After S&P Global downgraded Russia’s credit rating to “junk” status, Russian bonds collapsed with investors bracing themselves for the possibility that the latest round of western sanctions on Russia could push Moscow to default on its debt for the first time since 1998.
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 5 in our series for 2022 and today’s date is Friday March 4.
First, I’ll be talking to Lambros Photios, Founder of Australian software development company Station Five who is warning Australian universities are failing to keep pace with advances in the IT industry fuelling a growing skills shortage in the sector. And I’ll be talking to AMP Capital chief economist Shane Oliver about his assessment of the profit reporting season so far.
But now, let’s talk to Lambros Photios.
After S&P Global downgraded Russia’s credit rating to “junk” status late on Friday. Russian bonds tumbled on Monday as investors braced themselves for the possibility that the latest round of western sanctions on Russia could push Moscow to default on its debt for the first time since 1998. That would have an impact on financial markets around the world. US and European moves over the weekend to cut Russia off from the global financial system, as Moscow stepped up its invasion of Ukraine, have fanned concerns that foreign holders of Russian debt will not be able to receive interest or principal payments. Sanctions against the Russian central bank are expected to seriously hamper its attempts to deploy its more than $600bn of foreign reserves to shore up its finances, leaving markets contemplating the possibility that a country with debt of only 20% of gross domestic product could fail to repay lenders. Russia’s dollar-denominated bonds plummeted on Monday, with its largest — a $7bn bond maturing in 2047 — halving in price to 33 cents on the dollar, a level associated with a high levels of distress, according to Tradeweb data. Ray Attrill, a strategist at National Australia Bank, warned that a Russian sovereign default would also echo through the European banking system, estimating that banks in France and Italy each own about $25bn of Russian government bonds, and Austrian banks held roughly $17.5bn of exposure.
Oil shot back above $100 a barrel and U.S. and German government debt rallied on Tuesday as massive uncertainty sparked by Russia’s invasion of Ukraine unnerved investors, leading stocks in Europe and on Wall Street to slide further. Russia’s equity markets remained suspended and some bond trading platforms were no longer showing prices, but dealing in the world’s major financial centers was orderly, albeit jittery. The sixth day of Russia’s invasion of Ukraine and the disruption caused by sanctions have raised questions about the toll of the crisis on global growth and inflation.
Coles has joined a boycott of Russian vodka as liquor retailers across Melbourne ditch the drink in a show of solidarity for Ukraine. The removal of Russian sourced drinks from sale at Liquorland, Vintage Cellars and First Choice was announced on Tuesday. Products made in Russia will also be pulled off shelves at major liquor retailers Dan Murphy’s and BWS after calls for boycotts from the Australian Ukrainian community. Parent company Endeavour Group made the decision to remove drinks originating in Russia, including vodka. from across its retail, hotel and online businesses in response to Moscow’s invasion of Ukraine and lobbying from members of the Ukrainian community. The Endeavour Group Companies include Dan Murphy’s, BWS, ALH Hotels and Jimmy Brings
The Future Fund will wind down its $200m exposure to companies listed on the Moscow exchange as some of the world’s largest funds dump their investments in response to the invasion of Ukraine. Some of Australia’s largest investors, including superannuation giant AustralianSuper, have holding in several Kremlin-connected Russian energy companies.The nation’s sovereign wealth fund had $204bn in assets at the end of last year, with no holdings in Russian sovereign debt or other fixed income.
The Reserve Bank of Australia said it will remain “patient” as it assesses risks stemming from Russia’s invasion of Ukraine and the resulting jolt to energy prices. The central bank — as expected — kept its cash rate at a record low 0.1%
Australia’s gross domestic product jumped 3.4% in the December quarter, marking a strong rebound from the 1.9% fall in the prior quarter. Economists had forecast 3.5% quarter-on-quarter growth.
Sydney home prices have fallen for the first time in 17 months, signaling that Australia’s housing boom fueled by the pandemic and ultra-low interest rates is all but over. Australia’s most populous city recorded a 0.1% decrease in prices in February, while values in Melbourne were unchanged, according to a CoreLogic Inc. report Tuesday. Although house prices are still generally rising across the country, the national monthly growth rate of 0.6% came in as the lowest since October 2020. The country’s housing boom, mirrored in other countries during the pandemic, is fizzling out ahead of a widely expected tightening cycle by the central bank
One in three women experience online abuse in their working lives and it can have devastating consequences for their careers, according to research commissioned by Australia’s eSafety Commissioner. The report, Women in the Spotlight: Women’s experiences with online abuse in their working lives, explores the experiences of women who have a strong online or media presence for professional purposes. The study found most abuse occurred on social media, including Facebook (62%), Instagram (26%), Twitter (18%) and LinkedIn (14%). Abuse also occurred on personal email (21%) and work email (15%), followed by SMS (16%) and chat apps (13%).
Shell has signalled a further expansion in energy retailing is in its sights in eastern Australia after inking a deal to buy 49% of WestWind Energy Development, deepening its push into renewable energy to replace retiring coal power plants. The purchase of the WestWind stake will give Shell a stake in about 600 megawatts of wind generation already in operation in three wind farms in Victoria. WestWind also has a further 1400MW in the permitting phase and 3000MW in earlier stage development. The first move by the energy major into the Australian wind power sector adds to Shell’s growing clean energy platform in the domestic market, which includes carbon farming business Select Carbon, solar farm developer ESCO Pacific and most recently green household electricity retailer Powershop.
Viva Energy will build a green hydrogen plant and the country’s first public hydrogen refuelling station at its Geelong refinery site, part of its plan to turn the site into a hub for low-carbon energy. The $43.3 million project, which is roughly half-funded by the Australian Renewable Energy Agency, will involve building a 2 megawatt electrolyser, a hydrogen fuelling service station and a contribution towards the funding of hydrogen-powered vehicles to be used by partners including Toll Group and Cleanaway. Viva will also build a 15 MW solar farm at the refinery site to provide power for its operations and in support of its target to reduce greenhouse gas emissions. The project, costing about $20 million, could be expanded to 20MW at a later date. Viva said the New Energy Service Station, which also includes funding from the Victorian state government, is comparable with other large commercial refuelling installations around the world.
James Packer’s Crown Resorts faces a blockbuster fine from the financial crimes watchdog, in a move that threatens to derail its $8.9bn takeover from US private equity giant Blackstone. Austrac has launched legal action against Crown, accusing the group of more than 500 breaches of anti-money laundering and counter-terrorism financing laws. In a statement of claim totalling 863 pages, damning revelations included Crown dealing with patrons involved in sex slavery – one as late as November last year, a month after Victoria’s royal commission found the company no longer suitable to hold a licence for its flagship Melbourne casino. Austrac also alleged Crown let its high-roller customers carry “large amounts of cash” on its private jets across the world with “no controls” over the handling of the money, and turned over more than $8bn in what was known as the “Chinatown junket” despite management being aware of the risks of money laundering. Each breach could attract a fine of up to $22.2m, although it is expected to take into account the company’s market size. For Blackstone to trigger its exit clause from the Crown deal, the company needs to be fined at least $750m. This penalty would put it in the same territory as Westpac and Commonwealth Bank, which Austrac fined $1.3bn and $700m respectively over anti-money laundering breaches. Austrac has yet to quantify the penalty it is seeking against Crown. Since Austrac began its investigation, former Crown chair Helen Coonan and chief executive Ken Barton have resigned, replaced respectively by Ziggy Switkowski and former Lendlease boss Steve McCann.
A company backed by Google’s owner Alphabet is replacing the supermarket delivery driver with a drone. Wing has signed a deal and pilot program in Canberra with supermarket chain Coles to deliver 250 types of products. Wing has launched the pilot program in Canberra to deliver groceries by drone to households in several suburbs. It is pledging to fly the groceries to people within minutes of them ordering online. Wing is not flying groceries directly from Coles supermarkets. Instead, it has a hub in Canberra which has been stocked up with 250 of the supermarket’s top-selling items. People can order these items through a specially designed app. When an order comes in, Wing has packers ready to fulfil it. The drones are then sent up into the air, and flown to their delivery address using automated technology.
Woolworths’ venture capital arm W23 has taken a 40% stake in an online shopping “fast fulfilment” business that uses robots to pick, pack and send items that can typically squeeze inside a shoebox. The fusion of robotics and smaller package sizes is putting a rocket under delivery times. W23 has invested in the Sydney-based NP Fulfilment, a company started 20 years ago by entrepreneur Rodney Bartley. NP is thriving in the fast fulfilment space where orders can be ready to ship within hours. It operates across Australia and New Zealand with warehouses in Sydney, Melbourne, Perth and Auckland. NP promises same or next day delivery to 80% of Australasia and largely deals in small items, such as toys and health and wellness products.
Researchers from Monash University have developed new technology that will improve the efficiency and lifespan of lithium-sulfur batteries, widely seen as underpinning global efforts to decarbonise economies. First commercialised in the 1990s, lithium-ion batteries now power electric vehicles, mobile phones and other electronic devices. But they require large quantities of minerals such as cobalt, nickel and manganese that are increasingly in short supply. Lithium-sulfur batteries are widely seen as offering a solution. Sulfur is a waste material and is cheap and abundant supply though the technology has been hindered as scientists struggled to improve slow charging and discharging rates. Researchers at Monash University said they have developed a battery interlayer that allows exceptionally fast charging, while also improving the performance and lifetime of the batteries.
Former Leighton Holdings executive David Savage and his wife Jennifer Savage have been named in a criminal complaint in France that alleges breaches of trust and extortion relating to a loan in return for use of an apartment in the Savages’ French château. The new complaint is separate to the Australian Federal Police (AFP) investigation into bribes paid by other Leighton executives to secure contracts in Iraq. Mr Savage, who worked for Leighton Holdings between 1998 and 2011, was arrested by the AFP in January 2021 and charged with two counts of giving false or misleading information to the company’s directors, allegedly to conceal a multi-million dollar slush fund for the bribes.
Australian retail sales were surprisingly strong in January as shoppers weathered a surge in Omicron cases with aplomb, suggesting the economy maintained considerable momentum into the new year. Data from the Australian Bureau of Statistics out on Monday showed retail sales climbed 1.8% in January to A$32.5 billion, the second highest level on record and easily beating forecasts of a 0.4% gain.
Rio Tinto and the Australian Securities and Investments Commission have asked the Federal Court to approve a settlement that would end a four-year legal saga for the sum of $750,000. Like its peers in the United Kingdom and the United States, ASIC had pursued Rio over the time the company took to disclose the deteriorating nature of its 2011 investment in Mozambique coal, which was eventually impaired by Rio in January 2013. ASIC had accused Rio’s then chief executive Tom Albanese and its then chief financial officer Guy Elliott of “misleading and deceptive” conduct over the time taken to report the impairment, with a particular focus on why the impairment was not included in Rio’s August 2012 results. Charges against those individuals have been dropped and Rio has instead conceded it contravened its continuous disclosure obligations for a 27-day period between December 21, 2012 and January 17, 2013. The impairment was disclosed immediately after January 17, 2013. For context, the settlement fee equates to barely 15% of the total remuneration taken home last year by Rio chief Jakob Stausholm – who was not working for Rio when the alleged breach occurred. The settlement fee equates to about 1.5% of the £27 million ($50.1 million) Rio paid to the UK’s Financial Conduct Authority to settle an investigation into essentially the same matter.
Suncorp says it is expecting losses from the floods roiling Queensland and NSW to cost it more than $75m, with insurers inundated with at least 15,000 claims as the damages bill grows. ASX-listed insurers IAG, Suncorp and QBE ended down on Monday in anticipation of rising costs as powerful storms created record-breaking floods. The Insurance Council said that at least 15,000 claims had been reported from the floods by mid-Monday – more were expected as the damage bill grew. Suncorp and IAG between them disclosed 8000 claims arising from the floods, with losses set to mount after insurers were smashed by wild weather in the first half of the financial year. IAG, said 3200 claims had come in as of 7pm Sunday. And with more than $681m in natural catastrophe claims booked in the six months to December 31, IAG is already $299m over its natural peril estimate for the financial year.
And the profit reporting season is winding up. Invocare’s statutory revenue rose 11% to $532.5 million while operating EBITDA was up 22% to $125.5 million. Reported profit for the year was $80.2 million, rebounding from an $11.5 million loss a year ago. Sandfire Resources revenue rose 22% to $US311.8 million while profit climbed 24% to $US55.2 million. Dalrymple Bay Infrastructure’s revenue from ordinary activities rose 2054.2% to $505.1 million while it reported a profit of $129.1 million, rebounding from a $113.2 million loss a year earlier. VGI Partners generated revenues of $94.4 million for the calendar year on a gross, normalised basis, nearly 50% more than the prior year, while normalised net profits after tax jumped two thirds to $51.2 million compared to 2020.Liberty Group’s underlying net profit increased 4% to $122.3 million. Statutory net profit rose 40% to $116.4 million because of the absence of expenses related to its IPO. IT hardware and software distributor Dicker Data’s 2021 net profit rose 28.6% to $73.6 million as sales climbed 24.2% to $2.48 billion. Sigma Healthcare’s net profit after tax is expected to be a loss of $5 million to $10 million for the year, largely impacted by the SaaS accounting policy change (exceeding $30 million) in the current year.
And that’s it for this week. And next week I’ll be talking to Pete Neal Founder and CEO of Powerpal, an Australian-developed app that is changing the way Australians use energy in their homes, slashing bills and reducing household carbon emissions in the process. The app has so far reduced CO2 emissions by 21,388 tonnes and helped Australians save $6,955,723, since November 2020. And I’ll be talking to economist Nicholas Gruen about what can be done to isolate Russia’s economy.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.