Confidence lifting but scope to ease: RBA

The Reserve Bank seems unlikely to cut the cash rate thanks to economic benefits from the lower Australian dollar, but benign inflation means the door to further easing will be left ajar.


In the minutes of its November board meeting, the central bank gave an upbeat assessment on prospects for economic conditions after keeping the cash rate on hold at a record low of 2.0 per cent.

“Support provided to the economy following the depreciation of the exchange rate was particularly apparent in the sizeable contribution to growth from net service exports over the year to date,” the RBA said.

Looking ahead, board members believed the services sector would continue to boost growth in output.

JP Morgan chief economist Stephen Walters noted that board members expected the decline in mining investment will have run its course by the end of 2017.

“The bank’s tone (is) still largely `glass-half-full’ on the progress of the domestic growth rotation,” he said.

Commonwealth Bank of Australia senior economist John Peters believes the bank reinstated a soft easing bias to help ensure the Aussie dollar continues to track lower.

“The RBA clearly favours ongoing declines in the Australian dollar rather than more rate cuts to help engineer the economy’s transition and recovery from current sub-trend economic growth,” he said.

But Mr Peters said weak inflation gave the RBA scope for a rate cut if economic growth disappoints in 2016.

The minutes noted that inflation remained below target, highlighting the lower-than-expected inflation print in the September quarter.

Consumer prices rose 0.5 per cent in the September quarter for an annual rate of 1.5 per cent, and has now been below the RBA’s two to three per cent target band for a year.

“Inflation was forecast to be consistent with the target over the next one to two years, but somewhat lower than earlier expected,” the RBA said.

The RBA has since trimmed inflation forecasts, while being more positive on jobs growth and the housing market.

The minutes noted employment growth, concentrated in the household and business services sectors, had been stronger than expected this year.

Board members acknowledged household consumption is tipped to add significantly to growth in the next two years, thanks to relatively strong employment and low interest rates.

But they warned the unemployment rate was still high and wages growth sluggish.

Meanwhile, board members said tighter regulations were helping to contain the housing market, and removing any obstacles to cutting rates if necessary.

“Forward-looking indicators of housing activity generally pointed to further growth in dwelling investment, albeit at a moderating rate,” the minutes said.

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a2 Milk formula sales grow ‘exponentially’

China’s insatiable thirst for infant formula has quadrupled sales for Australasian dairy company a2 Milk.


China’s voracious demand has prompted a2 to nearly double its full year underlying earnings guidance.

Infant formula revenue for the four months to October 31 quadrupled on the same period last year to $NZ38 million ($A34.78 million), almost as much as for the whole of the last financial year.

The company has benefited from China’s tightening of formula standards in the wake of its 2008 melamine infant formula scandal, which killed six babies and hospitalised more than 50,000.

The company upgraded its full year revenue forecast to $NZ285 million from $NZ267 million, with infant formula forecast to account for 47 per cent of total revenue – up from 27 per cent last year and just three per cent in 2013.

Full year underlying earnings are now expected to rise to $NZ22 million, nearly double the original forecast of $NZ12 million.

“The new supply and distribution arrangements in China are yielding positive results with sales growth for infant formula exceeding expectations,” chief executive Geoffrey Babidge said.

“Infant formula is emerging as a more significant growth driver for the company.”

Mr Babidge said a2 Milk’s Australasian business was also performing strongly, with total revenue for the four months to October 31 up 45 per cent on the prior corresponding period to $A148.4 million.

Coles and Woolworths on Tuesday halved their buying limit for customers, to two and four tins of formula respectively, due to the huge demand from overseas.

There have been reports of profiteering with sites such as eBay sometimes carrying ads in both English and Mandarin, offering products that usually retail in Australia for $25 to $30 for between $150 and $190.

That’s bad news for consumers, but great for a2 Milk.

“This exceptional performance indicates the increasing appeal and growth potential for the a2 Platinum brand in both ANZ and China and additional markets in the future,” Mr Babidge said.

Shares in a2 Milk continued their strong performance on the Australian Stock Exchange on Tuesday, gaining 4.0 cents, or 4.76 per cent, to 88 cents.

Freedom Foods, the Sydney-based food company that was part of a consortium that tried to buy a2 Milk in June when its shares were valued at about 50 cents, cashed in by selling its stake in the company at 85 cents per share.

The sale raised about $A64 million that the firm said it will invest in its own businesses or those in which it has a significant interest.

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Aust Vintage underlying profit to rise

Profits are on the rise at the wine maker behind the McGuigan and Tempus Two labels thanks to stronger sales both within Australia and overseas.


Australian Vintage is forecasting net profit this financial year to come in about 10 per cent above the $7.1 million, before one off items, it made in 2013/14.

The wine maker’s chairman, Richard Davis, told shareholders at the company’s annual general meeting on Tuesday that in the four months to October 2015, sales to both domestic and export markets were stronger.

Sales in Asia were up slightly compared to a year earlier.

Australian Vintage was confident that its long-term distribution agreement with China’s largest food company, COFCO, would result in ongoing improved sales.

Mr Davis said global industry conditions were very challenging.

Global wine production in 2015 had increased by two per cent compared to 2014.

Australian exports had benefited from the weaker Australian dollar; recently-signed free trade agreements with China, Japan and South Korea; a rebound from austerity measures in China, and stronger economies in the UK and US.

Although the lower Australian dollar had helped improve profit margins, the full benefits had not flowed through because of intense pressure in key overseas markets to keep prices down.

Last week, Australian Vintage said it would terminate its lease of the Belvino of Del Rios vineyard at Kenley in Victoria, resulting in a termination payment of $4.9 million and the write-off of vineyard running costs and other costs totalling $8.9 million.

Shares in Australian Vintage, which also owns the Nepenthe label, closed steady at 41.5 cents.

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Thorn customers short-changed $2.8m

By Petrina Berry

BRISBANE, Nov 17 AAP – Radio Rentals owner Thorn Group will repay $2.


8 million to customers overcharged due to a computer glitch.

The company says Centrelink and direct debiting customers continued to be charged for the leasing of goods after they were fully paid off because of a computer malfunction.

The refund will wipe out the half-year profits of Thorn’s core consumer lending business.

Managing director James Marshall told AAP the majority of amounts owned to each customer was less than $50, with 25 per cent less than $5.

“We have found credit balances, some of them were $2 or $3 that back date to 15 years ago, and we have adopted a gold standard approach to appliance,” Mr Marshall said.

“We are going right back to the start to make sure all of those monies are refunded.”

The group’s overall results were rescued by a strong rise in earnings from its commercial leasing business and its recently acquired cash flow solutions business for small enterprises.

Thorn’s net profit rose 1.5 per cent to $15.4 million in the six months to September 30, up from $15.2 million in the same period a year ago.

Group revenue in the first half rose 7.4 per cent to $161 million, from $149.9 million in the same period a year ago.

Mr Marshall said ongoing sluggish consumer sentiment was encouraging people to rent first rather than buy.

“The big banks recent move on interest rates despite the RBA leaving rates on hold brings a little bit of uncertainty to consumers,” he said.

“What we are seeing is consumers are paying down household debt more rapidly and are trying to build a savings buffer.

“Often a lot of working people… are choosing a rent, try, buy style program rather than dipping into their savings buffer to spend $1,500 on a new fridge.”

Thorn’s share price fell half a cent to $1.995.


* Half-year net profit of $15.4m, up 1.5pct in fiscal 2014

* Revenue of $161m, up 7.4pct from $149m

* Dividend of 5.50 cents, up from 4.50 cents

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Qantas sheds junk status

Qantas has finally shed its junk credit rating from Standard & Poor’s.


The ratings agency slashed the airline’s credit rating to junk status in December 2013 after Qantas warned of hefty financial losses and mass job cuts.

But with the airline having returned to profit following a massive restructure, S&P has returned Qantas’s ratings to investment grade (BBB-).

“This is a welcome endorsement of the hard work we’ve been doing to build a stronger Qantas, guided by our financial framework,” Qantas chief executive Alan Joyce said on Tuesday.

Qantas has spent nearly two years cutting costs and paying down $1 billion in debt to help return the airline to profit.

It is only one of six airlines, including Air New Zealand and Ryanair, around the world to have an investment grade credit rating.

S&P credit analyst Graeme Ferguson said the agency upgraded Qantas’s credit rating because of the airline’s more prudent financial framework, which is focused on protecting its balance sheet in difficult times.

Lower fuel prices, a weaker Australian dollar and an easing of the intense price war with rival Virgin Australia combined with the restructuring initiatives should help further strengthen the airline’s credit metrics, he added.

However, Qantas could face another ratings downgrade if the measures it has put in place struggle to cope with issues like increased competition, a higher dollar, rising fuel costs, and shocks such as a terrorist attack or mass-pandemic event.

Qantas launched its restructure in 2014, including plans to cut 5,000 jobs after it plunged to a $2.8 billion loss.

In August, the airline returned to the black with a $557 million profit for 2014/15.

Qantas shares closed 21 cents, or 5.9 per cent, higher at $3.76.

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