is under pressure to grow to compete with the major banks, and an acquisition of Judo would provide not only scale but a sizeable entry into the business lending market. Judo was co-founded by outgoing chief executive Joseph Healy in 2016 to service smaller business customers that major banks may overlook. It listed successfully in 2021 with a $2.3bn market value, equating to 1.7 times its book value. It’s been tough going since then as interest rates rose, with its capital costs higher than those of Bendigo Bank. Those costs would fall by as much as 150 to 200 basis points in a merger. After ANZ gained permission from the Australian Competition Tribunal last week for its $4.9bn acquisition of Suncorp Bank, there is likely to be more consolidation in the banking industry. While Bank of Queensland is another potential buyer of Judo, most think Bendigo Bank is better positioned, even though it’s currently doing a technology upgrade. Healy has already introduced much modern technology to Judo.
French building giant Saint-Gobain has sealed a $4.32bn takeover offer for CSR that includes accepting liability for the Australian company’s asbestos claims. CSR’s board said late Monday it had unanimously recommended shareholders accept the $9 per share offer from Saint-Gobain as “providing attractive value and certainty”. The price represents a premium of 33% to CSR’s closing share price on February 20. CSR, established in 1855 as a sugar refining business, has a portfolio of building products including Monier Roofing, PGH Bricks and Gyprock. Its chief executive Julie Coates said Saint-Gobain had a “strong strategic and cultural alignment” with CSR. Ms Coates said Saint-Gobain was “buying all of the company” including claims for asbestos illnesses linked to the mining of raw asbestos fibre by one of its subsidiaries decades ago. CSR’s involvement in asbestos mining ceased in 1966 and it stopped the manufacture of products containing asbestos in 1977. “We have been responsibly paying claims for decades and nothing will change,” said Ms Coates. “The company will continue to pay all valid claims.” CSR’s asbestos provision stood at $187.1m in September last year. CSR chairman John Gillam said the offer “provides attractive value and certainty” for CSR shareholders. Mr Gillam said he did not expect any opposition to the deal from the Foreign Investment Review Board.
Optus is laying off almost 200 staff from the company, making deep cuts into one of its newest business ventures, which installs smart home devices, after a recent review. A total of 198 redundancies are taking place this week, according to the telecommunications union, which described the cuts as “deeply concerning”. The telco cut 600 staff last year, a move the union believes had a major impact during the telco’s national outage in November. Optus is making significant cuts in the company’s O-Team, with staff in this part of the business understood to have begun receiving redundancy notices as early as Tuesday. The nation’s second largest telco began winding down parts of the business as early as last month, discontinuing a service called the O-Team Online which it had charged customers a $10 monthly fee to provide on-demand support post-installation.
White-collar industries such as banking, accounting and consulting employ more men in their most demanding and lucrative roles, fuelling pay disparities that mean women earn 20% less than men. The median pay gap or base salaries at businesses with 100-plus employees was 14.5%, according to company level data published by the Workplace Gender Equality Agency for the first time. The gap jumped to 19% once bonuses, overtime and allowances were factored in. Some of Australia’s top companies were among the biggest gender equality laggards. Dairy manufacturing company a2 Milk had the biggest gap in the ASX200 at 40.5%, followed by infrastructure services provider Ventia (39.1%), intellectual property law firm IPH (38.9%) and airline Qantas (37%). Beach Energy and AGL were the worst of the energy and mining giants, each with a gap of 33.2%, while Commonwealth Bank was the worst of the big retail banks (29.9%).
And it’s the last week of the profit reporting season. Lynas Rare Earths has booked a decline to its net profit at $39.5 million. Health insurance provider NIB Holdings has recorded a 19.4% increase to its net profit at $104 million. Online retailer Kogan.com. made a net profit after tax of $8.68 million for the six months ended December 31 compared with a bottomline loss of $23.8 million a year ago. Endeavour Group, the operator of retail chains BWS and Dan Murphy’s, has recorded a 2.5% increase to group sales at $6.7 billion. Earnings before interest and tax increased 2.6% to $661 million. Net profit declined 3.6% to $351 million. Suncorp’s cash profits in the six months to December were up 13.8% at $660 million. TPG Telecom’s annual net profit shrunk to $49 million from $513 million. Non-bank lender Liberty reported an underlying interim net profit of $64 million, down 34% on the previous first half. Bedding and furniture group Adairs’ sales slumped 10.1% to $291.4 million. Queensland coal export terminal Dalrymple Bay Infrastructure delivered a 7% rise in annual net profit to $73.9 million. Takeover target Alumina swung to a net loss of $US150 million ($228 million). Pathology group Healius posted a $636 million loss. Burns treatment specialist Polynovo has swung to a $2.7 million net profit. Mortgage insurer Helia, formerly Genworth, reported underlying profit of $247.7 million for its full-year, up 7%. Selfwealth has lifted its net profit to $1.6 million. Cooper Energy’s underlying earnings before interest, depreciation, amortisation and exploration gained 2% to $60.9 million. Pathology company Healius has crashed to a bottomline loss of $636 million in the December half. Retailer City Chic widened statutory losses four-fold to $21 million in the first half of fiscal 2024. Gold Coast-based childcare operator G8 posted a full-year statutory profit of $56.1 million, up from $36.6 million. Woodside Energy’s net profit for the year ended December 31 dropped to $US3.32 billion ($5.1 billion), from $US5.23 billion in 2022. Payment platform Zip delivered a net profit of $73 million. Supermarket chain Coles Group’s first-half net profit fell 8.4% to $589 million from $643 million in the year-earlier period. Software company Altium reported an 11.4% jump in net profit in the first half of fiscal 2024. Reece Group has reported a 20% rise in half year net profit to $224 million. Payments terminal provider Tyro eked out a $5.1 million net profit for the half, with the EBITDA line lifting by 40.6% to $27.3 million. Sydney based data services company Appen also reported suffering a statutory loss of $US118.1 million for the year ended December 31 and an underlying earnings loss of $US20.4 million. New Zealand telecommunications company Chorus’s net profit slipped to $NZ5 million, from $NZ9 million in the six months to December 2023. Mexican fast food chain Guzman Y Gomez reported a statutory net loss after tax of $3.9 million, more than double the $1.1 million loss reported in the previous corresponding period.. Online travel planner Flight Centre’ profit for the period jumped to $120.2 million, compared to a loss of $18.3 million a year earlier. Perpetual’s underlying profit for the six months to the end of December was $98.2 million. Gaming technologies business Light & Wonder’s net profit rose to $180 million compared to a net loss of $176 million in the prior year. Payments platform EML Payments reported a $12.4 million net loss recorded in the six months to the end of December. Data centre giant NextDC has recorded a $22.5m loss, up almost $20m from the prior corresponding period. Engineering group Worley has swung to a $106 million interim profit from a year earlier’s $99 million loss. Transport and tourism group Kelsian reported a 20% net profit increase to $43m. Australian Clinical Labs posted a statutory net profit of $5.0m, down 80.5%. Its underlying net profit of $10.3m was down 48.5%.
And that’s it for this week. And next week, I’ll be talking to Brooklyn-based Real Essentials CEO Isaac Wolfe who is a leader in the fashion industry and who is committed to producing environmentally friendly and ethically sourced clothing that helps people look and feel their best at an affordable cost.
And I’ll be talking to economist Saul Eslake about the latest inflation figures.
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
