Profits under pressure … Broadband hits a speedhump … Coles suppliers and private equity … Super fees … Economic roundup

Rising wages putting profit under pressure

The skills shortage is biting as wages growth is putting pressure on profit despite rising sales, according to the St George–ACCI Business Expectations Survey for February 2007.

The St George-ACCI Index of Business Conditions declined to 56.2 in the December quarter, from 57.3 previously. However, the index is above 50, indicating that conditions continue to improve.

Smaller firms, although positive, were less confident than medium and larger businesses. And medium businesses were least confident about the outlook.

Wages rose strongly over the December 2006 quarter for all businesses and employment continues to grow. But profit growth was flat, despite reasonable growth in sales revenue.

“The survey data shows that the wages growth index is at the highest level since this survey began 12 years ago in 1994, building on the series of new highs that have been set over the past three years,” says ACCI chief executive Peter Hendy.

But St George’s head of economic research, Steven Milch, is upbeat about the outlook. Since December the inflation rate has fallen and the Reserve Bank is predicting moderating inflation. “For this reason, we expect not only that interest rates will remain on hold through 2007 but also that business confidence and economic activity will pick up.”

The index results follow the release of figures from Immigration Department, showing a 17% jump in the number of s457 visas for temporary migrant staff issued in the first half of 2006-07.

– Jacqui Walker

Broadband program delay leaves small businesses languishing

Small businesses desperate for decent broadband are missing out because of delays in the rollout of a government assistance program.

The program, Metro Broadband connect, subsidises small businesses and other consumers unable to otherwise access good quality and fairly priced broadband services because they are in a pocket of their city that lacks adequate infrastructure.

The Federal Government says the start of the program was delayed by six months, to mid-2006, by problems getting broadband service providers on board.

Uptake since the launch has been slow, with just $200,000 of the $20 million allocated to July 2007 spent on services, compared to more than $1 million on administration. The Government is relying on telcos to advertise the program.

Tony Steven, chief executive of the Council of Small Business of Australia, says it is “urgent” that the program’s outcomes be improved.

“Small businesses are very dependent on getting decent broadband services, not only from the point of view of communicating with existing and potential customers but also with the Government itself.”

Labor’s spokesman on communications and IT, Senator Stephen Conroy, is scathing about the program’s underperformance. “In the modern economy broadband is a basic utility, like water or electricity, and yet tens of thousands of Australian small businesses are currently not able to access affordable broadband. The Howard Government’s complacency on broadband is holding Australian small business back.”

A spokeswoman for Communications Minister Senator Helen Coonan said uptake of the program was expected to accelerate now that 21 service providers have been signed up. The providers will be responsible for raising the profile of the program and informing eligible small businesses of their entitlements.

The spokeswoman said data had not been collected on the number of small businesses that might benefit from the program and could not say whether any small businesses had started receiving subsidised broadband.

– Mike Preston

What private equity means for Coles suppliers

Coles suppliers may be getting nervous and at persistant speculation that the grocery retailer will be a target of a private equity takeover. The chances of the company being intact by this time next year are slim: a formal auction of the various retail chains is one of the serious options being assessed by the board in the event of a private equity raid, the Australian Financial Review reports today.

When the Myer department store chain was acquired by private equity firms Texas Pacific, Newbridge Capital and the Myer family from Coles Myer for $1.4 billion in March 2006, the new owners put supplier relationships under the microscope.

Chief executive Bernie Brookes said in November he would be dropping about 200 small suppliers would be dropped within a year. “This business has over 1000 suppliers that do under $5 million a year with us. You can’t run a business with such a large number of small suppliers,” Brookes said. All Myer’s suppliers will have to renegotiate terms of trade, cut costs, introduce new IT systems and spend more on promotion.

Coles suppliers can probably expect the same treatment if the giant retailer falls into private equity hands.

– Jacqui Walker

Not so super fee hike

The massive changes in superannuation 18 months ago were meant to lead to lower fees. But a study by research company Superratings shows that funds in the commercial sector decreased their fees only marginally in 2006, surprising pundits who expected competition to force fees lower.

The survey also shows that industry funds were forced to raise fees to pay for expensive advertising campaigns to attract new members and to meet the cost of increased compliance.

– Amanda Gome

 WA Government to take a stake in home ownership

Low income earners struggling to afford a home in West Australia’s skyrocketing property market are to be given a leg up through a new State Government plan to contribute money in exchange for equity in their homes.

The program is designed to attack the housing affordability problem in the state and could be the beginning of a national trend.

Under the program, an Australia first, 1000 low income families per year will buy a home in partnership with the WA Government, which will also provide them with a low-deposit loan.

 Homes valued at up to $365,000 can be bought under the scheme, which will apply to both public and private housing. The WA Government will hold up to 40% equity in homes purchased.

Property Council of Australia (WA) executive director Joe Lenzo cautiously welcomed the program: “you wonder whether taking equity in private dwellings is a good role for government, but you cant object to doing something about the affordability crisis.”

He doubts the program will affect property prices: it is too small.

– Mike Preston

Economic roundup

Bounding wages growth and moderately strong economic conditions headline in reports issued by St George–ACCI and NAB today.

Annual wage growth is at its highest level since 1998, according to the NAB Monthly Business Survey, with January’s seasonally adjusted wages growth rate of 1.8% supporting very high annual wage growth of 5.25%.

The mining (8%), construction (7%) and recreational services (6.7%) industries reported the highest levels of wage growth.

The NAB survey found economic conditions were otherwise relatively good in January, with businesses reporting strong profitability and new orders and confidence increasing at a more modest pace. Business conditions dipped slightly in WA and Queensland, although WA continues to remain an economy apart from the rest of the country, where conditions remained level.

– Mike Preston