The Reserve Bank and climate change

The March 2019 speech by the Deputy Governor of the Reserve Bank of Australia (RBA), Guy Debelle on climate change and the economy was something of a watershed moment for many commentators in the media. Here was a senior official of Australia's central bank acknowledging the serious impact that climate change could and almost certainly will have on Australia's economy in future years in stark contrast to negligible statements by the Australian Government.

Debelle's address to a public forum hosted by the Centre for Policy Development in Sydney follows closely similar comments by other key federal regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC).

What made Debelle's address so essential is that it was framed within the context of  economic models and monetary policy - the key instruments which the RBA uses to influence the Australian economy.  According to the RBA, when thinking about weather its important to see it in terms of a trend rather than cycles: "The impact of a trend is ongoing, whereas a cycle is temporary".  Frequency of climate events needs to be considered and how the economy adapts to increasing sudden shocks which affect demand and supply.

RBA has joined the Network for Greening the Financial System (NGFS) which is a group of central banks looking at climate issues and impact.

The speech can be accessed at the link below:
Address by the RBA Deputy Governor on climate change  

Earth Hour 2019 - Saturday 30 March 2019 - 8.30PM

Earth Hour link below:
Earth Hour 2019

Ancient Earth - 720 million years back in time

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Imagine the Earth in the Cryogenian period around 720 millions year ago. A new online tool has been developed which can do just this.  The Cryogenian period was  the second of the three periods of the Neoproterozoic Era extending from approx 720 million years to 635 million years ago.

Click the link below to access:
Ancient Earth

Share buybacks by corporations - in whose interest ?

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Over the past three years since 2016, there has been a marked increase in the number of announcements of share buy-backs from ASX listed companies. Buy-backs are where a stock exchange listed company literally makes an offer to purchase its own shares from its shareholders thus reducing the number of shares on issue in the market. This approach has often been in tandem with a company having excess capital or funds available to it as a result of the sales of other businesses (where there are other brands which the company can offload) or capital raisings which are no longer needed or a high return from business operations in the preceding year. But how sensible are share buy-backs and in whose interest do they occur ?

The oft stated justification from companies is that a buy-back creates value by reducing the number of shares on issue and are a way of returning capital to shareholders.  Little other information ever eventuates such as the overall rationale for the decision - what is the target price being sought ? What is the intrinsic value per share ? What is the timeline for the buy-back ? Some of the announced buy-backs have also resulted in little to no actual share purchases occurring hence the tactic appears to be for other reasons - such as placing a floor underneath the price of shares particularly if short sellers have been active in the market.

A raft of companies have been doing these buy-backs including CSL, Qantas, AGL, Navitas, CSR, Oroton, Platinum Asset Management, Cardno, QBE to name a few.

Management consultancy, McKinsey & Co, has challenged the value of share buy-backs in terms of using it as a method of improving earnings-per-share (EPS) or total return to shareholders (TRS), both of which are key revenue measures of a company's performance. McKinsey's have noted in one example that a company had pursued an aggressive share buy-back over several years and reduced around 20% of the share capital on issue and thus increased its earnings per share by 8% yet the overall net income for the business had continued falling. The overall revenue situation remained poor and the market discounted the company's shares by 40% relative to the market index. McKinsey's also commented that companies rarely time their repurchases well.

Shareholders would be well-placed to question the value of a company using investment capital or worse, debt financing, for share buy-backs rather than being used for revenue generation or 'growing the business'.

New Year 2019 beckons

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As 2018 ends and 2019 starts, there are strong grounds for caution as to what the next 12 months will be like and what events may transpire.

The latest Economic Conditions Snapshot, December 2018 from McKinsey & Co shows increasing pessimism  about the overall economic outlook from executives around the world whether reflecting on their own domestic situation or globally.  While there is some glimmer of optimism in India and Latin America, overall executives are glum about the next 12 months whether in developed-economies or emerging economies.

The key risks are defined as being related to policy and politics and are considered 'the most pressing threats'.  The most commonly cited examples being trade policy, a China economic slow-down and the United Kingdom's exit from the European Union. Transitions in political leadership and geopolitical instability are the second most cited concern. Of particular note, rising interest rates have largely fallen ranking only fifth of the five most pressing issues.

Happy New Year !

2018 - a year of shareholder voting strikes on corporate remuneration

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It's not surprising given the raft of allegations concerning the conduct of Australian banks at the Royal Commission into Banking, Superannuation and the Financial Services Industry' plus various scandals with other corporations, that shareholders are showing their displeasure at the level of remuneration paid to senior executives and directors on ASX listed companies.

Under the Australian Corporations Act 2001 (Section 300A), companies listed on the Australian Stock Exchange (the ASX), must present a remuneration report at every Annual General Meeting which sets out the policies for the amount of remuneration paid to key management personnel as established by the company's governing Board. Key management personnel are typically the Chief Executive Officer and senior executives including directors on the Board itself. The report must show the nature of the remuneration and exact value including salary, bonuses, short and long term incentives, options on shares and an explanation on performance hurdles which apply.

Since an amendment to the Act in 2011, there is now a two strikes voting power and re-election process for the Board itself should shareholders find the remuneration report repeatedly unacceptable. What this means is that for the first strike, a 'no' vote of 25 per cent or more of the votes cast rejecting the adoption of the remuneration report at the Annual General Meeting is needed. Should this occur the Board is required to provide an explanation on the proposed action the Board will take or a reason for taking no action on the remuneration report. If, in the following year at the next Annual General Meeting, a 'no' vote of 25 per cent or more occurs again, there must be a 'spill' motion of the positions of all members of the company Board responsible for the remuneration report at that meeting. 

For the spill motion of the Board to succeed, the resolution must be passed with 50 per cent or more of eligible votes.  Should the 'spill' motion succeed, within 90 days the directors must stand for re-election to the Board.

In 2018 there were a record number of first strikes for many companies -

Company Name and % of votes against the remuneration report:

National Australia Bank  88.1%
Mineral Resources  63.62 %
AMP  62.20%
Telstra Corporation  61.98%
Harvey Norman  50.63%
NRW Holdings  49.05%
Westfield Corporation 47.50%
QBE Insurance  45.60%
Goodman Group  45.46%
Tabcorp Holdings  40.40%
Myer Holdings 38.17%
Austal Limited  37.24%
Karoon  37.05%
Computershare  31.89%
Healthscope  29.29%
APA Group  24.96%

Many other companies received a high level of 'no' votes but not sufficient to reach the 25% threshold of a first strike. These include Ramsay Healthcare, MYOB, Japara Healthcare, Challenger Limited, JB Hi-Fi, Seek, Qube Holdings, IOOF Holdings, APN Outdoor, Coca-Cola Amatil. All of the companies with a first strike will need to work hard to avoid a second strike in 2019.

Christmas 2018

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Christmas, a time of celebration, a time for relaxation with family and friends. The Christmas celebration  itself is a mixture of orthodox religion, tradition and pagan ritual. The Christmas tree itself originates from medieval eastern Europe before being adopted in Lutheran Germany and thereafter across the Christian world mainly during the later 19th century. Decorations on the tree were much less flash and sparkly in the 19th and early 20th Centuries with coloured paper roses, wafers, apples and other small edible items. Only later were candles added and in the 20th century the Christmas tree became a light show in itself.

Wherever you may be, happy Christmas !

100 years on - The Armistice of 1918

British troops arrive in Cologne following the Armistice 1918

The Armistice to cease hostilities between the Central Powers and the Allies came into effect at 11 am  on the 11th November 1918 however it had only been signed by representatives at 5 am that same day. On that final morning prior to 11am slightly over 10,000 were still killed in conflict as commanders, mainly Allied, sought to gain territory prior to the cessation of hostilities. The Armistice had to be extended three more times until a peace treaty was finally concluded on 10 January 1920 with the Treaty of Versailles.

The cost for Australia in terms of lives lost in World War 1 was very high:

• 416,809 enlisted
• 62,000 killed
• 156,000 wounded

It would only be twenty-one years later than another World War would commence.

Lest we forget.

Film Review - Journey's End

The horror and  senselessness of trench warfare on the Western Front during World War 1 is brought into very dark focus by the evocative British film Journey's End. Based on the stage play of the same title by R.C. Sherriff, the story is centred on a small part of the Front where a company of British infantry are positioned in trenches just metres from the German Army lines. It is the eve of the 1918 Spring Offensive by the Germans and the British are all too aware that a major action is impending.

The futility of their position is already well understood as the troops have been in combat for years and there is a sense of resignation to fate as they alternate between rest periods in the rear areas before rotation back to the front line. Much of the scenes are in the company command bunker with the focus predominantly centred on the officers as the key characters.  The story commences with the arrival of young second Lieutenant Raleigh, fresh from officer training, to join the infantry company as his old school friend and love interest of his sister is the company commander, Captain Stanhope.  After years of horrifying war, Stanhope is no longer the man he once was, and now needs whisky every day to stay sane.

Directed by Saul Dibb this is a well crafted film with skilled performances by Sam Claflin (as company commander, Captain Stanhope), Asa Butterfield (as Second Lieutenant Raleigh), Paul Bettany (as Lieutenant Osborne) Tom Sturridge (as Second Lieutenant Hibbert) and Toby Jones (as Private Mason, the officer's mess cook and batman).

Robert Cedric Sherriff wrote from first hand experience of World War 1 as he served as a Captain in the 9th Battalion of the East Surrey Regiment and fought at Vimy Ridge, Loos and the notorious Passchendaele being wounded in the last engagement.

This is a film which has no happy ending but conveys a story which continues to resonate 100 years later.

Sculpture by the Sea 2018

Time and motion - Ron Gromboc

Now in its 22nd year, Sculpture by the Sea returns to the coast walk between Tamarama beach and Bondi beach with over 100 works featuring all manner of creations and images. Some works are within the more recognised traditional medium of sculpture and others with more unusual. There is a strong representation of Australian (and NSW) artists selected with the wider international submissions coming from Spain, China, Sweden, South Korea, England, South Africa, Austria, Norway, Canada. France, Turkey, Israel, New Zealand with Japan being the largest source apart from Australia. 

The exhibition runs from 10 October to 4 November 2018 and its free.

Disc Vane- Ivan Black