Rooting out high inflation will become much harder, officials say, as they confront a new economic era
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.
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 2022 and today’s date is Friday September 2,
First, I’ll be talking to videographer Adam Grusauskas from K5Creative. And I’ll be talking to AMP Capital chief economist Shane Oliver about the profit reporting season.
And now, let’s talk to Adam Grusauskas.
Central bankers face a more challenging economic landscape than they have experienced in decades and will find it harder to root out high inflation, top multilateral officials and monetary policymakers have warned. The world’s leading economic authorities this weekend sounded the alarm about the forces working against the Federal Reserve, European Central Bank and other central banks as they combat the worst inflation in decades. Speaking at the annual gathering of central bankers in Jackson Hole, Wyoming, many said that the global economy was entering a new and tougher era. “At least over the next five years, monetary policymaking is going to be much more challenging than it was in the two decades before the pandemic struck,” Gita Gopinath, the IMF’s deputy managing director, told the Financial Times. “We are in an environment where supply shocks are going to be more volatile than we’ve been used to, and that’s going to generate more costly trade-offs for monetary policy,” she said. The pace of price growth has rocketed as supply-chain disruptions from Covid-19 lockdowns collided with high consumer demand fuelled by unprecedented fiscal and monetary support since the start of the pandemic. Russia’s full-scale invasion of Ukraine delivered a series of commodity shocks that created yet more supply constraints and price increases. These dynamics have forced central banks to aggressively tighten monetary policy to ensure inflation does not become more deeply embedded in the global economy. But given their limited capacity to address supply-related issues, many fear they will be forced to deliver much more economic pain than in the past in order to restore price stability. David Malpass, president of the World Bank, warned that central banks’ tools, especially in advanced economies, are ill-suited to address the supply-related inflationary pressures that are driving a significant portion of the recent inflation surge. “The rate hikes are having to compete with lots of friction within the economy, so I think that’s the biggest challenge that they face,” he said. “You’re hiking rates in the hope of reducing inflation, but it is being counteracted by so much friction within the supply chain and production cycle.” Key figures at both the Fed and the ECB made “unconditional” pledges to restore price stability. Jay Powell, Fed chair, on Friday warned that as a result a “sustained period” of slow growth and a weakening of the labour market were likely.
Big business and unions are seeking to negotiate a statement of agreed principles for workplace relations reform ahead of the jobs summit as the Albanese government leaves open the door to simplifying the legal test used to approve enterprise agreements. The Business Council of Australia and the Australian Council of Trade Unions have been holding discussions on a proposed statement of agreed principles that, if finalised, could be released before the summit starts on Thursday. The talks follow a groundbreaking agreement between the ACTU and the Council of Small Business Organisations Australia that supports multi-employer bargaining and a simpler better-off-overall test for approving pay deals that could ultimately apply across the rest of the workforce. The proposed statement of principles by the ACTU and the BCA was focused on having a simple and fair workplace relations system.
Retail spending jumped in July as Australians spent more in shops and cafes despite a national cost of living “crisis” and the looming hit to indebted households from rapidly rising interest rates. New figures from the Australian Bureau of Statistics show retail sales snapped a three-month deceleration to lift by 1.3% last month to $34.7bn, or 17% higher than a year earlier.
ANZ-Roy Morgan Consumer Confidence was down slightly by 0.6pts to 85.0 this week and is now 16.8pts below the same week a year ago. In addition, Consumer Confidence is now 6.3pts below the 2022 weekly average of 91.3.
Global tech giants including Apple and Facebook have been ordered to show Australian authorities what they are actually doing to stop child abuse on their platforms, or risk daily fines. Australia’s eSafety commissioner has issued legal notices to Apple; Meta, the parent company of WhatsApp, Facebook and Instagram; Microsoft, including its Skype platform; Snap; and Omegle. The move is under the Online Safety Act 2021 and requires the companies to report on how they are tackling the proliferation of child sexual exploitation material. The act, described as a “world-leading tool” by eSafety Commissioner Julie Inman Grant, has basic online safety expectations, setting out minimum requirements for tech companies that wish to operate in Australia.
The global cyber threat environment has intensified and Australia is an increasingly attractive target for malicious actors and cyber criminals, according to a new report. The alert comes from the Cyber Security Industry Advisory Committee (IAC) i its Annual Report 2022,At the same time geopolitical tensions have grown following Russia’s attack on Ukraine, and the risk of attacks on Australian networks – whether directly or inadvertently – has also increased. It is believed Australian SMEs lost more than $81 million to BEC in the 2020-21 financial year and alarmingly, there was a 15% increase in the number of ransomware cybercrime reports to the ACSC.
Prime Minister Anthony Albanese is holding the line on keeping the legislated stage three income tax cuts amid confirmation there is sufficient support in the Senate to abolish them. The Greens, released new costings to buttress their clam the money could be better used elsewhere, were joined by ACT Senator David Pocock in calling for their abolition. And Liberal MP Russell Broadbent has called on the Albanese government to “bite the bullet” and drop stage-three tax cuts legislated under the Coalition. Broadbent says the tax cuts send the wrong message at a time when many Australians are doing it tough, and the money could better be used for things like social housing and defence. Labor supported the legislation for the tax cuts after the 2019 election but, it argued, only because they were tied to the stage-two tax cuts for low and middle income earners which began on July 1, 2020. Updated costings prepared for the Greens by the Parliamentary Budget Office show the tax cuts would cost $243.5 billion over 10 years, of which $188 billion – or 77% of the benefit – would go to the top 20% of earners. This is a consequence of Australia’s progressive tax system, but Greens leader Adam Bandt said the whole package should be scrapped, even for those on the lowest incomes. The richest 1% of Australians will get as much benefit from the stage three tax cuts as the poorest 65% combined, new parliamentary budget office analysis has projected, heaping more pressure on the Albanese government to rethink its commitment to the controversial $243bn reform plan. Analysis from the independent parliamentary budget office, commissioned by the Greens and released by Bandt’s office, forecast men would take home nearly two-thirds of the benefit of the stage three tax plan between 2024-25 and 2032-33. The tax cuts, which will cost $243.5bn over that period, would see $160.6bn flow to men and $82.9bn to women. Labor has come under pressure to revise the tax plan, with economists warning it would make the tax system far less progressive. The changes would abolish the 37% tax bracket, lower the 35% bracket to 32.5%, and increase the top tax bracket to start at $200,000 compared with $180,000 now.
A jump in business insolvencies as rates rise and creditors more aggressively pursue debts will trigger a spike in illegal phoenix activity, where directors set up new entities to avoid debts. That’s the view of insolvency practitioners who are bracing for more business collapses, given pandemic support has been withdrawn and the Australian Taxation Office has intensified its debt collection activities in the past three months. SV Partners executive director Michael Carrafa said he expected a steady rise in business insolvencies over the next two to three years, as the economy slowed and the threat of recession loomed. Mr Carrafa said potentially thousands of businesses could be probed by regulators and the courts over illegal phoenix activity over coming years, as some struggling companies took an unlawful route in an attempt to survive. Phoenix companies generally arise from the ashes of a defunct entity, and leave behind outstanding debts to tax authorities, creditors, customers and employees. They can also involve the shifting or selling of assets from the debt-laden company to a new entity in an attempt to avoid paying liabilities and continue trading. As the pandemic gripped Australia in 2020 there was a moratorium on creditors pursuing debts, and even last year there were few company collapses as stimulus measures continued. King & Wood Mallesons’ national restructuring and insolvency practice boss Tim Klineberg said many directors who took risks during the Covid-19 cycle had “a lot to answer for”.
Atlassian co-chief executive Scott Farquhar has laid out plans to hire more than 1000 technology professionals across Australia and New Zealand over the next 12 months, defying a market downturn at a time when other tech companies are initiating hiring freezes or laying off staff. The Sydney-based company, which Mr Farquhar co-founded with fellow tech billionaire Mike Cannon-Brookes in 2002, is confident that its Team Anywhere approach – employees can work from anywhere and only need to attend their nearest office four times a year – will give it an advantage when it comes to hiring. The plans come ahead of this week’s Jobs and Skills Summit, which Mr Farquhar is attending, and a pledge by the Labor government to deliver 1.2 million tech jobs by 2030. Mr Farquhar said more than half of Atlassian’s workforce lived more than two hours away from one of its offices, a number he expected to grow. Over the next year Atlassian would hire 1032 R&D professionals, which would come from universities, banks and lay-offs from other tech companies, he said. The 1032 number is a nod to the Global Financial Crisis of 2008 and 2009, when Atlassian hired 32 engineers. It is now hiring 1000 more than that, reflecting the Sydney company’s growth. The company produces software that teams use to collaborate and work on projects.
Fortescue Metals’ new clean energy boss Mark Hutchinson says the geopolitical ructions of the past year will accelerate the energy transition and the company should be selling green hydrogen within three years with first exports of the flammable gas likely to come from Queensland. FFI is exploring myriad projects across renewable energy generation, the manufacturing of clean energy components and emissions-free equipment, but its biggest focus is the goal of producing 15 million tonnes of carbon-free “green” hydrogen by 2030. Seaborne trade of hydrogen as a discrete product effectively does not yet occur anywhere in the world, but Dr Hutchinson said Fortescue’s 2030 goal was “absolutely doable” and Queensland will likely host the company’s first exports of the commodity. Tasmania’s Bell Bay was expected to be Fortescue’s first green hydrogen export hub by using renewably-powered electrolysers to split water into its constituent parts; oxygen and hydrogen.
And the profit reporting season continues. Michael Hill’s operating revenue increased by 7% to $595.2 million, while comparable EBIT rose 11.1% to $62.9 million. Group gross margin increased by 200 basis points to 64.7%. A2 Milk’s revenue for FY22 increased 19.8% to $NZ1.4 billion. EBITDA rose 59% to $NZ196.2 million. Silver Lake Resources has reported EBITDA of $267.6 million for the year ended June 30, with an EBITDA margin of 42%. Liberty’s net profit rose 18% to $219.3 million, or 2% to $231.1 million. Northern Star Resources’ underlying net profit after tax was $273 million, down 27% on the prior year. Statutory net profit fell 58% to $430 million. NextDC’s 2022 underlying EBITDA result of $169 million was up 26%. Aussie Broadband’s revenue in 2021-22 rose 56% to $546.9 million, EBITDA more than doubled to $39.4 million and it earned a net profit of $5.3 million from a loss of $4.5 million in 2020-21. Ramelius resources has reported an underlying net profit after tax of $73 million for the year ended June 30, down 40% on the prior year. Adore Beauty’s gross profit was $66.5 million, up from $59.3 million in FY21. Property services group Johns Lyng’s EBITDA increased 58.9% to $83.6 million and profit after tax rose 35% to $25.1 million. Lovisa’s gross profit increased 63.8% to $361.8 million and gross margin was 78.9%. EBIT increased 86.6% to $79.7 million. Mineral Resources’ statutory net profit after tax was $351 million, down 72% on the pcp, and revenue fell 8% to $2.4 billion. Operating cash flow was $344 million. Funeral operator Invocare has posted a net loss of $44.3 million for the six months to June 30 after booking a $56.4 million accounting loss on the value of prepaid funeral contracts. Fortescue posted its second-biggest profit worth $US6.19 billion ($9 billion).. Online voice communications business Symbio has posted an adjusted net profit of $14.4 million in FY 2022, versus $15.9 million in the prior year. Tyro Payments has reported normalised EBITDA of $10.7 million for FY22, down from $14.2 million in the prior year. Dalrymple Bay Infrastructure has reported a net profit after tax of $6.6 million for the half year ended June 30, down from $113.2 million in the prior corresponding period (pcp). Waypoint REIT’s statutory net profit for the half-year was $213.8 million, compared with $251.9 million in the prior corresponding period. Online book retailer Booktopia has narrowed its FY 2022 net loss to $15.1 million on sales up 7.5% to $240.8 million. Skip Capital takeover target Genex Power has narrowed its FY 2022 net loss to $4.1 million on revenue up 26% to $27.2 million. Auswide Bank has reported a statutory net profit after tax of $26.1 million for the full year ended June 30, up 8.2% on the prior year. Sandfire Resources posted a net profit of $111.4 million in FY22, down from $128.6 million the year before. Gold Road Resources earned record EBITDA of $100 million and improved free cashflow of $44.6 million for the half. IGO posted a 34% jump in FY22 revenue to $903 million from the year prior and record underlying earnings of $717 million, up 51%,. Software business Bravura Solutions has posted a 13.4% in full-year net profit to $29.9 million. Link’s net loss after tax improved to $67.6 million in FY22, from $162.7 million in FY21. Bubs Australia’s gross revenue more than doubled to a record $104.3 million in FY22, generating earnings of $4.8 million. Online luxury goods retailer Cettire has widened its net loss in FY 2022 to $19.1 million on revenue up 127% to $209.9 million.Woodside’s net profit for the half was $US1.64 billion from $US317 million, or $US1.82 billion on an underlying net profit basis up from $US354 million. Healius more than doubled its underlying full-year net profit to $309.3 million. Best & Less Group reported a 2022 net profit down 13% to $41.1 million and revenue down 6.2% to $622.2 million. The Future Fund posted a negative 3.1% return for the three months to June 30, 2022 and a negative 1.2% return over the financial year. Automotive aftermarket business RPM Global has increased its net profit 13% to $2.8 million on sales up 75% to $78.8 million for FY 2022. Atlas Arteria’s interim net profits almost trebled to $117.1 million. Travel operator Helloworld has narrowed its FY 2022 net loss from continuing operations to $28.8 million, versus $39.5 million in the prior year. PointsBet’s net loss deepened to $268 million in FY22, from $188 million in FY21. The ASX-listed bookmaker declared an overall EBIDTA loss of $250 million. St Barbara has posted a statutory loss after tax of $161 million for the 2022 financial year, an improvement from the $177 million loss posted in FY21. Atlas reported a statutory net profit after tax of $117.1 million for the half, up from $41.2 million in the pcp. Mesoblast has revealed its losses in FY 2022 reached $US91.3 million to take accumulated losses since inception to $US738.9 million. It reported revenue of $US10.2 million for FY 2022. Gold miner Perseus’s profit after tax jumped more than 100% to $280 million while revenue rose 66% to $1.1 billion. Webjet expects cash surplus from operations to exceed $100 million in the first half of FY23 – the period ending in September. And Harvey Norman reported a 3.6% drop in net profit after tax for 2022, hitting $811.5 million. Earnings before interest, tax, depreciation and amortisation were 1.4% lower at $1.44 billion.
And that’s it for this week. And next week, I’ll be talking to Peter Dassos, the general manager at franklin.ai and we’ll be talking about the role that artificial intelligence plays in the health sector. And I’ll be talking to CommSec chief economist Craig James about what’s ahead in the market.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.