Business-related personal insolvencies are on the rise, as personal guarantees catch up with directors of previously wound-up businesses.
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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 6 in our series for 2024 and today’s date is Friday March 8.
First, 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 Indeed economist Saul Eslake about the latest inflation figures.
But first, let’s talk to Isaac Wolfe.
So what’s happening in the news?
China set its annual growth target at around 5%, an ambitious goal that will put pressure on the nation’s top leaders to unleash more stimulus as they try to lift confidence in an economy hampered by a property slump and entrenched deflation Premier Li Qiang acknowledged the challenges facing the world’s second-largest economy as he delivered his first work report to the national parliament at its opening Tuesday. “It is not easy for us to realize these targets,” he told thousands of delegates assembled at the Great Hall of the People in Beijing. “We need policy support and joint efforts from all fronts.” The gross domestic product target met economists’ expectations for Beijing to repeat last year’s goal, but will be harder to achieve due to a higher base of comparison in 2024. Analysts in a separate Bloomberg survey forecast the economy would likely expand by 4.6% this year, underscoring the challenges facing policymakers as they try to resist big stimulus. “The around 5% target is probably intended to boost confidence. But the specific measures unveiled may have limited impact on lifting sentiment,” said Jacqueline Rong, chief China economist at BNP Paribas SA. “We think it is not easy to achieve the growth target,” she added, noting the bank is holding its forecast for this year at 4.5%. China’s most high-profile annual political meeting comes as President Xi Jinping tries to restore faith in an economy grappling with a prolonged real estate crisis, dwindling domestic demand and headwinds from its geopolitical rivalry with the US. Investors have called for strong action, as foreign executives continue to recoil from the world’s second-largest economy.
Rocked by a series of money-laundering scandals, Australia’s casinos are looking beyond hard core gaming to a safer bet – tourists. Just a few years ago, the $5.5bn industry, which is dominated by Crown and Star Entertainment, was riding high on profits fattened by high-rollers flown in from Asia by so-called junket operators. Those junket operators are now banned from most casinos following concerns about the rise of money laundering. As those junket operators shift online, casinos find they not only have a revenue hole but hundreds of hotel rooms to fill in gleaming properties, including Star’s soon-to-open $3bn Queen’s Wharf in Brisbane and Crown’s swish new $2.4bn Barangaroo casino in Sydney. IBISWorld says the Australian casino sector has faced a period of “unprecedented crises” since the pandemic, with a spate of government inquiries endangering the licences of the largest operators in the industry. Revenue has fallen 4.1% over the past five years. Announcing a drop in half-yearly profit this week, Star Entertainment CEO Robbie Cooke underscored how much the gambling world had changed when he said the group was limiting the time guests spent on gaming tables, as well as suspending the serving of complimentary drinks in its private gaming rooms as part of new “controls”. Such changes were already hitting the bottom line, with revenue from gaming tables slipping 20.9% during the first half, while takings from electronic gaming machines were down 15.9%. Australian casinos are not alone in being forced to diversify income from the traditional gaming cash cows. In Macau, casinos have given an undertaking to the government to invest $US15bn ($A23bn) in the coming decade, of which 90% must be spent on non-gaming ventures. Casinos are increasingly downplaying their gaming areas in marketing materials, while restaurants, shopping and theatre visits for tourists are highlighted. The Queen’s Wharf website does not even mention its casino, concentrating instead on “four new luxury hotels, a myriad of new restaurants, bars and entertainment experiences, luxury retail and a state-of-the-art event centre”.
Business-related personal insolvencies are on the rise, as personal guarantees catch up with directors of previously wound-up businesses. According to the Personal Insolvencies Quarterly Report from the Australian Financial Security Authority for the December 2023 quarter, business-related personal insolvencies accounted for 27.3%, or 731, of all new personal insolvencies. That was an increase from 558 in the corresponding December quarter in 2022 and there is no sign of an abatement with the January 2024 update finding 222 people who entered into a formal personal insolvency were also involved in a business. According to AFSA figures there were 2608 personal insolvencies in the December quarter, an increase of 12.4% on the corresponding quarter in 2022, There were 1527 were bankruptcies (an increase of 13.6%), 1042 were debt agreements (up 11.2%, 37 were personal insolvency agreements (a rise of 32.1%) and two were insolvent deceased estates. NSW recorded to most personal insolvencies at 759, followed by Queensland 662, Victoria 494, WA 217 and South Australia 143.
Australia’s insurance sector should be subject to a “very public” inquiry from the competition regulator to examine breakneck price rises, according to former competition Tsar Allan Fels, with current chair Gina Cass-Gottlieb noting she shared broader concerns around affordability. Speaking after a trio of insurers unveiled a combined $1.3bn in profits from Australian customers in the February results season, Professor Fels said he was concerned about competition in the insurance sector, which has moved to rapidly ratchet up prices in recent years. This comes as the Australian Competition and Consumer Commission runs the ruler over insurance pricing in Northern Australia and a parliamentary inquiry considers the industry’s responses to the 2022 floods. Professor Fels said he had been “flooded” by complaints from “ordinary people” about the price of their insurance. ACCC chair Gina Cass-Gottlieb said the regulator “shares concerns broadly” around insurance pricing and affordability, but said it was a matter for the government to trigger a targeted price inquiry. Assistant treasurer Stephen Jones said the government was keenly aware of affordability issues, noting a parliamentary inquiry would examine pricing. Mr Jones said he was “not arguing against” Mr Fel’s proposal but noted any policy responses to pricing would be a matter for the inquiry. Insurance Australia Group, which represents such brands as NRMA, RACV, and CGU, reported a 12.5% overall lift in its gross written premium in six months to December 2023. IAG, which reported a $614m profit from its Australian direct and intermediated insurance arms, has ratcheted up premiums on customers as it responds to several years of poor weather and unexpected inflation. Gross written premium, or the total insurance premium increases plus new business, charged by IAG has climbed from $5.9bn three years ago to $7.9bn — largely driven by price rises. IAG is also flagging further pain as the insurer pushes to lift its overall margin to 15% from its current 13.7% levels.
In keeping with this, Australia’s cost-of-living crisis appears to be easing on several fronts but one key household expense continues to climb sharply and painfully: insurance.While food, fuel and mortgage rises have moderated, the price of protecting our homes, contents, cars and other assets is rising faster this financial year than it did in 2022-23. Australian Bureau of Statistics figures show overall insurance premiums increased 16% in calendar 2023, accelerating from their 14% rise in 2022-23 and four times higher than 2023’s annual inflation rate of 4.1%. There were even heftier rises in several insurance categories. A report by the Actuaries Institute found median home insurance premiums surged 28% in 2023, while recent research by comparison website Mozo found car and travel insurance surged 24% last year. Insurance company IAG’s profit rose from $167m to $248m for the half-year to December 31, Suncorp’s cash profit jumped 14% to $660m, Medibank’s underlying net profit rose 16.3% to $263 million, and NIB’s half-year profit surged 22% to $119m
Assistant Treasurer Stephen Jones will this week take the first step to force Facebook owner Meta to pay media companies for content after the social media giant said it would not renew existing deals. The move comes after Google, the other tech giant signed-up to the News Media Bargaining Code, on Friday told Mr Jones it intended to proceed with renegotiating deals with publishers. Meta’s decision could cost local publishers about $70 million a year and end dozens of jobs once existing contracts expire later this year. Meta pulling out of its news contracts will deal a blow to media companies. Nine Entertainment, Seven West Media and News Corp will lose between 5 and 9% of their net profit each year if the deals don’t continue, brokers at Macquarie have estimated Mr Jones will ask companies such as Seven West Media, Nine Entertainment and News Corp to hand over evidence to help build a case against the Silicon Valley multinational. The first step is to establish the existence of a significant bargaining power imbalance between Meta and local companies, and that the platform is not making a sufficient contribution to local news. That will allow Mr Jones to make Meta a “designated” platform, and force it to the bargaining table. Mr Jones, who along with Communications Minister Michelle Rowland is taking the lead implementing steps under the News Media Bargaining Code, called Meta’s actions a “dereliction of its responsibility to Australia”. Meta and Google in 2021 signed dozens of deals with media companies, worth an estimated $250 million a year combined under the Coalition-legislated News Media Bargaining Code. The money is paid for journalists, editors and photographers at dozens of publishers across the country. Run by founder and chief executive Mark Zuckerberg, Meta is worth about $1.9 trillion and owns Facebook and Instagram. It makes almost all of its money from advertising. Facebook reports cash flows from customers of $1.4 billion locally to the corporate regulator, but the Australian Competition and Consumer Commission recently pointed out it could make as much as $5 billion from Australians every year. The company has become increasingly hostile to governments looking to direct a portion of the social media giant’s revenue towards local media content, insisting its users are not going to its platforms to access news.
Coles’ controversial deployment of some of the latest anti-theft technologies has clearly had an immediate impact. When supermarkets started introducing self-service checkouts, a rise in shoplifting was more than offset by the reduction in staffing costs. But a surge in theft attributed to cost-of-living pressures saw Coles’ “loss” balloon by 20% in the last financial year. Loss is the term used by Coles to describe the financial impact of shoplifting and throwing away spoiled fresh food. Last Tuesday, it revealed that the basis point measure for theft, which had been at 70-80 at full-year results, has been pulled back markedly to 50. Its digital revenue also performed well, with e-commerce revenue up 29% on the previous corresponding period and 15% for its liquor sales. The most obvious of the new anti-theft solutions was the installation of security gates at the exits of some stores, to prevent shoppers walking out without paying for their items. It also included AI-enabled surveillance cameras that track customers around stores, skip scan monitoring to detect when items haven’t been scanned at the self-service checkout and fog machines that fill stores with a smoke if they are broken into. Skip scan has been rolled out in 305 stores, and smart gates are in 267 Coles supermarkets, with them being progressively deployed into more of the worst affected stores. A rush of news reports highlighting customers’ horror about being locked in the store and being treated like suspected criminals greeted the deployment of the technology, but analysts say the financial results are worth more than a bit of initial angst. Coles’ earnings were well received for reasons outside its digital efforts, of course. Its supermarkets trade was up 4.9% in the first eight weeks of the year, which compared favourably with 1.5% growth for the year recorded by Woolworths. Some of this was attributable to price reductions on items like lamb, and a Pokemon collectibles program that had children badgering parents to throw extra items into the trolley. Analysts and investors are starting to see the results of investment in digital initiatives in the warehouses and back offices, with increased adoption of AI a trend all investors are looking for. A Coles spokeswoman said AI had been integrated into several areas of the business, to help improve operations and create more personalised shopping experiences.
The possibility of an ACCC investigation of the big four has emerged during an inquiry into the sector due to concerns their behaviour in the audit market resembles an “oligopoly”. The idea was first raised by EY, which submitted to the inquiry that “the audit market is subject to intense competition and would welcome a specific inquiry from the ACCC that addresses any concerns the committee may have”. Labor senator Deborah O’Neill asked representatives from the competition watchdog on Friday whether an investigation was warranted given the significance of one of the four firms that benefit from the market concentration suggesting one. Tom Leuner, ACCC general manager of mergers, said that on the basis of the submissions made to the inquiry “it is clear that for big companies, the market does seem reasonably concentrated”. The big four firms dominate the country’s audit and assurance sector, responsible for 97% of external audits for ASX 300 companies, according to the ABC, and raking in billions every year while doing so. An ACCC investigation into the big four firms would enable the ACCC to use its broad information-gathering powers, enlisting the help of data specialists and legal experts, to interrogate the sector’s competition for the first time.
The Australian government will establish a $2 billion finance facility to help fund green energy and infrastructure investment in South-East Asia, to tap into spiralling demand for renewable power in the region between now and 2050. The initiative, a key recommendation by business luminary and special envoy to South East Asia Nicholas Moore, will provide loans, guarantees, equity and insurance to help bolster what he found to be “underweight” and “stagnant” two-way trade and investment with the ASEAN bloc. It will be one of five of Mr Moore’s recommendations to be adopted by the government and announced by Prime Minister Anthony Albanese at a CEO summit on the sidelines of the ASEAN meeting in Melbourne on Tuesday. Mr Moore told the summit on Monday that South-East Asia would need an estimated 454 gigawatts of additional generation capacity between 2021 and 2050, in a transition that would employ more than 5 million people. The $2 billion South-East Asia Investment Financing Facility will be managed by Export Finance Australia. The more than 100 company executives at the CEO summit will include bankers Matt Comyn and Shemara Wikramanayake, Woodside’s Meg O’Neil and Singtel’s Yuen Kuan Moon. Other recommendations to be adopted by the government are extending Business Validity Visas from three to five years and extending the 10-year Frequent Traveller Scheme to eligible ASEAN member states and Timor-Leste; establishing “landing pads” in Jakarta and Ho Chi Minh City to help Australian businesses boost technology services exports to South-East Asian markets; appointing 10 “business champions” to strengthen trade and investment ties with each country in South-East Asia; and a $140 million extension of the Partnerships for Infrastructure Program.
Dry conditions and soft international grain prices have led to Australia’s agricultural output declining by 15% this financial year, resulting in major reduction of farming incomes. The country’s agricultural output is expected to drop to $80 billion in 2023-24 as crop production reduces by almost 20%, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) March commodities report. The report also painted a grim picture for the nation’s wine sector over coming years, warning the value of exports was forecast to fall by $83 million, or 6%, in 2023-24 and a further 3% in 2024-25. “This is being driven by lower prices for Australian wine exports, which are already the lowest amongst major wine exporting countries,” the report said. If economic growth slows more than anticipated, the report warned Australian wine export value could drop another 23% by 2029. Domestic wine consumption has been falling over the past decade, which the report said was driven by health concerns and, more recently, the cost-of-living crisis. The ABARES report revealed a 14% drop in the value of agricultural exports ($67 billion) after several buoyant years, driven by declining domestic production and softer international prices for most crops.
Global developer Lendlease has been hit with a “please explain” notice by the Australian Securities Exchange after issuing a surprise earnings downgrade in its results last month. The company’s shares plunged after it gave a tough view on its outlook, prompting major investors on its register to call for more urgency in turning the troubled company around. Lendlease fell to a $136m first half loss and shook investor confidence as it downgraded its outlook, with activist investors Tanarra Capital and HMC Capital pressing for more action. The disappointing results cut against the grain of much of the property reporting season and the stock fell by about 17% in the days after the results. In a blow to the company, the ASX queried the timing of the company’s unexpected cut to its forecasts, playing into criticisms from dissident investors, who argue Lendlease has structural problems and needs major restructuring and simplification. The company, led by managing director Tony Lombardo, revealed a downward revision to fiscal 2024 return on equity guidance from the lower end of its 8-10% range to 7% . “We believe this to be the primary driver of the Lendlease security price decline,” the company said. Lendlease insisted it first became aware of the information about its earnings prospects when preparing and finalising its financial results. It told the ASX board and committee meetings started on February 14 and were scheduled to be completed on February 19. As late as December 18, Lendlease had publicly expected to maintain its earlier guidance for the financial year.
A leading health insurer has warned the embattled private hospital system faces rising costs at the same time as more patients opt for day surgery over longer stays, reducing revenues. The industry’s peak body warned of further hospital closures as losses mounted and 16 facilities have either announced plans to shut or had their declaration as a private hospital revoked since 2023. “If one part of the system fails, we all fail,” NIB chief executive Mark Fitzgibbon said, adding there was no question that private hospitals had been hit hard by COVID-19. As Health Minister Mark Butler announced an average premium rise of 3.03%, starting on April 1, causing insurance stocks to rally, private hospital operators urged insurers to share more of their revenue. Mr Fitzgibbon said private hospitals had been hit by structural changes, including more treatments provided through day surgery rather than longer hospital stays, and more care provided in what he called “lower cost settings”, including in-home care. While the 3.03% increase in premiums will be the largest annual increase in private health costs since 2019, it was relatively modest by historical standards and less than the amount private health funds had initially pushed for. Medibank premiums will increase by 3.3%, Bupa’s will go up by 3.61%, HCF has been approved for a 2.89% rise, and NIB customers will incur a 4.1% price rise. Private insurers are allowed to increase their premiums once per year after receiving approval from the federal health minister.
And that’s it for this week. And next week, I’ll be talking to Tim Rossanis, Managing Director of peer-to-peer car sharing pioneer Turo and former Head of Growth for Uber Retail. He’s well-positioned to speak about the rise of the sharing economy as Aussies continue to battle changing economic conditions.
And I’ll be talking to Rabobank economist Michael Every about the Chinese economy in the year of the Dragon.
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
