Fortescue Mining boss Fiona Hick leaves as profits fall and dividends cut. Analysts say the lack of explanation of Hick’s departure and the attempt to spin Otranto’s appointment as planned is an insult to investors.
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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 31 in our series for 2023 and today’s date is Friday September 1.
First, I’ll be talking Danielle Harmer from Domain. Danielle is General Manager Product for all of Domain’s Agent Products, along with the GM of Allhomes.
And I’ll be talking to Rabobank economist Michael Every about China’s economic crisis.
But first, let’s talk to Danielle Harmer.
So what’s happening in the news?
Data from the Australian Bureau of Statistics showed that the July monthly consumer price indicator (CPI) cooled to 4.9% from 5.4% in June.
Qantas chief executive Alan Joyce must have known that the hastily convened Senate select committee into the cost of living would turn out to be a cross between a circus and a show trial. But that didn’t stop him sticking his hand out. Airfares are coming down, Joyce said, but they could fall faster if the national carrier got a little more help from the government. Regulations to bring down airport fees would help. Oh, and taxpayer funds to create a sustainable aviation fuel industry would be nice too. Not surprisingly the committee, chaired by Liberal senator Jane Hume, ignored Joyce’s pitch. Instead, senators competed to put the heat on the airline boss, frequently expressing frustration with Joyce’s attempts to roll out well-worn talking points,and pummelling him with questions on everything from competition policy to flight credits to cancellations. Joyce largely kept his cool, even when demanding more time to fully answer questions. But the grilling he copped should serve as a warning to chief executives – as cost of living pressures rise, more business leaders will likely find themselves in the sights of politicians. And as Joyce and the bank CEOs who have been dragged to Canberra for years can attest, it’s not fun. But it was under questioning from Labor senator Tony Sheldon where Joyce was closest to losing his cool. Sheldon, the former national secretary of the Transport Workers Union, is a long-time enemy of Qantas, and pressed hard on how many COVID flight credits Qantas is still holding. At December 31, the airline said it was holding $800 million in unused credits from the COVID-19 period that would expire at the end of the year unless flights were booked for travel to the end of 2024. But when it reported last week, the company listed only $370 million worth of credits belonging to Australians in its accounts. Qantas executives conceded to the inquiry that amount did not include unused credits for subsidiary Jetstar or international customers. Mr Joyce and Jetstar chief executive Stephanie Tully admitted that there was at least another $100 million owed to Jetstar customers, although neither would commit to extending the timeline for using the credits. “We are here asking questions about substantial sums of money that is owed to the Australian public overseas and through the Jetstar operations that has not been paid,” Senator Sheldon said. “You have put an arbitrary deadline of December this year, when people lose that money, the money stays in the pockets of Qantas and Jetstar and you’re seriously telling the Australian public, that you don’t know how many millions of dollars are involved?” Qantas was the most complained-about company in Australia in 2022 and 2023, largely because of its flight credits. It is now the subject of a class action lawsuit from Echo Law. Sheldon has history here, but he was right when he said Qantas seemed under-prepared for obvious questions about exactly how many credits it is holding. If Monday’s questioning is any guide, this issue won’t go away while politicians think they’ve found a populist stick to whack Qantas with.
It was designed to save money but it blew out by billions. A plan aimed at saving the nation’s businesses time and money has been abandoned by the federal government after an independent review found it would cost almost $3 billion to complete and not be operational until the end of the decade. The overhaul of numerous business and company registers, promised as part of the Morrison government’s deregulation agenda in 2019, was originally estimated to cost taxpayers $480 million and be in place by the middle of next year. Instead, a review released on Monday by Assistant Treasurer Stephen Jones found the Modernising Business Registers program had effectively fallen apart due to problems in its original design, the expansion of the program as it was being developed, skyrocketing costs of contractors, plus the pandemic’s impact on finding suitably qualified staff. The review, compiled by former CEO of Service NSW, Damon Rees, found that at least another $2 billion of taxpayer money would need to be spent on the program, describing even that expenditure as a “high-risk undertaking”. It would not be completely in place until 2029.
Company directors rallying behind an Indigenous Voice to parliament say the Yes campaign needs a sharper message for voters about the benefits of the proposed advisory body,or risk the nation taking “a step backwards” on reconciliation. More than 450 directors have joined forces to encourage Australians to vote Yes in the Indigenous Voice to Parliament referendum, calling constitutional recognition a critical step towards a more inclusive Australia. With a $130,000 war chest on hand, the group, organised by Ming Long, a director of Telstra and IFM Investors, and Nora Scheinkestel, who sits on the Westpac and Origin Energy boards, have placed full-page advertisements advocating a Yes vote in national newspapers. The 469-strong group – which also includes directors Cheryl Hayman, Tinashe Kamangira and Nicolette Rubinsztein – will not be part of the official Yes campaign but hope to get their message out through advertising and word of mouth.
Questions are being raised about Fortescue Metals after news that its chief executive, Fiona Hick, is leaving the iron ore miner just six months after taking on the top role, the latest in a wave of high-level resignations. After just six months in the role the former Woodside top executive was gone by “mutual agreement” of the board led by chairman Forrest on Sunday. Hick had attended Saturday night’s gala event in the Pilbara, the 20th anniversary of Fortescue’s Pilbara operations. However 24 hours later she was airbrushed from history, no longer in the published annual report as CEO or other financial documents, except for several notes in the remuneration report. Was she pushed? Did she jump? Is this a failure of the top-heavy leadership structure that led to her sharing power with Forrest as executive chairman and Mark Hutchinson – as CEO of the company’s green-hydrogen-focused Fortescue Future Industries division? Hick was paid $2.2m in the period up to the end of June. The $60bn iron ore miner was nothing short of a shambles earlier on Monday and not from any external shocks like a slowing Chinese economy or a collapse in iron ore prices. Rather its all from Fortescue’s own doing. The change comes during a period marked by huge executive staff turnover at the Andrew Forrest-founded miner, and the pursuit of a new growth leg in hydrogen and clean energy projects. Only two of the 11 people serving on Fortescue’s elite executive ranks in late 2020 remain with the company today: lawyer Peter Huston and the former chief executive of Fortescue Future Industries, Julie Shuttleworth. Fortescue said in a statement Hick made a joint decision with the board to leave. There does not appear to be any transition period, with her successor, the former head of operations Dino Otranto, taking over immediately. Otranto is very highly regarded inside Fortescue, but the lack of explanation of Hick’s departure and the attempt to spin Otranto’s appointment as planned is frankly an insult to investors – as analysts led by Goldman Sachs’ Paul Young rightly told Hutchinson. Analysts quizzed Fortescue on the reasons for the high-level change, only to be told it was a planned move and part of an expedited appointment. The changes at the top of Fortescue were announced on Monday, shortly before the company delivered its weakest annual profit in three years, dropping 23%. This come at a time when the ownership structure of Fortescue with the separation of Andrew Forrest from his wife Nicola, Australia’s wealthiest couple made public in July. The Forrests said at the time their decision to live apart would not affect their shared philanthropic or business interests, which includes more than a one-third stake in Fortescue.
A record 1.5 million Australians were at risk of mortgage stress in the three months to July, as a growing number of home loan borrowers grappled with making ends meet due to the sharpest cash rate increases in decades. New research by Roy Morgan showed that compared to a year earlier 642,000 more Australians were paying between 25 and 45% of their income into their home loan, putting more at risk of financial stress than even during the Global Financial Crisis. The larger size of the home loan market today means that proportionally, close to a third of borrowers (29.2%) are at risk. That is up from the 28.8% in the quarter ending June but below the record high proportion of mortgage holders at risk during the GFC in mid-2008. Those considered “extremely at risk” had increased to one million or 20.3%, significantly above the 15-year average of 15.4%, the researchers said. A separate report by S&P Global Ratings on Monday said rising interest rates and cost-of-living pressures had pushed overdue mortgage repayments slightly higher during the second quarter of 2023. And while “most borrowers appear to be managing the confluence of financial pressures”, the ratings agency said mortgage arrears would continue rising for months to come and would not peak until next year, when the total impact of 12 interest rate rises hit home.
An underwhelming reporting season points to a deeper fall in earnings and a slower rebound than previously expected, even though the economy held up a bit better than expected in the year to June. While there’s hope of easier comparisons ahead for the retail sector, the main takeaways from reporting season are that while revenues have been stronger than expected, corporates haven’t done enough to control costs, the earnings outlook has worsened and the market isn’t overly cheap. That leaves it vulnerable to jitters over the outlook for US interest rates or China’s economy. Weak guidance has led analysts to lower their expectations by more than usual for the current financial year. Analysts have cut their expectations for financial 2024 profits by a ratio of two to one. The consensus now is a 5.7% fall, down from minus 0.8% a month ago and plus 0.7% six months ago. Even after accounting for a positive “translation effect” from a hefty 4.7% fall in the exchange rate this month, the fall in the c onsensus estimate has exceeded the normal downgrade during reporting season, according to MST’s Hasan Tevfik. It comes amid persistent, broad domestic cost pressures, which have been the most prevalent headache for companies this profit season. “Across sectors, management teams are pointing to the cost growth they are seeing from labour, rent, energy, transport and technology spend,” said UBS equity strategist Richard Schellbach. “The broad stickiness in cost inflation that we saw in company results maps with recent business survey data and suggests that input costs pressures will likely remain elevated.” The cost pressures that companies continue to face are still largely being passed on to customers, allowing companies to defend their profit margins. As was the case in the February results period, telcos and insurers were again able to push through price increases to their customers without harming sales. But without productivity improvements, companies may face a crisis if demand falls away and costs stay elevated, although job cuts are increasingly likely.
And the profit reporting season is winding up. Regional Express Holdings (Rex) announced a statutory profit after tax of $14.4 million for the year ended 30 June, compared to a loss of $46.1M in the prior corresponding period. Mosaic Brands posted a full-year profit of $1.2m. Copper and zinc miner 29Metals crashed to a $307 million loss. Allied health business APM says statutory net profit jumped 72% to $158.5 million in financial year 2023. Restaurant Brands NZ, which operates fast food outlets under the KFC, Pizza Hut, Carls Jr and Taco Bell brands in New Zealand, Australia and the United States, suffered an 86% slide in net profit after tax to $NZ2.2 million ($A2.03 million) in the six months ended June 30. Earnings before interest, taxes, depreciation, and amortisation was reported at $193.7 million, up 15%. After-tax profits at non-bank lender Liberty have dived 17% to $181.1 million in financial year 2023 as expense growth outpaced income. Superannuation administration and share registry company Link Group tumbled to a bottomline loss of $418 million for the 12 months ended June 30. Fortescue Metals’ net profit after tax fell 23% to $US4.8 billion. Maggie Beer Holdings reported a net profit after tax of $462,000 compared with a loss of $12.3 million a year earlier. Artificial intelligence data services company Appen reported a statutory net loss of $43.3 million for the six months ended June 30. Global mining-tech company Imdex profit fell 22% to $35m. Dalrymple Bay Infrastructure interim net profit lifted fivefold to $34 million. Online program manager Keypath Education has reported an earnings before interest, tax and amortisation loss of $US9.5 million ($14.8 million) in financial year 2023. Hospitality giant EVT Limited reported its net profit after tax had increased 99.8%.to $106.5 million. Strata management and insurance builder Johns Lyng earnings before interest, tax, depreciation and amortisation rose 42.9% to $119.4 million. Star Entertainment has posted a $2.4 billion full-year loss. Tasmanian whisky company Lark Distilling Co suffered a loss of $4.91 million for the 12 months ended June 30, compared with a loss of $470,000 a year earlier. Zip Co’s gross profit was $250.6 million, up 20%. Cement and concrete group Adbri generated a 3% lift in net profit to $49.7 million for the six months ended June 30. Wealth platform Praemium’s Australian segment posted record earnings of $23.4 million, up 23% on the previous year. Fisher & Paykel Healthcare expects operating revenue for the first half, which ends in September, to come in at about $NZ790 million ($A725 million) and net profit after tax to fall within a range of $NZ95 million to $NZ105 million. Chrysos Corporation, the company part-owned by the CSIRO, announced a net profit of $443,000 for 2022-23, compared with a loss of $3.9 million a year earlier. After-tax profits at non-bank lender Resimac have dived more than 30% to $66.5 million. Noumi, the manufacturer of MilkLab and other plant-based and dairy products formerly known as Freedom Foods, has posted a smaller net loss of $46.9 million in fiscal 2023. Telecommunications group Superloop posted an annual net loss of $43 million. Cooper Energy swung to an annual loss of $5.6m from a $14.4m profit a year earlier. Tyro Payments gross profit rose 32.1% to a record $204.3 million. Mineral Resources net profit after tax was $244 million, down 30% from FY22. Prospa has reversed to a $44.9 after-tax loss. Kelsian, the commuter bus, ferry and tourism group’s net profit after tax slumped by 60% to $21 million. Flight Centre recorded underlying earnings before interest, tax and amortisation at $301.6 million. Transport and logistics group Brambles net profit after tax climbed by 19% to $US703.3 million for the 12 months ended June 30. Pathology giant Healius has sunk to a full-year $397.8m loss. Laser Australia has delivered an 11% lift in profit to $7.1m. City Chic Collective’s underlying EBITDA from continuing operations tumbled 144.6% to a loss of $23.97 million. ASX-listed software distributor Dicker Data has posted a half-year net profit after tax of $54.1 million, up 7.8%, when compared to the prior corresponding period.
And that’s it for this week. And next week, I’ll b talking to Angus Ferguson, the Head of customer solutions at Domain Group. And I’ll be talking to EY economist Cherelle Murphy about the latest inflation figures.
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 leongettler.com.
If you want to contact me, email me at [email protected]. I answer all emails.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week