Economy

Small business does it tough … Hardie trio quit … Economists tip wages to firm … Gloria Jean’s tax trouble … Domino’s setback … Small biz stats … Commander to franchise … Economic roundup

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Gap between small and large business widens

The latest St George-ACCI Small Business survey, out today, shows that small-business conditions continued to ease over the December quarter while small-business profit growth was poor.

Although sales revenue remained strong, it is down from recent record highs. Wage and non-wage cost growth accelerated with wage growth matching the previous high set in the December 2005 quarter.

Steven Milch, St George’s head of economic research says the performance of medium and large businesses has been much stronger, particularly in sales revenue, employment and investment. “The gap between small and large business sector is now the widest in several years. We remain hopeful this will be a relatively short-term development caused by factors such as last year’s interest rate increases and the positive impact of the commodity boom for the large business sector.”

– Amanda Gome

James Hardie chairman, directors quit

High-profile James Hardie Industries chairman Meredith Hellicar has resigned, citing perceived conflict of interest concerns associated with legal action ASIC is taking against her and the company.

Two other non-executive directors, Michael Brown and Michael Gillfillan, have also resigned.

ASIC announced last Thursday it would commence civil penalty proceedings against James Hardie, and several current and former directors and senior executives.

The resignation of Hellicar, Brown and Gillfillan means there are no longer any serving directors or executives involved in the ASIC prosecution.

Hellicar and the other former James Hardie directors face significant penalties, including maximum fines of $200,000 per breach and disqualification from serving as company directors, if the ASIC claims are successful.

Hellicar remains on the board of AMP, and Amalgamated Holdings. Gillfillan and Brown remain directors of several other companies.

– Mike Preston

Economists predict further wage rises

Wage levels may have risen 1% in the December quarter of 2006, up from 0.8% in the preceding quarter, a survey of 26 leading economists conducted by Bloomberg reveals.

Annual wage growth in the final quarter picked up to almost 4% according to the survey, which is based on an average of the views expressed by the 26 economists.

The Bloomberg survey is in line with recent reports from National Australia Bank and St George/ACCI showing businesses are experiencing escalating pressure to increase wages.

The survey means tomorrow’s Australian Bureau of Statistics labour price index, which will show actual wage growth figures for the final quarter of 2006, will be highly significant.

A wages breakout could increase inflationary expectations, putting pressure on the Reserve Bank to consider an interest rate rise.

The market will be closely watching what Reserve Bank Governor Glenn Stevens has to say tomorrow when he is due to appear before a Parliamentary Committee in Perth to answer questions on the economy and interest rates.

For more on dealing with pay rise pressure, click here.

– Mike Preston

Gloria Jean’s fighting the taxman

Fast-growing franchise Gloria Jean’s Coffees has hit a hurdle in its international expansion. The company, founded in Australia by Peter Irvine and Nabi Saleh, is in dispute with the NSW Government over the tax treatment over its 2004 deal to buy the international rights to the Gloria Jean’s Coffees brand and roasting rights from the US master franchisor.

Two companies behind the franchisor, Gloria Jeans’ Coffees international and Gloria Jeans’ Coffees Holdings are appealing against a 2005 assessment by the NSW chief commissioner of state revenue in the NSW Supreme Court, arguing they are not liable for about $600,000 in stamp duty under the deal because they did not purchase “goodwill” as its defined under the NSW Duties Act.

Gloria Jean’s Coffees was founded in the United States, but the retailing formula developed by Irvine and Saleh in Australia has made it much more popular in Australia than the US. Irvine and Saleh had turnover of $184 million in 2005-06 and has 378 stores nationally. Since buying out the US franchisor in 2004, the chain has focused on international growth – selling master franchises in South America, Europe, the Middle East and Asia.

– Jacqui Walker

Small caps: Setback for Domino’s

Has rapid growth caught out the maestros at Domino’s Pizza? The franchise has been hit by a 46% slide in first-half profits with serious problems due to a poor promotion and costs of a new business division that provides equipment and expertise to Domino’s outlets. Net profit fell from $6.5 million to $3.48 million on the back of sales that grew from $86 million to $118 million during the same period. But the profit outlook is brighter with a 40% rise expected in second half profits.

In other news, toy retailer Funtastic is the latest target of private equity raiders, saying it has been approached by an unnamed party believed to be a private equity firm. The board, which reports its full year results next week, has set up a sub-committee to deal with the potential buyer.

Don’t hold your breath waiting for small biz stats:

Policy makers, politicians and accountants have been quoted over the past few weeks saying they are waiting for the latest small-business data from the Australian Bureau of Statistics. The figures were due to be released last year, then delayed until February and now will not be made public until April 20.

When Prime Minister John Howard came to government in 1996, plenty of figures were available on small business, including an excellent longitudinal study. Gradually the number of surveys was cut back. Now there is just the one: Characteristics of Small Business, which comes out every second year and is two years out of date. Small Business Minister Fran Bailey is as annoyed as the rest of the small-business community and has pledged to take some action. Here’s hoping…

– Amanda Gome

IT News: Commander to franchise

Telco Commander Communications is using franchising to grow. At its half-year profit results announcement yesterday, the company said its pilot program would be expanded into metropolitan markets.

The franchise outlets sell voice equipment and network services an ICT hardware and services to the SME market, reports ITWire. The company says it has now signed 27 franchise agreements of which 11 are operational and will be extending the franchises from regional into metropolitan locations. Commander says the effect of franchising will be an increase in sales, movement of costs from fixed to variable and a reduction in direct labour costs with an increase in commissions.”

– Jacqui Walker

Economic roundup

The Australian dollar continued to trade strongly this morning, although the midday price of US78.61¢ was slightly below yesterday’s high of US78.76¢.

Some analysts are predicting the Australian dollar will push above US79¢ if Reserve Bank Governor Glenn Stevens says anything to indicate higher interests are on the cards when he appears before a parliamentary committee in Perth tomorrow.

Labour price data to be released by the Australian Bureau of Statistics tomorrow morning could also be significant if they suggest wages are rising.

The stockmarket again floated above 6000 points yesterday, as generally solid profit reports continue to support stock prices. The S&P/ASX 200 was down to 5991.70 at midday today, but good results from the more than 60 profit announcements due this week should see 6000-plus trading become a regular occurrence.

And the Productivity Commission says poor productivity in the booming mining industry is holding back Australia’s economic growth, according to a report in The Australian today.

The report says despite record spending on staff, equipment and infrastructure last year, workers produced 19.1 fewer tonnes of minerals per hour of work than they did in 2005.

– Mike Preston

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