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 thirty-four in our series for 2019 and today’s date is Friday September 20.
First I talk to Marcus Schmitt, Founder, and CEO, of COPYTRACK, a leading worldwide image copyright enforcer. COPYTRACK protects image copyrights for professional photographers and ensures photographers get paid for unauthorized use of their work.
And then I’ll be talking to Michael Every, head of Financial Markets Research Asia-Pacific for Rabobank. We’ll be talking about the latest in the trade war between the US and China.
But first, let’s talk to Marcus Schmitt in Berlin.
The global economy can ill afford higher oil prices at a time of economic slowdown but Brent crude surged the most on record after a drone strike on a Saudi Arabian oil facility removed about 5% of global supplies.
The benchmark oil futures jumped as much as $11.73 a barrel to $71.95 as the market opened Monday in Asia, the biggest jump in dollar-terms since futures started trading in 1988. State energy producer Saudi Aramco lost about 5.7 million barrels per day of output on Saturday after 10 unmanned aerial vehicles struck the world’s biggest crude-processing facility and the kingdom’s second-biggest oil field.
For oil markets, it’s the single worst sudden disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, when Saddam Hussein invaded his neighbor. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Department of Energy. The attack means several things for the economy and markets. Oil prices will rise, the dollar will weaken, European markets will take a huge hit compared to the US and the Fed is more likely to implement rate cuts.
House prices fell in all but two of the nation’s capital cities over the three months to the end of June amid confirmation consumer confidence has yet to be buoyed by tax cuts or falls in official interest rates. The Australian Bureau of Statistics (ABS) on Tuesday reported residential property prices fell 0.7% nationally in the June quarter to be 7.4% down over the past 12 months. Prices in Melbourne and Sydney dropped 0.8% and 0.5% respectively for the quarter, to be 9.3% and 9.6% lower since June 2018.
Consumer spending intentions are back in positive territory for the first time since early 2019 and they are back faster than expected due to tax cuts, according to the Commonwealth Bank’s latest analysis of 2.5 million households. CBA Household Spending Intentions Series generated from the bank’s customer data shows that a lift in spending intentions is underway in retail, travel, entertainment, and home buying. The CBA data is a strong leading indicator as it draws upon near real-time spending readings from CBA’s household debit and credit transactions data. It contrasts with that of sentiment surveys such as the Westpac-Melbourne Institute Consumer Sentiment Index which indicated this month that half of tax cut recipients would spend less than half of their payments.
The Morrison Government is proposing unprecedented peacetime laws to boss around the heads of big business. At the same time, it is sticking to a boast it’s the champion of getting big government out of the way of business through its plans to cut regulations and “red tape”. This is the unusual political context and the tricky juggling act for the Government when it produces the “Big Stick” legislation it insists is necessary to force power companies to do the right thing by electricity consumers.
It would not just be a matter of directing CEOs how to run their businesses — it could also force them to sell off assets. The broad objective would be to prevent power companies from engaging in anti-competitive behavior that would deny consumers cheaper rates. There are precedents in the US, the Government says, but not here. And it should be noted there are no suggestions the affected companies have broken any laws. But the very forces that once demanded privatisation of the electricity industry are now associated with the politics of insisting government again has a say in running it.
The fracturing of Australia’s relationship with China and the prolonged US-China trade war was impacting on the number of Chinese tourists visiting the country, Australia’s new tourism boss has warned. In her first major interview, Tourism Australia managing director Phillipa Harrison said the organisation was trying to steer clear of the international spat between Australia’s traditional ally, the US, and the significant trade partner of China. But it was having an impact on the flow of tourists coming from China – which is Australia’s No.1 tourism market.
The focus on China’s expanding authority in south-east Asia – as well as the fallout over the scandal engulfing Chinese-Australian Liberal MP Gladys Liu – including the questioning of her loyalty to her adopted country – has also risked damaging the flow of tourists from the lucrative Chinese market. More than 1.4 million Chinese tourists visited Australia in the year to July, but the increase has slowed from double-digit growth to a flat-lining 0.3% in 2018-19, partly due to the slowing Chinese domestic economy.
A US-China trade deal poses “longer-term downside risks” to Australia’s economy, including farmers and gas exporters, so we shouldn’t “get too comfortable” if Donald Trump ends the conflict with China, according to Reserve Bank of Australia correspondence. As Prime Minister flew this week to Washington this week to ask President Trump to resolve the trade war, the RBA released internal documents paradoxically showing Australia could lose from a US-China trade deal. The US-China trade war’s impact on the Australian economy is likely to be “small”, shaving about 0.20 of a percentage point off economic growth in 2019 and 2020, the RBA’s internal July world forecast meeting document said.
Australia may even benefit in the short term from the trade war resulting in Chinese authorities resorting to stimulus and demanding more natural resources such as iron ore, coal, and liquefied natural gas, according to the RBA. The correspondence was released in response to a freedom of information request.
Big energy retailers AGL, EnergyAustralia and Origin Energy have increased default market offers for their customers, despite new laws introduced by the Morrison government aimed at driving down prices. The Australian Competition and Consumer Commission’s latest report into the National Electricity Market said its initial analysis had found the government’s price safety net had resulted in savings for those on standing offers of between $130 and $190 per household since it was introduced in July. But the price savings had come from customers shopping around for the best deal from smaller retailers, not the big three retailers. The ACCC said it would now look at the pricing strategies of AGL, EnergyAustralia and Origin Energy.
Tasmanian-based infant formula company Bellamy’s has recommended shareholders vote in favour of a proposed $1.5 billion takeover by Chinese company Mengniu. The potential takeover offers a significant 59% premium to the last closing price for Bellamy’s shares. Shares closed on September 13 at $8.32, and the offer from Mengniu is $12.65 per share and a $0.60 dividend per share. The board of Bellamy’s has unanimously recommended that shareholders vote in favour of the offer but it is facing regulatory and political scrutiny in Canberra, setting up another crucial Chinese foreign investment test for Treasurer Josh Frydenberg.
Beer giant Carlton & United Breweries has expanded into the wine sector for the first time since it was split off from former parent Foster’s Group in 2011. CUB, which is about to undergo an ownership change itself after a $16 billion buyout proposal from Japanese group Asahi which still requires approval from the Australian Competition and Consumer Commission, has acquired wine-in-a-can company Riot Wine Co. Riot Wine Co sells wine in cans and kegs and has been growing fast since it was established in 2016. CUB, which owns Victoria Bitter, Carlton Draught and Great Northern, said it planned to invest further into the Riot business, with a first step being an upgrade of the group’s cellar door in the inner western Adelaide suburb of Brompton.
The Volkswagen Group (VW) and Audi have settled two major Australian class actions relating to the global diesel emissions scandal. While the details of the settlement are confidential and still to be rubber-stamped by the Federal Court, the payout will be between $87 and $127.1 million, or about $1,400 per car. The class actions allege that the affected vehicles were fitted with illegal defeat devices that were designed to cheat emissions tests and seek to recover compensation for affected motorists. Around 100,000 Volkswagen, Audi and Skoda vehicles in Australia were affected by the issue. The class actions were brought by Bannister Law and Maurice Blackburn on November 2015, following multi-billion dollar payouts over the issue in the United States and Canada.
The performance of Manus Island refugee contractor Paladin is three times worse than previously estimated, according to new documents which show the company was fined more than 3700 times in a 12-month period for failing to meet minimum service standards. The documents released to the Senate provide further evidence Paladin did not have the experience or expertise to run a $532 million government contract.
They show the company repeatedly failed to deliver basic services, submit reports and provide adequate training. When asked about the company’s performance in Senate question time last week the responsible minister in the upper house, Michaelia Cash, described the breaches as “relatively minor administrative failures”. The unredacted documents released to the Senate show the breaches were far more serious, including maintenance not performed, poor workplace health and safety, lax perimeter security and regular failures to adequately police those entering and leaving the refugee centres on Manus Island in Papua New Guinea. These failures cost Paladin $3.1 million in fines between May 2018 and April 2019, while the company is facing a further $8.1 million in fines for July last year. In that month Paladin logged 2207 performance failures, including 649 breaches for staff not having the “mandatory training and qualifications”, 928 instances of transport services not running on time and 592 breaches of entry and exit protocols.
Bendigo and Adelaide Bank has cast doubt on the country’s ability to notch a 10th consecutive year of growth in agriculture exports as drought takes a heavy toll on cattle and sheep numbers. The warning came as federal government forecaster ABARES predicted a 5% drop in the value of farm production to $59 billion in 2019-20. ABARES said the country should brace for sharp falls in livestock, livestock products, and summer crop production.
It said lower production would reduce export earnings and that farmers also faced strong competition in key export markets. A report from Bendigo-owned Rural Bank released on Monday showed the country slipped backward in terms of net agriculture trade in 2018-19 despite achieving a record $50.7 billion in exports.
Sydney’s drinking water catchment is under threat from longwall mining operations, with research confirming upland swamps and streams are drying out. Research indicates longwall mining has been drying up NSW swamps that provide drinking water. A study conducted by the University of New South Wales has revealed that the impact of mining operations south of Sydney is becoming more widespread. Mining company South32 wants to extend the life of its Dendrobium Colliery, south of Sydney, where it extracts 5.2 million tonnes of coking coal each year for steel-making. The swamps provide vital drinking water to Sydney and the Illawarra, and the impacts on the systems are being exacerbated by the drought.
A new report shows that 2018 was a good year to be the boss of a big company. The median take-home pay of ASX100 CEOs was $4.5M, and only one eligible CEO didn’t receive a bonus (Domino’s boss Don Meij), according to the Australian Council of Superannuation Investors. But Mr. Meij’s realised pay (which includes cash and the actual value of equity that vested during the year) falling to $7.06 million, was largely due to the company’s share price decline. Qantas chief Alan Joyce topped the list, with a realised pay of $23.9M. Given the average Australian full-time wage is only $86,736, some are calling for the introduction of a UK model in which CEO pay is measured against that of workers.
Adelaide-based Amita Gupta claims to have been severely underpaid by the food delivery giant Uber Eats. Ms. Gupta said she worked as long as 96 hours in some weeks — most of it spent waiting for orders to be placed via the Uber Eats app — but earned as little as $300 for those periods. Taking the matter before the Fair Work Commission (FWC), Ms. Gupta relied on a Hindi interpreter and was represented by her husband Santosh, who is also an Uber Eats delivery driver. But Ms. Gupta lost her case against Uber on August 23, and was given three weeks to lodge an appeal with the FWC’s Full Bench. This is potentially an important test case as it could result in consumers paying a higher price for ordering food via a mobile app. If Uber loses the appeal, it would be forced to pay it’s delivery drivers higher wages. There could also be significant consequences for the wider gig economy, particularly for companies like Deliveroo, which is also being sued for alleged worker exploitation and uses a similar business model.
And that’s it for this week. And next week I’ll be talking to Troy Douglas who is Global CEO & Co-Founder of Nexba, Australia’s leading naturally sugar-free beverage provider who has just cracked the UK market. And I’ll be talking to Indeed economist Callum Pickering about Australia’s latest unemployment figures.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.