Harvey backs market recovery… PM hints at business tax cuts… Private equity gets a tick – but fewer deals on the horizon… SME technology boom… Wage growth hits record highs… Stokes bans Facebook… Small-cap results…

Harvey backs market recovery

Sub-prime driven market volatility has stepped up another notch this morning, with the S&P/ASX 200 dropping almost 1% in its first 20 minutes before coming back to 5910.5 at 11.40am, 0.4% down on yesterday’s close.

Yesterday a surge of buying lifted the S&P/ASX 200 by 4.6%, its biggest single day increase since market bounced back from the Asian financial crisis in October 1997.

Harvey Norman founder Gerry Harvey backs the view that this is a temporary market correction, not an economic meltdown. Harvey was phlegmatic about the events of recent weeks when he spoke to SmartCompany.com.au yesterday afternoon.

“I think that we’ve seen the worst of it. Typically these things come in an bounce around and come back reasonably quickly, although there’s no doubt some worrying things have happened,” Harvey says. “People are just a bit panicked; that’s the biggest issue.”

Harvey, one of Australia’s wealthiest entrepreneurs (worth $1.8 billion according to the latest BRW) has put his money where his mouth is. He spent $3 million buying shares yesterday morning. Harvey believes China will remain an economic powerhouse.

“I bought shares across the board – banks and resources and support industries to resources: they’ve been so strong and I don’t see the resource thing falling off. I just don’t see how the current issues will impact on the demand China has for coal and steel, and since the dollar has devalued those stocks are even more valuable,” Harvey says.

Most economists seem to share Harvey’s relatively relaxed view of current market volatility.

John Edwards, chief economist at HSBC, does not see any fundamental problems in the US or Australian economies.

“I don’t think there are deeper problems. The problem at the heart of things is relatively trivial and in a way the global financial market is in a process of education and discovery and it think it will look a lot better in couple of weeks than it does now.”

But Westpac senior economist Justin Smirk says the drop-off this morning after yesterday’s fevered buying illustrates just how little rationality there is in the market at the moment.

“There has been no big change, the US didn’t do anything exciting overnight, it’s just market volatility without reason. People are unsure and uncertain about what’s going on so people are just acting on fear, and in that situation people do a lot of strange things,” Smirk says.

– Mike Preston


PM hints at business tax cuts

Prime Minister John Howard has dropped his biggest hint yet that Australian businesses could be on the receiving end of some tax cuts in the leadup to this year’s federal election.

Howard told the Millennium Forum in Sydney yesterday that the current strength of the Australian economy meant the Government could afford further tax cuts.

“We should aim also to further lower the tax burden on Australians who work, who save and who take risks in business. Contingent on the macro-economic outlook, further tax reform will be part of this Government’s agenda for growth, prosperity and opportunity in a fifth term.”

That last caveat could be significant, however, with politicians on both sides aware that excessive spending from government coffers could be perceived by the electorate as increasing the risk of a further interest rate rise.

– Mike Preston


Private equity gets a tick – but fewer deals on the horizon

There would be nothing to gain by adding to the existing regime of financial and tax regulations that govern private equity in Australia, a new Senate report into the issue has found.

But it is not all good news for private equity firms or the business owners who look to them as a possible source investment or a lucrative exit. The committee also accepted evidence that the record private equity activity seen in 2006 and early 2007 has ended and is unlikely to return any time soon.

The inquiry heard evidence from key regulatory agencies the Reserve Bank of Australia, the Australian Securities & Investments Commission and the Australian Prudential Regulation Authority, all of whom agreed that private equity does not need more regulation.

Record activity in 2006 was the result of “very unusual circumstances”, the deputy governor of the Reserve Bank of Australia, Ric Battellino, told the inquiry.

“It was the outcome of a very unusual set of circumstances. Those circumstances are closing, and I do not think there is a lasting problem here at all,” Battellino said, in evidence that was relied upon by the inquiry in its report.

The findings of the Senate investigation were welcomed today by Australian Private Equity & Venture Capital Association’s executive director, Katherine Woodthorpe.

She says the current international credit squeeze is likely to cause a slow down in private equity deals.

“In the market for very big companies, where firms were paying a bit more of a premium, we might find more softening, the vast bulk of middle market companies is buying divisions or succession takeovers form entrepreneurs who want to retire, that part of the market will probably be reasonably unchanged,” Woodthorpe says.

Allco Finance Group chief executive David Clarke told journalists this morning, after announcing profit growth of 118%, to $211.70 million in 2006-07, that current sharemarket volatility could slow its deal flow. But, looking on the bright side, he also thought it could present opportunities. He said the group had $1.4 billion in capital to spend on new assets.

– Mike Preston


SME technology boom

Small and medium business owners are taking up technology at a rapid rate. Numbers who use internet-enabled mobile phones doubled during the year, with 36% of businesses now owning a mobile phone that has internet access.

Two in 10 SMEs now have some form of satellite navigation device, while 17% use voice over internet protocol, according to a new report from Sensis. And 91% of SMEs on the internet now have broadband: up from just 43% three years ago.

However the collision of work and home life continues, with technology further intruding on personal lives. The survey, of 1800 small and medium businesses and 1500 consumers, shows that more than half the BlackBerry users respond to work emails outside of work hours.

And about three in 10 people who own such devices, say it allows them to balance work and life better or have flexibility away from the office.

Other findings:

  • Penetration of a BlackBerry or mobile e-mail device has been considerably stronger in medium business (35%) than in small business (10%).
  • About 49% of users say they are definitely or unwilling to give up their BlackBerry or mobile email devices.
  • SMEs spent an average $10,900 on computer hardware and software in 2006, an increase of $2300 on the previous year. They are expecting to reduce spending on IT in 2007, down to $9400.
  • Half of SMEs sell over the internet, with a further 10% intending to do so, although 40% say they have no interest in e-commerce.
  • About 52% of SMEs have a website, up three percentage points, with a further 12% intending to have one in the future.
  • More than six in 10 businesses say having a website improved business effectiveness.
  • About 78% of Australian households have an internet connection, with 14% expecting to be connected over the next 12 months.

– Amanda Gome


Wage growth hits record highs

Employment and wages growth in SMEs reached record levels in the June 2007 quarter, signalling that capacity constraints continue to be an issue for the Australian economy.

The St George-ACCI Small Business Survey measured the highest levels of wage growth in the June quarter since the survey started in 1986.

Despite the tough wage outlook, business conditions for SMEs had reached a record high in the June 2007 quarter – just before the current market volatility hit.

All indicators in the St George-ACCI Small Business Survey experienced growth in the June 2007 quarter over the five-year average.

Consumers also appear to have been quite confident in July 2007, with new car sales increasing 0.6% on June 2007, according to Australian Bureau of Statistics figures released today.

Total sales increased in six states and territories when comparing July 2007 to June 2007, with Tasmania recording the largest increase of 5.4%. Western Australia and South Australia followed with increases of 2.4% and 1.4% respectively, while the Northern Territory and Victoria recorded decreases of 3.0% and 0.3% respectively.

And business expenditure on R&D in Australia during 2005-06 was $10,080.7 million, an increase of 16.6% in current price terms over 2004-05, according to the ABS. It is the seventh successive year R&D spending has increased.

Another survey, by recruiter Talent2, found that nearly a quarter of Australian workers have demanded a pay rise in the past three months. And more than half of those workers were successful, shows the survey of 1987 respondents. Contractors have also made a killing in the current market, with 44% saying they are charging themselves out at a substantially higher rate than last year.

David Mahony of Talent2 says HR practitioners have been the quickest to jump on the salary increase closely followed by workers in legal, computer/IT, Engineering/manufacturing and construction.

– Amanda Gome and Mike Preston


Stokes bans Facebook

The debate over whether Facebook and other social networking sites should be banned at work is hotting up.

Aunty B has had her say (please link) and the AFR reports this morning that Kerry Stokes’ publishing arm, Pacific Publications, has banned employees from accessing Facebook. Law firm Arnold Bloch Leibler also confirmed it has blocked access between 8am and 6pm.

In the other corner are companies actively encouraging their staff to use networking sites, such as Deloitte, IBM and PricewaterhouseCoopers. IT commentator Ross Dawson says that being able to reach out and network is a key skill of a knowledge worker.

What do you think? Is it paternalistic to block staff access or good business sense? Email feedback@smartcompany.com.au.


Small-cap results

Pacific Brands has reported a 4.7% rise in full-year earnings and says it expects profit this year to rise by about 10%. The underwear and hosiery group said net profit was $105.96 million in 2006-07, up from $101.21 in the previous year. Pacific Brands said it was well positioned for growth in the fiscal 2008 financial year.

Skilled Group has posted a 17% rise in annual profit, announced the acquisition of a new business, and says it expects underlying earnings to rise by about 45% this year. The staffing services provider is forecasting strong growth this financial year. Skilled reported a 17.3% rise in annual net profit to $28.98 million, up from $23.97 million in 2005-06.

Melbourne IT has announced a strong result for the half-year ended 30 June 2007, with an 84% increase in revenue to $77.3 million and a 167% increase in earnings before interest and tax (EBIT) to $9.1 million compared to first half of 2006. Net profit after tax for the domain name provider grew 145% to $6.5 million (excluding the one-off gain on the sale of the company’s 10% stake in .biz registry Neulevel in March 2006), compared to the previous half.



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