Alexandra Cain is a freelance finance journalist based in Sydney, Australia.
Regulating and controlling the powerful and wide-ranging technology of artificial intelligence will require a complex response that includes ways to manage risks such as misinformation and deepfakes, experts say.
AI is powered by complex algorithms, which are essentially mathematical equations. They sometimes have billions of different parameters and don’t produce the same outcome twice.
But the algorithms, which help determine everything from the ads we are shown to the jobs we are considered for, can sometimes produce concerning results. AI’s potential to reinforce discrimination is one of its most worrying effects.
Critics point to an oft-quoted example of a failed Amazon algorithm that was trained to analyse job applications based on a data set of 10 years of successful job candidates. Most hires had been men, so the system only put forward male candidates, consequently reinforcing gender bias in the business.
Read the full article in The Australian Financial Review.
Spark New Zealand [ASX: SPK] is at the centre of the digital transformation and ensuing thirst for data that defines our times.
The telco is investing in infrastructure that is powering mega trends such as Internet 4.0, generative AI and cloud computing. It’s an exciting time for the company, which is currently pursuing a three-year growth strategy.
Spark, New Zealand’s largest telecommunications and digital services company, is part of the ASX 200 and NZ 50. Although it is committed to a growth mandate, Spark emphasises sustainably growing dividends. It has a stable share register of mainly local and global institutions and values the liquidity being listed on ASX and NZX brings.
The telco is helmed by CEO and executive director Jolie Hodson, whose career has spanned senior roles in Australia and New Zealand. She transitioned through a number of roles at Spark, including CFO, CEO of Spark Digital and customer director, before stepping into her current role in 2019.
“Much of the time I’ve been CEO was spent during the pandemic. So, it’s nice to be focusing on moving ahead,” says Hodson.
“From streaming to gaming, people need data to live their lives. That’s driving an exponentially greater need for data and the next generations of mobile networks are helping to support that. Companies like Spark also have an important role to play making sure people stay connected during unexpected events, like we saw with Covid, or extreme weather occurrences” she says.
<subhead> A growth mindset
Customers are at the heart of Spark’s three-year strategic focus, with the twin ambitions of resilience and growth driving the company’s activities.
“My time is spent making sure the core business is going well, but also maximising the future. Our success is measured in the successes of the businesses we support and the way people get to live their life with digital technology,” says Hodson.
It’s thanks to the investment businesses such as Spark are making in telecommunications infrastructure, that the population’s insatiable and increasing appetite for data can be met.
As a result, the business is investing in areas within digital infrastructure, including data centres. Spark already owns 16 data centres, with more planned.
“We have made very substantial investments, including NZ$250 million to NZ$300 million on digital infrastructure including data centres and NZ$40 million to $NZ60 million in accelerating our 5G standalone network. This is on top of the NZ$100 million we routinely spend on the mobile network each year,” says Hodson.
“Our role is to accelerate the infrastructure that sits below the technology that supports businesses wanting to innovate and change. Most businesses are facing productivity, cost and efficiency challenges and technology can play a role helping to resolve these issues,” she says.
Spark has been rolling out its 5G network over the last few years. It’s already available in 90 locations, with this number growing all the time.
“We have set a goal that by the end of June 2026, all New Zealand towns with a population of more than 1500 people will have 5G,” says Hodson.
In a highly digitised world, digital trust is important, and Spark’s subsidiary, MATTR, provides products that offer privacy respecting ways for people to hold their own digital credentials securely on their device and be able to selectively share their verifiable credentials with different relying parties either in person or over the internet.
In terms of how it works, let’s say an organisation needs to verify an individual’s information. Current practice is for the individual to send a copy of their photo identity to the organisation, creating a digital footprint and leaving a photocopy of their document in a database somewhere.
MATTR’s technology allows issuers of passports, licences and other ID documents to create digitally verifiable credentials that can be claimed by the individual and held by them, just like we do in the physical world today. The program can then share all or just some of the information with organisations who are able to validate that the credential is legitimate.
“Data safety is a big issue for society, one we can help resolve. We’re doing considerable work around keeping people’s identity and data safe,” says Hodson.
To this end, MATTR was recently named technology partner for the NSW state government digital identity programme.
<subhead> Making climate goals a reality
As Convenor of the Climate Leaders Coalition (CLC), a CEO-led community of around 90 organisations leading New Zealand’s response to climate change through collective action, Hodson is passionate about solving the climate change challenge and sees technology as having a vital role to play in supporting emissions reduction.
“Technology can play a role in everything from asset tracking to precision agriculture. Businesses need to make sure they manage their impact on the environment and enabling this through the use of new technologies like IoT and 5G is an important part of our strategy,” says Hodson.
As for what’s next, the Spark team is concentrating on achieving its three-year strategic goals. It is also focusing on meeting its ambitions in terms of sustainably growing dividends and free cash flow through increased earnings and disciplined cost control. It is also increasingly using data and AI to improve processes and efficiencies.
“In the last few months, generative AI has become like a co-pilot alongside our people, helping them to give our customers a better experience and improving products and services over time,” she says.
“This has already led to a substantial improvement in sales conversions and cost efficiencies that are turning into real returns and a competitive advantage, which should support us well into our future.”
Global markets give Australian investors a much bigger set of opportunities compared to only investing domestically, increasing diversification and reducing risk. This can lead to higher market performance over time.
Global share market indices have significantly outperformed the local share market, year-to-date. The MSCI All Country World Index is up around 14.3 per cent, the US S&P 500 is up 9.2 per cent and the Nasdaq 100 is up more than 30 per cent.
Over the same timeframe, the S&P/ASX 200 is down 3.7 per cent.
For Aussie investors, it’s a timely reminder to check your portfolio’s home bias, that is, the degree to which it’s exposed to local assets at the expense of a broader global profile.
For instance, sections of the healthcare industry, aspects of the semiconductor industry and parts of the internet and technology industries are all under-represented in Australia. So investing in local assets means missing out on returns from these industries.
Over-emphasising Australian assets in a portfolio at the expense of global stocks also heightens risk.
“One thing all economists agree on is diversification is a free lunch. By going global, you get a fair amount of diversification,” says Bhanu Singh CEO, Dimensional Fund Advisors.
“There’s too much risk in your portfolio if you’re just invested in the four banks and BHP,” he says.
EzyRemit was born as a result of the frustration its founders, Allan Nguyen and Quoc Ngo, experienced when they sent money back to their home country of Vietnam, to support their families. Solving this problem has been the springboard to success for the business, which is among this year’s AFR Fast Starters in the banking and finance category.
“I found existing remittance services overly complex and time consuming for me and for my clients who were seeking international investment opportunities,” says Nguyen.
So Nguyen combined his financial acumen with Ngo’s tech expertise to form EzyRemit, which is disrupting the way people send money overseas. The business has earned a reputation for low fees, favourable exchange rates and secure, speedy transfers.
<subhead> A new source of funds
A desultory IPO market is the perfect environment for a business like Tractor Ventures, an AFR Fast Starter this year in the banking and financials sector, to flourish.
Tractor Ventures has a proprietary credit and risk platform, which determines how much to lend to a borrower, as well as the size, shape and term of the loan and interest rate payable.
The non-bank lender is a source of finance for emerging businesses that may otherwise have sought funding from other avenues such as venture capital firms.
Supermarket leader Coles is a perennial ASX darling, a company that has survived and thrived during COVID and beyond, despite huge challenges. Its new leader is directing the business through a number of investments that will make it even more streamlined and efficient. This year, Coles expects to invest up to $1.4 billion in its operations, including significant investments in building automated distribution centres and two automated customer fulfilment centres.
Leah Weckert became CEO and managing director of Coles Group in May 2023, stepping into Steven Cain’s shoes, who led the business after the 2018 demerger from Wesfarmers. It’s a huge advantage Weckert has worked in a variety of positions across the business.
“I started in merchandise, which is the area that buys all the products you see in store. I spent some time as the state general manager for operations running stores for Victoria,” she says.
A stint in the people and culture division followed, before moving into the CFO role for four years, which Weckert calls a great privilege. Leadership of the Coles Express business and commercial functions for Supermarkets followed. This diversity means she has been able to get to know many different areas of the business and how they all work.
“This has really helped me in coming into the CEO role because I have a broad perspective on how value is created within the business and what really matters to our customers.”
<subhead> Initial priorities
As soon as she stepped into the CEO position, Weckert looked to build on her existing knowledge of the business through a national series of listening sessions with team members and customers.
“The purpose of those sessions was to fully connect with what’s working well in the business and to better understand our opportunities, to make sure I’m really in touch with what matters to our stakeholders,” she says.
She says from the sessions, she learned her customers’ top priority is getting good value and the rising cost of living is their top challenge. “That has shaped some of the things we’ve
done in my first few months in the CEO role. We have been very focused on how we make sure we have a compelling customer proposition around value.”
Subsequently, Coles has launched a ‘Great Value. Hands Down.’ campaign which lowered the price of more than 500 lines across the store. The campaign uses the very-recognisable Coles big red hand, a symbol of value across Australia. “We’re excited to bring that back and the ads have a bit of fun and a bit of personality about them, which we like, as well.” The Own Brand portfolio has also been reviewed, in an acknowledgement customers are looking for more affordable options for every-day expenses.
Team members are at the core of Coles’ business and their feedback is critical. During her recent national listening sessions, team members told Weckert about their pride in Coles’ contribution to its communities. “They are very proud we are the largest corporate giver as a percentage of profit, and they are happy about the work we do on sustainability, diversity and inclusion.”
Weckert and her team have been working with the board and executive team to evolve Coles’ strategy. “We wanted to take into account all the serious events that have happened over the last few years in terms of the pandemic, floods, fires and supply chain disruption. We wanted to take all that learning and make sure it’s integrated into a strategy that sets us up for the future. That’s been a really important piece of work over the last few months.”
<subhead> Connecting with the market
With more than 430,000 shareholders on the register, Coles has an extensive investor base, which is diverse in its makeup. This means it requires a multi-faceted engagement program.
“Over the course of a year, we try to reach as many shareholders as possible. A big part of this is structured around our financial results. We also have an investor day we hold every couple of years, where we showcase significant strategic milestones,” says Weckert.
The most recent investor day was an opportunity to showcase Coles’ recently-launched automated distribution centre. “Investors have heard a lot about this over the last few years. So it was fantastic to walk a group of them through it so they could see it first-hand,” she says.
Coles also sees its AGM as a great opportunity to meet and hear from its retail shareholders.
Says Weckert: “I always enjoy chatting to our retail shareholders over a cup of tea and a biscuit. They have some very interesting insights to share, which are quite different from those of our institutional shareholders.”
<subhead> Focus on strategic partnerships
In recent years, Coles has been on a transformative journey around how technology is used in the business. This has involved partnering with different specialists who are able to implement technology that achieves a competitive advantage for the business.
Witron, which provides automated distribution centre technology, is an example. “They are an absolute world leader in this space, with a track record helping many other large retailers around the world, across more than 90 facilities,” she says.
Another tech partner is Ocado, a leader in automated online orders and its technology is also used by other large retailers around the world. “Partnerships like these deliver real advantages to the business and investors can expect to see their benefits flow through to the company in terms of both the P&L and business model.”
<subhead> Lessons from the pandemic
Few will forget the toilet paper panic buying of the pandemic years, a difficult period for supermarkets. Weckert concedes it was a tricky time, one that is helping the business prepare for the future.
“During the pandemic, fires and floods, we experienced quite a bit of disruption in the global supply chain. We had to be very creative in how we worked with our suppliers to make sure we could get products onto the shelf for consumers.
“As we have evolved our strategy, one thing we have really internalised is how we deliver consistently and reliably for the customer. That’s regardless of whether it’s a pandemic, flood or bushfire or anything that might cause a supply shock in the system. Our emphasis has been on how we set up our business model so it has more resilience to cope with events of this nature.”
Coles has been working on its sustainability strategy for many years and is known for this aspect of its operations. “It’s really important to us on a number of fronts. Customers expect to be able to buy great quality, great value food and they want us, as a retailer, to make it easier for them to make sustainable choices. It’s also a motivating factor for our team that gives them a real reason to get out of bed in the morning because they feel like they are making a real difference. We know it’s very important to our investors, as well,” says Weckert.
The business splits its sustainability strategy in two. ‘Together to zero emissions’ focuses on its environmental impact, while ‘Better together’ is about its people and social impacts. On a practical level, programs to prevent food waste, reduce the use of plastics and lower emissions have been priorities, including a recent initiative to remove plastic carry bags from checkouts areas.
For many years, Coles has published an annual sustainability report that includes a comprehensive overview of all the actions it takes in this area. Plus half its recent investor day was spent explaining its approach to, and actions on, sustainability, including the progress it’s making toward its targets. Weckert says investors are always interested in ESG topics. “We ask experts in the business in areas like ethical sourcing and packaging to talk to investors about the details.”
<subhead> The business of investor relations
Coles has separate strategies for different investor groups, with communication to
institutional investors centred on results presentations, domestic and offshore roadshows and specific ESG meetings. For its massive retail shareholder base, the AGM is the main point of engagement. It hosts an in-person AGM and also webcasts the meeting so as many shareholders as possible can watch proceedings and ask management and the board questions. Emails are specifically tailored for the retail shareholder audience. Around 13 sell-side analysts cover the stock, and Coles also hosts briefings for these brokers.
The priority is financial discipline when it comes to capital management. “We target a return above our cost of capital, on balance, across all the capital projects we do. We’re disciplined about how we deploy capital and we bring sound governance processes around how capital spend is identified and then approved,” says Weckert.
“We work very hard on maintaining a very strong balance sheet. We look to have solid, investment-grade credit ratings. Achieving attractive returns, plus a strong balance sheet, is how we think about growing long-term shareholder value. It’s all part of our vision to be the most trusted retailer in Australia,” she said.
It will be exciting to see Coles’ future, backed by its new investments and how the business continues to evolve under Weckert and her team.
DefendTex CEO Travis Reddy calls his Drone 40 the Lego of auto-ammunition. It’s far more than that. The apparatus can launch weapons and other tools such as cameras and even smoke. It can be used on its own or in a swarm and can put soldiers out of the enemy’s reach. It’s just one of a number of cutting edge devices being sold into allied defence forces around the world by a slew of dynamic Australian businesses.
“The Drone 40 comes out of a grenade launcher like a normal grenade, then it opens up into a quadcopter that can fly 15 kilometres to the target. It can hover above a target and we can call it back or track moving targets. Four or five people can put them in the air so they move as a single unit,” says Reddy.
“Soldiers can sit on a hill and engage targets out to 15 kilometres, greater than the range of a battle tank. It massively increases the lethality and survivability of soldiers because it keeps them beyond the range of enemy weaponry. You can plug and play whatever effect you need on the battlefield,” he says.
Max Phelps, 55, is an anomaly. The mortgage broker owns 10 properties and not one of them is his own home. But in other ways, his approach to his finances is squarely in line with his peers. Phelps is part of a growing trend among people of his age to pass on his wealth before he dies. This is very different to previous generations.
Max Phelps’ approach to passing on his wealth is akin to many Gen X-ers: they want to give their kids financial security before they die. Fellow Gen X-er Amber Daines, 47, has a similar outlook. But the legacy she wants to leave is more than just about her money and assets.
Energy innovators are hastening the transition to renewable energy and squeezing more life from traditional infrastructure assets. Meanwhile, leaders in the sector are consulting to governments to re-work regulations so they are fit-for-purpose for the shift to clean energy.
In the capital-intensive energy infrastructure space, getting more from static yet massive assets like wind farms extends their lives, reducing the need to build new turbines and adding more renewable energy to the market.
Collgar Renewables’ fleet of 111 wind turbines is an example. The business is among the finalists in this year’s AFRSustainability Leaders List in the resources, energy and utilities category.
Megaport is perfectly positioned in a world in which artificial intelligence is powering the next boom.
“We’re in a gold rush era. What you want to be doing is selling shovels, picks and pans. That’s what Megaport does,” says new CEO Michael Reid, who has been based in Silicon Valley for the last two and a half years and previously acquired and ran global tech businesses.
The network-as-a-service provider connects businesses to any cloud provider, such as Amazon Web Services, Google Cloud Platform or Microsoft Azure.
An outlier in an industry in which most new ventures start life in Silicon Valley, Megaport was founded in Brisbane a decade ago by pioneering tech entrepreneur Bevan Slattery.
The share price skyrocketed from $3.98 in April after earnings guidance was upgraded to around $6.50 now, thanks to cost reductions and price increases.
Experts predict new requirements that mean designers and builders who work on hotel and aged care developments have to be registered will cause delays on developments in these areas and increase costs for builders. The amendments have been introduced to improve building standards and public confidence in the construction sector.
The Building Legislation Amendment (Building Classes) Regulation 2023 broadens the scope of the Design and Building Practitioners Act (DBP Act) to encompass class 3 and 9c buildings. At the moment, the act applies to class 2 buildings, which are essentially apartments.
The amendment relates to the construction of new buildings from 3 July 2023. The requirement doesn’t apply to alterations and renovations of existing class 3 or class 9c buildings until 1 July 2024.
The extension of the DBP Act means all design and building practitioners who work on hotels and aged care facilities in NSW will need to be registered.
“The expansion into additional classes is a continuation of the NSW government’s commitment to restore public confidence in the building and construction industry. These changes are designed to ensure buildings are safe and secure, the industry is more customer-focused and better data is captured throughout the building life cycle,” says NSW building commissioner David Chandler.
“Lifting residential apartment completions close to 30,000 starts a year is important in helping to meet the housing needs of NSW households. But we must never sacrifice quality,” he adds.
It is likely the extension of the DBP Act will lead to delays in the construction of some commercial aged care facilities and hotels in NSW. This is because businesses will need to factor into project budgets the time and cost of registering design and building practitioners, as well as the time and cost of complying with the new regulations.
Jimmy Tat, a director with commercial real estate business CBRE’s Australian healthcare and social infrastructure division, says amendments to the DBP Act will put pressure on projects in the planning phase to get started before the rules kick in on 3 July this year.
“Builders and consultants will be trying to get projects into councils before this cut off. But it is positive, because it means better quality buildings will be built.”
Tat says builders will have to work out how to pass on increased costs associated with complying with the amended act to property buyers.
“There is going to be a trickledown effect, which is what happened when the better design guidelines came out for apartments. That promoted developers to really work with architects and consultants to deliver these projects.”
The extension of the DBP Act is likely to have a mixed impact on the timing of the construction of commercial buildings in NSW.
“There will be some delays as businesses comply with the new requirements. But there could also be higher demand for commercial buildings as a result of the improved quality of buildings and safety standards,” says PRD Real Estate chief economist Diaswati Mardiasmo.
“There are long-term benefits in terms of quality of buildings and safety, and this is needed, especially for aged care and our responsibility to provide the best buildings for our older generation. But this is another item that needs to be considered and absorbed by the building industry, on top of all the current challenges,” she says.
The DBP Act and regulations are part of the NSW government’s moves to respond to recommendations of the 2018 report into improving compliance and enforcement systems in Australian building and construction industry, known as the Shergold Weir report. The recommendations are aimed at overhauling the building and construction industry to restore public confidence in the sector, which failed after a series of shoddy construction projects came to light.
Over the longer-term, the intention is to expand the scope of the legislative framework to include other building typologies. But Mardiasmo is cautious about whether the act should be further extended to other subsectors within commercial property.
“There is potentially a need for the DBP Act to be amended to cover other commercial buildings, but the timing is not ideal. Already, many builders and development companies are facing significant challenges, including higher construction costs and material and labour shortages. Administrative delays and higher costs from dealing with red tape and regulations at a local council level are additional burdens on the sector,” says Mardiasmo.
As for amendments to this legislation in the future, Tat says there’s potential for the rules to be applied to other health sub sectors, such as rehabilitation centres. “There is already strict governance around rehab facilities. So, this would only mean even tougher rules for a sector that is already highly regulated.”
Ultimately, there are both pros and cons associated with the upcoming changes to the DBP Act. The construction sector and its customers will have to wait and see what the real effects will be over time.
COVID prompted a huge rise in the number of businesses whose staff fly privately, a trend that shows no sign of slowing post the pandemic. When flying privately, business people increasingly value the ability to walk onto the plane and leave immediately and fly home to be with their family in the evening.
According to the Bureau of Infrastructure and Transport Research Economics’ report Australian Aircraft Activity 2021, there was a 16.3 per cent rise in non-scheduled flights in 2021 with 409,000 hours flown. This compares to the 351,800 hours of non-scheduled flights in 2020.
David Mackey, chief flight manager and CEO of private flight business FlightCharter.com.au says convenience is one of the main reasons people choose to fly privately.
Many New Zealand and Australian investor relations professionals are in the midst of embedding ESG data collection and reporting into their work. They are also still exploring how the global, post-COVID re-opening of international commerce will change how they update the market and travel to see investors.
At the moment, Australasian IR teams are placing emphasis on understanding how the IFRS Foundation’s work, under the International Sustainability Standards Board’s (ISSB) auspices, to develop a global framework for reporting ESG information, will affect their work.
“It’s going to be a huge global issue for all IR associations and companies. It will materially change how companies report to the market,” says Ian Matheson, CEO of the Australasian Investor Relations Association (AIRA).
Matheson and AIRA’s members expect the adoption of global ESG reporting standard will have a profound influence on the future nature of the IR role. So much so, the association has changed its vision statement to reflect the growing importance of sustainability in corporate and investor community communication and engagement. The new vision statement recognises the role investor relations plays in creating sustainable value for all capital market stakeholders.
AIRA has also established a new corporate ESG chapter, to formally bring members of the IR team whose work involves sustainability into the AIRA fold.
“AIRA has also established a new ESG chapter, to formally bring individuals in ESG or sustainability roles within listed entities into the AIRA fold. Many of these people already work closely with the IR team and are often responsible for ESG reporting and data collection as well as engagement with the investment community,” Matheson says.
<subhead> Many competing priorities
Fran van Reyk, Ampol’s head of IR, says the business is currently working through new ESG reporting requirements. This work has a trans-Tasman focus, given Ampol’s acquisition of New Zealand fuel distribution and service station network Z Energy. New Zealand is presently introducing compulsory climate change reporting against the requirements of the Taskforce on Climate-related Financial Disclosures (TCFD) for listed businesses of a certain size.
Ampol’s Australian business is also working through these requirements. The ASX 100company has more than 1,800 service stations around the country. It is one of the most influential market players as electric vehicles become more popular and charging stations for them need to be installed across Australasia. Its IR team’s program of work reflects this focus.
“This year we’re looking to issue our first climate report as part of the energy transition process. We’re also looking at how we might be able to provide charging solutions for the first phase of on the go charging and the role alternative fuels like renewable fuels or hydrogen may play in our business’s future,” says van Reyk.
Presently, Ampol is exploring how different energy scenarios may unfold in the future and identifying data sources required to model future demand for new energy sources. van Reyk says given the Intergovernmental Panel on Climate Change has set out 99 potential scenarios that could play out, while The International Energy Agency only has four, the market wants confidence fossil fuel businesses are making rational assumptions about their futures.
From an IR perspective van Reyk says investors want to understand the risks to and opportunities for the assets they own, as a result of the growing emphasis on ESG reporting and performance. Investors have varying views on the pace of the energy transition. They want to know we have got the balance right in terms of the pace and the amount of investment.
At the moment, Ampol is working hard to better educate the market about the extent to which fossil fuel revenue sources may be replaced by income from new products such as EV charging. But it is challenging for investors to make meaningful assumptions around this given the early stages of the evolution of this profit stream.
A key variable here is government policies including subsidies for EV purchases to accelerate the transition to clean energy sources such as electricity. Ongoing global supply chain entropy that is slowing EV imports is also a material risk.
On the flipside, at a more macro level, some global investors may screen out businesses from their universe of potential investible assets if a company does not have a mature approach to ESG reporting, up to and including a scope three target. There are three scopes under the global reporting GHG Protocol Corporate Standard and scope three involves companies reporting to the market about the greenhouse gases emitted by the businesses to which they are connected in their supply chain. It’s a highly intricate and difficult process.
At the same time, investors are also interested in understanding more about energy security and an orderly transition from fossil fuel to clean energy sources. These are just some of the issues with which the Ampol IR team is grappling presently.
<subhead> Building ESG capabilities
After issuing its second sustainability report last year, WiseTech Global is one Australian business that is bumping up its sustainability acumen in its IR and broader executive function. WiseTech is a leading developer and provider of software solutions for the world’s supply chains.
The business has recently appointed a new head of ESG, Alicia Burgmann, who was formerly Sydney Airport’s head of sustainability and who reports to WiseTech’s CFO, Andrew Cartledge. Charlotte West, whose extensive experience was largely earned in the UK, has been appointed as WiseTech’s new sustainability specialist.
Head of investor relations Ross Moffat says WiseTech is currently working on internal ESG strategic frameworks to integrate sustainability across its business and data collection methodologies with an eye to emerging sustainability reporting requirements.
<subhead> Skills beyond climate change
Of course, climate change is just one aspect of ESG. Australasian businesses are also building their capabilities around their social and governance responsibilities.
Fisher & Paykel Healthcare’s investor relations manager Hayden Brown says modern slavery reporting as an aspect of ESG is an area of focus for Kiwi IROs right now. The business is a leading designer, manufacturer and marketer of medical devices and technologies.
“Modern slavery in the supply chain is something we’re working on and we’re putting a lot of effort into increasing our disclosure in this area, especially in our annual report,” says Brown.
This takes mammoth effort given the business has more than 2000 suppliers, each of which is being reviewed. “The thing about modern slavery is, if you haven’t found it, you’re not looking hard enough. It’s onerous to pull that all together and the work we put into this is just going to continue to grow,” he adds.
The Fisher & Paykel Healthcare IR team is also working through the Taskforce on Nature-related Financial Disclosure’s (TNFD) requirements. In the same vein as the TCFD, the TNFD is a framework against which companies report nature-related risks such as the potential for threats to global biodiversity.
“We’re also looking at setting more net zero targets. We already have science-based targets to reduce our carbon emissions so we’re exploring additional disclosures in this area,” says Brown.
Managing growing reporting requirements for ESG investor surveys and indices is a perennial challenge for IRs in Australasia. While these demands were traditionally associated with global operators, local stakeholders are also now increasingly asking companies such as Fisher & Paykel Healthcare for information about their sustainability performance. A recent survey sent to Fisher & Paykel Healthcare from local Kiwi share broking firm Forsyth Barr is an example.
“We look to complete as many of these surveys as we can. But they require considerable work and resources,” Brown adds, noting the risk of not engaging with the market on these surveys is loss of potential investment capital.
<subhead> Back to the day-to-day
Building relationships with non-traditional shareholders is also a priority for many southern hemisphere IROs.
Jill Campbell, group general manager investor relations for ANZ, one of Australia’s big four banks, is building relationships with investors for which direct contact in the traditional sense, for example one on one investor meetings, isn’t their model. This group include the growing cohort of very large, often passive, funds like Blackrock, State Street, Vanguard, as well as a multitude of specialist funds. “Really getting to know those groups can be more challenging,” she says.
Campbell explains at ANZ, engagement with those funds is more often than not the province of its stewardship team and the content of these meetings centres on ESG-related topics. “This focus is understandable given any company’s ESG bona fides speak directly to its view on risk management. But other topics up for discussion varies from fund to fund and getting to grips with that is a growing challenge.”
Long-term trends aside, Australasian IRs are back on planes, travelling to see shareholders in global markets. They are also looking forward to welcoming more international investors down under as travel normalises post-COVID.
“We’ve been COVID constrained in terms of travel. But now, we want to go back to visiting international investors in person. That has the potential to change the share register, which became very domestic-heavy over the past few years. It’s very hard to attract new investors when they can’t get down here,” says van Reyk.
Travel aside, many Aussie and Kiwi IRO are exploring how new digital tools can automate their processes and elevate them from procedural repetitive tasks. WiseTech is an example.
The business has recently rolled out a new online knowledge hub for investors. This portal centralises information such as profiles of the senior management team and other corporate and product information..
“We’re learning and taking small steps to leverage a digital approach to communication. This reduces the time the executive needs to spend educating investors about the basics, which allows us to be more efficient,” says Moffat.
His team is currently working through how it can further scale and replicate its existing content, extending a similar project that has been rolled out across other parts of the business.
The launch of WiseTech’s knowledge hub coincided with the re-emergence of global investors in the Australasian market, which has freed up Moffat and his team to spend more time with them. The business expects to use mainly virtual meetings to communicate routine markets announcements such as results presentations and also for broker-sponsored investor meetings.
“That’s still a work-in-progress. But analysts and fund managers are short of time. So it makes sense to still use an online model for these meetings,” says Moffat. WiseTech has yet to decide whether to take part in broker conferences in person or virtually. “I expect we’ll do a combination of both,” he adds.
Moffat says if a commitment is made to take executives on an overseas roadshow, he has to be sure a sufficient number of investors will want to meet with his team and the C-suite face-to-face, or there’s little point to getting on a plane. This has been a challenge through the tail end of COVID as investors have balked at coming back into the office for face-to-face meetings even when executive and IR teams from companies based in different jurisdictions are in town.
The IR talent pipeline is also a focus for WiseTech, with a recent initiative to rotate members of the finance team through the IR function.
Overall, Aussie and Kiwi IROs are working through many of the same issues their colleagues in other markets are facing, just from a distance. It gives them a unique perspective they are apply to apply to their work, for the benefit of their businesses.
In a tough year for many listed businesses, Incitec Pivot bucked the trend and delivered a stellar performance on all fronts. The leading technology supplier to the resources and agricultural sectors is well known for its global fertiliser and Dyno Nobel explosives businesses.
At its most recent full year, the ASX 200 company announced a 99 per cent rise in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.85 billion and $1.02 billion in net profit after tax, a rise of 186 per cent on the previous year.
At the moment, Incitec Pivot is bedding down a number of acquisitions and planning for another stellar year.
CEO and managing director Jeanne Johns, notes in the last 18 months, Incitec Pivot has enjoyed record profits from its two category-leading divisions: its fertiliser and plant nutrition business, as well as the explosives business. She says the forces that have driven its recent results are continuing to underscore the company’s success.
“The importance of food security and mining extraction is continuing to increase and the longer-term environment is constructive. Populations are growing and become wealthier. Demand for minerals is also rising as we rapidly accelerate towards decarbonisation and electrification of our energy systems.
“So our business model positions the company to continue to capitalise on these trends and to accelerate the development of our technology and customer solutions. So we’re looking to capture the significant potential in both the resources and the agricultural sectors.”
<subhead> Structured for success
With operations right around the world, Johns explains Incitec Pivot’s business unit structure allows for really a strong delivery of its services, in tandem with a local focus in supporting its customers. “We pay attention to the controllable parts of our business, which is our underlying performance. We emphasise recurring earnings, which is about growing our premium technology solutions.”
Its numbers back this up. Over the last five years, it has had 19 per cent revenue growth in its in our explosives business and a 17 per cent growth rate for its both its electronic detonator and fertiliser outfits. The premium liquid fertiliser side of the company has delivered a 33 per cent revenue rise over the same period.
“This is what we’re concentrating on in the company because these businesses provide more stable earnings. This is alongside rising commodity prices in the 2022 financial year that provided some upswing in our performance,” she explains.
<subhead> Strategy in action
Aside from driving underlying recurring earnings, acquisitions have also been occupying the minds of Johns and her executive team. This includes Titanobel in France, a leading
French industrial explosives manufacturer and drilling, blasting and technical services provider.
It also bought a business called Easy Liquids, formerly known as Yara Nipro, to give farmers on the east coast of Australia more liquid fertiliser options and security over supply of this product.
“Buying these businesses is about giving our end customers better technology solutions. Titanobel gives us a really strong home market in France and a great opportunity to access the European and African markets, especially for electronic detonators. It also gives us access to the EMEA market, which we estimate uses 60 million detonators a year. It’s also a market that’s under penetrated by these electronics.
“So we think we have a great opportunity to add value to our customers who, by upgrading to our superior technologies, will be able to improve their performance.”
She says Easy Liquids’ liquid fertiliser products complement Incitec Pivot’s broader fertiliser offering. “The nice thing is farmers can store them on their property without the risk of a deterioration of the effectiveness of the fertiliser. They also reduce manual handling. But what I find really exciting about the liquid fertiliser products is they allow for custom and precision application. That makes it much more cost effective for the farmer and also a more sustainable plant and nutrition solution.”
The business announced a reordering of its strategic priorities at its full year in November 2022. Johns explains this included a strategic review of its Waggaman plant. This has impacted the timing of any potential demerger of its Incitec Pivot and Dyno Nobel businesses, which had previously been announced.
“There’s a number of reasons we did the Waggaman review. We want to focus on recurring earnings by leveraging our technology and reducing the volatility of the business’s exposure to commodities. As an ammonia facility, Waggaman is a commodity play. But, importantly, 70 per cent of its production is sold to third parties. There’s a strong pricing outlook for ammonia right now, but we’ve also improved the reliability of the Waggaman plant through our manufacturing excellence strategy.
“So we think this is a great time to look at monetising this excess commodity exposure and unlocking value from it. We’ll preserve the security of supply we need for our customers and the integrated margin that our shareholders value. But we are excited about the possibility of looking at realising that value before looking at any separation process for our broader business. But we do think that’s another super opportunity to deliver value for shareholders. Demerging the two companies, which are quite different, allows for both businesses to focus and adapt their capital structures, processes and cultures to their end markets. The resource industry in which Dyno Nobel operates is very different to the ag industry in which Incitec Pivot operates. We think they will both perform better as standalone companies.”
<subhead> Future opportunities
Incitec Pivot’s exemplary performance over the last 18 months, which underpins a great balance sheet, alongside its strategic review of Waggaman, sets the business up for a wide range of growth options. Other M&A opportunities may be in its future, but Johns says the intention is to be very disciplined about acquisitions, which must be driven by the potential to generate shareholder returns.
“Therefore any future deals would clearly need to be accretive and weighed up against our other options, including returning value to our shareholders. But we did have good success with those two smaller acquisitions we completed last year. They were very consistent with our strategy, accretive and affordable. So we do see M&A can be quite an effective way of accelerating the execution of our strategy.”
Deals aside, research and development is always front and centre across Incitec Pivot to support its ongoing strategy, especially in relation to developing premium technology solutions for its customers. In its Dyno Nobel business, substantial work is taking place to make it easier for mining businesses to extract resources.
“We pride ourselves on practical applications. That’s important, because the easier we make it for our customers to take up these practices, the faster they happen. That’s been critical to the adoption of our electronic detonators, premium emulsions and our liquid fertilisers.
“We support resources businesses with a full technology suite and premium emulsions that customise blasting. We can change each blast hole in a blast pattern, and a blast pattern can be anywhere from 200 to 1000 holes.”
Dyno Nobel also produces ultra-precise and reliable electronic detonators, both wired and an increasingly important wireless version, one of only two known commercial wireless detonators in the world. Safety and sustainability is top of mind for this sector, and so the business has an automation program that cuts out explosives handling and loading, which allows customers and staff to be situated away from the mining site and out of harm’s way.
Additionally, it has developed a fleet of premium emulsion products called Delta E, which provide customised, more sustainable blasts. “It’s a much more efficient blast and requires less use of product,” Johns explains.
<subhead> Embedding relationships
As a business with a global footprint, regional and vertical relationships are paramount to Incitec Pivot’s success.
Says Johns: “We really value all our relationships across both our businesses and we have marked two milestones with our partners in the last year. The first is at our Moranbah, Queensland site. Last July, we celebrated 10 years being part of that local community. Our plant managers there have always made sure we are embedded in that community. For instance, we house a number of employees in the community and encourage all staff to be locally based.”
The plant was built in July 2012 to better service customers in Bowen Basin. As part of Incitec Pivot’s celebration of its 10 years in this ,community last year it embarked on initiatives such as visiting local schools and supporting the local indigenous community.
Sustainability partnerships are also a priority. Johns explains Incitec Pivot has a substantial program to reduce its greenhouse gas emissions and provide a pathway to net zero. It has four projects in place to reduce its portfolio’s direct emissions by 42 per cent by 2030.
“But I think our relationship with Fortescue Future Industries is particularly interesting, because it’s about converting our Gibson Island facility to an industrial scale green ammonia facility.
“The project aims to demonstrate you can retrofit an existing site, which has never been done. It will provide about 70,000 tonnes of renewable hydrogen per year for the Australian or export markets. At the moment we’re working on the design, commercial agreements, permits and approvals to be in a position to make a final investment decision later this year.”
<subhead> Engaging with shareholders
Turning to its investor relations program, Incitec Pivot has a very diverse investor base, largely comprising institutional investors, many of which are Australian.
“We’re a proudly Australian company. We’ve been in the ASX 100 for a number of years and since we’ve come out of COVID, it’s been great to finally get back to face-to-face meetings with investors. We were doing a lot of these virtually, as everybody was. At the beginning they were very convenient, but over time we have recognised their limitations.”
The company held a very successful investor day in Sydney in September, which is the first time the management team has held face-to-face meetings with shareholders since COVID. This allowed investors to meet with the entire executive team and learn more about the strong underpinnings of the business as well as the compelling case for the separation of its two different divisions.
The executive team also took part in three capital markets conferences last year and Johns says the team will continue to look for opportunities like these to connect with investors, especially those based overseas, to diversify its investor base.
“We were really pleased last year we were able to pay out a record dividend of more than half a billion dollars at 27 cents per share fully franked. So that’s particularly valuable for our Australian investors. I think our investors really appreciated the fact we were able to reward them for their investment in our company,” Johns says.
Against such a strong backdrop, it will be exciting to see how the future unfolds for Incitec Pivot, and no doubt shareholders are very keen to be a part of this.
There’s a lot more to accounting than numbers. Good storytelling is vitally important and a highly-prized skill in a field where making the connection between numbers and language is a true art.
What’s key is to make people care about your writing. While this may sound tricky in a world that appears to be more about spreadsheets than semi-colons, money is a deeply personal topic. Which means there are many ways to engage the audience.
“Accountants need emotional intelligence and empathetic reasoning to connect to others,” says Monash professor of accounting Nick McGuigan.
“But we use a language that is technically demanding and numbers that are not comfortable for everyone. This requires translation,” McGuigan explains. This means being able to explain the numbers’ context and being able to convey a situation’s emotional and human elements.
“We need to be able to process complexity and technical jargon that explains what we mean in everyday language,” he adds.
A great example is TJ Accountants’ web site. Its excellent use of language clearly explains what the business does:
We love all our clients, but we have a special place in our hearts for women in business and growing small to medium enterprises (SMEs). We’ve been there, and we’re impassioned to help other women succeed. If you’re a woman in business and you want to grow your business to the next level, get in touch. We can add value and insight into your financial circumstances and help you craft your financial goals for the future.
The power of T J Accountants’ copy is its ability to tell a story. “Stories persuade a client to do something because they don’t trigger resistance. We relax and open our minds when we hear stories. A storyteller isn’t challenging our opinion; they’re simply relaying what happened to someone else,” explains Steven Lewis, director of copywritingagency Taleist.
<subhead> Seeing the world through numbers
Stories are just one tool in an accountant’s writing arsenal. Being able to use graphs and diagrams to represent complex ideas is equally important. This is an area known as data and information visualisation. As the name suggests, data and information visualisation is an interdisciplinary area that concerns the way data and information is represented graphically. It requires accountants to see the bigger picture, McGuigan explains.
“It allows us to see a problem or the world through multiple perspectives. We can learn the technicalities of data and information visualisation through software applications and upskilling programs.”
He says what’s critical is to emphasise thought processes. “Integrated ways of thinking open narrow viewpoints and enable us to see the bigger picture. We learn to value critical approaches, integrate the different components of a problem and appreciate the holistic nature of business decision-making.”
This involves three components:
Complexity: seeing the complex nature of problems and practice viewing this from multiple perspectives.
This means we are able to recognise complex relationships, visualise them and appreciate ambiguous, contradictory and incomplete information. To achieve this, diversify work teams and encourage debate, discussion and multiple views of data to inform problem solving.
Adaptability: learning to become comfortable with the uncomfortable.
This involves looking at problems in new ways and recognising different approaches are required.
Open mindedness: this involves a willingness to see another viewpoint, showing openness to different interpretations.
<subhead> Back to basics
Diagrams and number representation must also go alongside great use of English to properly grab your audience’s attention.
While many people learnt writing rules at school, the good news is there’s lots of ways to break them to make your words meaningful. Use of conjunctions is one.
“Starting a sentence with ‘and’ or ‘but’ is completely acceptable these days, when used in moderation, and will allow you to create shorter, snappier sentences,” recommends branding strategist Kat Elizabeth.
In fact, Elizabeth says shorter sentences can be really short, even one word. Really.
“Paragraphs can and should, in the case of emails and social media, also be short. Bullet points can be incorporated to help with this, too. Varying the length of your sentences breaks up the monotony of long-form content and creates a rhythm that’s pleasant to read and fun to write.”
She says if you come up against writer’s block, try using voice notes and record yourself saying what you want to get across. Then, listen back and transcribe your words.
“This is also helpful if you’re used to writing in a formal tone and you are trying to sound more conversational.”
Finally, before you start writing, create a brief for yourself that answers three questions: who is my reader, what do I want them to know and what do I want them to do?
Says Elizabeth: “This helps you get straight to the point. Once you’ve finished drafting, read your words back and see if anything has slipped in that doesn’t fit your brief, then cut it.”
As author George Orwell once said, above all, don’t use clichés, avoid using a long word where a short one will do, cut words where possible and break these rules rather than write anything that’s outrightly barbarous.
There’s a lot of buzz around emerging artificial intelligence tools such as ChatGPT and their ability to absorb vast banks of data and game investment markets. While the use of this technology will become eventually be ubiquitous, it still can’t predict winners and losers in markets or provide specific financial advice.
When ChatGPT is asked about its potential for retail investors, it tells you it’s useful for summarising company financial and identifying industry trends. It can also generate reports on portfolio holdings and provide rebalancing recommendations.
Robots can, and already do, provide simple investment advice. At the other end of the scale, high frequency traders already use sophisticated algorithms to buy and sell big share parcels based on short-term market movements, to get the best price for their trades. This is where the real magic happens; it’s not with ChatGPT. Yet.
COVID prompted a huge rise in the number of businesses whose staff fly privately, a trend that shows no sign of slowing post the pandemic. When flying privately, business people increasingly value the ability to walk onto the plane and leave immediately and fly home to be with their family in the evening.
According to the Bureau of Infrastructure and Transport Research Economics’ report Australian Aircraft Activity 2021, there was a 16.3 per cent rise in non-scheduled flights in 2021 with 409,000 hours flown. This compares to the 351,800 hours of non-scheduled flights in 2020.
David Mackey, chief flight manager and CEO of private flight business FlightCharter.com.au says convenience is one of the main reasons people choose to fly privately.
“If you’re chartering an aircraft, you determine the time your aircraft leaves or arrives. If you are flying on a commercial airline, you have to fit in with their schedule. Flying privately means you create your own schedule.”
A plethora of statistics demonstrate how far behind women are, on average, when it comes to building wealth. This is largely due to systemic factors such as time out of the paid workforce to undertake unpaid caring roles.
The impact of this is sobering. Research from the Australian Human Rights Commission shows half of all women aged between 45 to 59 have $8,000 or less in super. The figure for men is $31,000.
This is not cause to be defeatist when it comes to wealth creation. There are plenty of females who have built sizeable fortunes, despite facing very unfortunate circumstances.
Louise Bedford is one. Her wealth building journey started 20 years ago when she attended a seminar about the share market.
There are very few places for investors to hide in a market in which both property values and equity prices are volatile. The question, a perennial one, is which asset class has the potential to generate the greatest return while rising interest rates are still on central banks’ agendas.
Soaring interest rates are to asset prices what gravity is to the apple: they bring everything down, says Contrarian Group independent financial adviser Damian Liddell.
“It’s a pretty lousy time for investors, really. I’d be treading very carefully right now if I was looking to invest in either shares or property. Both are highly correlated to interest rates. I don’t think asset prices are going to go up any time soon. If anything, they are going down,” he says.
Food security appears to be the least of Australia’s problems, given we rank tenth in the world in terms of food availability, according to The Economist’s Global Food Security Index of 113 countries.
But it’s not outside the realm of possibility this could change rapidly, given the country’s propensity for floods and bushfires, which could easily ravage our crops and farmlands.
Sydney University agricultural robotics expert Salah Sukkarieh is one researcher working on supporting Australia’s and the world’s food security. He has developed a robot tractor called the Digital Farmhand that helps farmers improve crop yields by up to 77 per cent.
It’s able to tow seeders and weeders and machinery to prepare soil. It can also use digital technology to analyse crops, estimate yields and identify pests and diseases. The tractor runs on solar-powered batteries and is used for horticulture and speciality crops that are fundamental to food and nutrition security.
“The Digital Farmhand will support small-holder farmers with a tool that de-risks production and increases incomes through productivity gains,” Sukkarieh explains.
“Small, on-farm robotic platforms can deliver continuous, precision agriculture practices, at a reduced environmental footprint, and provide timely information about the state of crops. This supports sustainable agriculture practices and food security goals,” he adds.
Food technology plays an important role alongside new machinery in securing Australia’s future food supply. “We must embrace technological solutions to redress our vulnerability across the entire value chain from paddock to gut. Plant-based foods are a large part of this. It’s vital we do all we can to improve their productivity,” says La Trobe professor of plant biology Tony Bacic.
This process starts with mapping food plant genomes like the new ‘oat transcriptome’ La Trobe researchers Mat Lewsey and Monika Doblin have made available to oat breeders and biotechnologists around the world.
“Australia’s oat industry is worth $400 million a year and feeds thousands of people here and overseas every day. The more knowledge breeders have of the genetic make-up of the oat plant, the easier it is for them to create a higher-yielding, more reliable crop that is resilient and nutrient and fibre-rich,” says Bacic.
It wasn’t long ago food security was not even on Australia’s radar. Natural disasters of recent years and COVID supply chain disruptions changed all that. Few would have ever imagined supermarket shelves would be empty of bare necessities or a simple iceberg lettuce could cost up to $10.
Catherine Velisha is the director of Velisha Farms and VEG Education. She says attitudes towards fresh produce and taking abundance for granted is the biggest risk to Australia’s food security.
“This is reflected in our excessive food waste. Most Australians have never experienced severe food shortages or depressions to prompt them to be more conscious of food waste. If we can educate and change superficial views on food and how it impacts affordability, sustainability and food security, it will make a huge difference,” she adds.
ABARE statistics show we export more than 70 per cent of the food we produce. Velisha puts this down to lack of demand, given only one in seven Australians consume enough fruit and vegetables.
“Lack of local demand forces growers to export the majority of our production overseas. If demand was there, producers could secure better production plans and food security strategies and be less reliant on international consumers.
“Australians juggle cost, shelf life, appearance and sustainable packaging when we choose our food. But we can’t have it all. We have to understand the real cost of our food to help improve food security.”
Labour shortages also threaten food security, and not just when it comes to harvesting. “Lack of workers in food production is a big risk. Horticulture in particular has a very weak funnel of talent and interest coming into its workforce. We need to educate local talent around working in the food production space and how they fit within it,” Velisha says.
She believes better education about food production is needed to address these shortfalls. “Australians need to be more interested in fresh produce. Even the smallest improvement could sure up stronger food production systems, which locks in food security. It also benefits our health.”
Velisha says food producers also have a role to play. “The people in primary production need to lead this conversation. It’s time to be transparent and honest about the implications different decisions have on growers’ ability to produce fresh produce.”
Our – or at least the supermarkets’– obsession with perfect produce is another threat to food supply.
“So many fresh vegetables don’t get the chance to be sold, based on purely superficial reasons. A cauliflower with a yellow curd won’t make the shelf because we don’t want to buy it. But all the yellow means is the cauli has been in the sun. Our role is to tell these stories and explain the real costs of the current system and arm customers with the power to make better decisions. The supply chain is impacted every time something doesn’t hit a shelf or is sold cheaper because of a physical blemish.”
University of New England senior lecturer in law Siva Barathi Marimuthu notes the idea of a sustainable and secured food system is founded on a national food plan developed by the federal government some time ago that includes strategies that attempt to manage critical food security concerns.
“Unfortunately, the food plan prioritised economic growth ahead of consumer health, environmental conservation and social justice. Despite the fact the food system is related to almost every UN Sustainable Development Goal, food insecurity issues have been largely ignored.”
Food insecurity is when people don’t have access to a reliable supply of food. It involves poverty, fluctuating food prices, food scarcity, inaccessible public transportation, social isolation, environmental degradation and climate change. These factors contribute to food insecurity in varying degrees depending on where people live and the type of community the are a part of, such as urban, rural or remote.
Marimuthu says the risk of food insecurity is rising because there is no cohesive federal policy platform underpinning the goal of food security in Australia and most food security planning exercises are fragmented and either local or state-based.
“Multiple policies exist to try to solve difficulties in the food system, but they do so in very broad and general terms and, in some instance, add extra complexity to the situation. Policies in areas like food safety, nutrition in education, dietary requirements, farming practices, biosecurity, animal welfare, marine life, fisheries, water management, waste disposal and transportation are important. But, they are not sufficient to address current and future food systems.
“Priority needs to be given to food security because our lives depend on it. It must be rigorously regulated and a centralised government agency could help deliver this through a specific policy agenda. Failing this, the many gaps currently existing will continue to hinder efforts to establish a secure food system that delivers social, environmental, and economic viability.”
Kiwi-based Cogo was the first business in the world to develop an open-banking-based API that draws on bank customers’ spending data to ascertain their carbon footprint. It also allows them to buy carbon credits to offset it.
Cogo launched rthe technology in the UK in 2018 through Natwest. CBA also has a relationship with the burgeoning fintech and last month launched the Cogo app to its customer base. So far, the bank says more than 300,000 people have used the feature.
Cogo started life as a charity called Conscious Consumer in 2010 with an app that helped people to find sustainable cafés and restaurants.
“We knew people wanted to spend more in a more socially-responsible way, but it’s often hard to know which places to buy from or what product to buy. We incorporated In 2016,” explains CEO and founder Ben Gleisman.
“We help people measure and reduce their carbon footprint. For instance, we can let people know how much they can save on their energy bills if they put solar panels on their house. Then we support customers to offset their footprint by buying carbon credits,” he adds.
<subhead> Tech background
Open banking powered the underlying technology originally, Gleisman explains.
“You downloaded the app and it would integrate with 42 different banks. It was an opportunity for us to validate the idea people want to see their carbon footprint and we were able to calculate it pretty accurately based on data from bank transactions.”
The feedback from banks was rather than promoting a separate app for its customers to use to calculate their carbon footprint, banks wanted the tech built into their own systems.
“Now, we have an API through which banks send us merchant category codes that we use that maps the way the bank categorises each transaction. It maps that data to emission factors, so we can work out for every dollar spent in a certain category, how much carbon is generated,” says Gleisman.
“Many banks are making commitments to green lending and finance; helping homes buy batteries or electric vehicles. Our product helps banks and customers identify significant carbon footprints that could be reduced through making behavioural changes or buying different energy.
Banks are interested in our database of low carbon suppliers they can recommend to their customers,” he says.
<subhead> What about the credits?
In Australia, Cogo works with a partner called Green Collar, which generates carbon credits through land management practices such as reforestation and preserving existing forested areas. It effectively creates sinks that help absorb carbon dioxide. CBA’s cutomers can buy its carbon credits.
As for the future, by the end of next year, Gleisman wants a quarter of a billion people to be able to track their carbon footprint through Cogo technology.
“We’re also launching a product for small businesses to measure and reduce their carbon. So the medium-term vision is to go from just retail banking to business banking.”
It’s also in the process of raising US$30 million in a Series A round.
Comenting on the bank’s relationship with Cogo, Ben Morgan, CBA’s general manager strategy investments and transformation said, “by combining our rich customer data and Cogo’s industry-leading capability in measuring carbon outputs, we will be able to provide greater transparency for customers so they can reduce their environmental footprint.
“In addition to our partnership with CoGo, we’ve also partnered with Amber – a new type of energy retailer giving customers direct access to the real-time wholesale energy price. Earlier this year we also launched the Green Home Offer, providing eligible home loan customers with access to a low standard variable rate if their home meets certain sustainability and energy efficient criteria.”
It’s expected most other banks in the market will follow CBA’s suite and start to help customers measure and reduce their carbon credits.
Australians have become re-acquainted with an old favourite, the Ampol brand, since it was relaunched in 2020. The transport fuel and convenience retailer, which until 2020 was known as Caltex following a merger 25 years ago, is listed on the Australian Securities Exchange. So, many of us own a portion of it, often through our super fund.
Ampol is presently refreshing its sustainability strategy as part of its brand update. Many ASX-listed businesses are also prioritising their approach to environmental, social and governance or ESG elements and publishing more information about these aspects of their enterprises. It can, however, be hard for retail shareholders to make sense of this information and work out what’s material to the business when making investment decisions.
First, some definitions. Sustainability is a broad term, but the United Nations defines it as, “meeting the needs of the present without compromising the ability of future generations to meet their own needs.” In practice, it’s an expectation the organisations that operate in society will minimise their harmful impacts on the environment and make positive contributions to the communities and groups they touch, including their staff.
ESG is more specifically a concept in investing. The global investment research house MSCI defines ESG investing as considering environmental, social and governance factors, together with financial factors, when making investment decisions.
The notions of sustainability and ESG have gained prominence over the last two decades as organisations have come to understand the pursuit of short-term profits without looking at the bigger picture could ultimately destroy shareholder value.
Ampol’s approach to ESG is illuminating for retail investors. CEO and managing director Matt Halliday explains the business is evolving its approach to sustainability.
“We need to reflect how our stakeholders’ expectations are shifting, including our employees, customers, community and shareholders. We must operate in a way that meets their expectations. We are also working on climate disclosures to demonstrate the progress we have made with our future energy and decarbonisation strategy, including how we embed climate considerations into our strategic and business planning.”
Halliday says shareholders want to know the business has a plan in place to manage its environmental, social and governance risks. “Part of this is establishing targets and publishing high-quality information on our performance against them. Given the nature of our business, the main areas of interest are our climate-related risks and opportunities. Shareholders want to know how we consider this in our strategic and business planning and capital allocation.”
He says emphasis is on the transition to renewable energy sources. “This includes threats to the liquid fuels business, but also the opportunities that will arise for Ampol to assist decarbonisation of the transport sector. There is a lot of uncertainty about how this will play out, including how fast it will occur and alternatives to liquid fuels.”
Investors are also keen to understand opportunities to repurpose Ampol’s existing infrastructure assets to enable the transition to renewable energy sources, and how it can leverage the business’s capabilities to deliver new energy solutions.
“All of this leads to the disciplined allocation of capital. We need to invest in the liquid fuels business to maintain safe and reliable operations and at the same time invest ahead of demand into the low carbon transport solutions like e-mobility. Returns will be lower for a few years until there is a higher penetration of electric vehicles. But we believe it is critical to build a network that gives customers confidence Ampol can power their journey as they transition their fleets.”
In terms of who looks after it in the business, Ampol has a sustainability team, which is responsible for understanding what’s happening in its external environments and stakeholders’ changing priorities. The team feeds this information into the broader company for planning and decision-making purposes.
“The sustainability team reports into the executive general manager for is responsible for international and new business, but sustainability is an enterprise-wide function. The head of sustainability and climate change works with the leadership team to set the sustainability strategy and annual action plans and is responsible for tracking progress against the commitments we have made. This is reported to the Ampol board’s safety and sustainability committee on a routine basis,” says Halliday.
“We also have a strategic risk committee comprising the Ampol leadership team that oversees several risks, including climate change. This climate change risk is ultimately owned by me as the CEO. The board also has approved a link between executive remuneration and progress towards our 2025 decarbonisation targets, with climate objectives comprising 10 per cent of the remuneration scorecard,” he adds.
Having concrete targets and accountability for sustainability across the business is important to address any perception Ampol is merely paying lip service to its ESG commitments, a practice known as greenwashing. This happens when companies publish amorphous statements about their commitment to the business’s impact on the environmental and society, without being able to measure or prove them.
ESG and corporate communication expert Amber Daines, co-founder of Grace & Grit Strategic Communications Advisory, explains greenwashing, or green sheen, is false or overstated claims to deceive stakeholders into believing a company’s products or services are environmentally safer or sustainable when they may not be.
“In the past decade, some of world’s biggest carbon emitters, such as old-school energy companies or coal mines, have attempted to rebrand themselves as environmentally-conscious. A common approach is to use schemes like carbon offset initiatives to present the business in a green way through community initiatives such as scholarships for Indigenous education. They are all very good ideas, of course. Yet, sometimes these businesses just re-package business-as-usual activities.”
It can be challenging for retail investors to understand what’s material when it comes to a company’s actions around its ESG commitments. Much of the information is highly technical, and companies can struggle to communicate what they are doing in plain English.
Paula Ferrao is an executive director of and company secretary for the funds management businesses Pengana Capital Group and Pengana International Equities. Pengana manages a number of investment funds that take ESG factors into consideration.
Ferrao believes a company’s ESG policy and sustainability report should be the main resources retail shareholders use to understand its strategy and performance. She says the ESG policy should describe how the company manages non-financial factors to deliver better outcomes for all stakeholders, while a comprehensive sustainability report will set, and report progress against, targets.
“But actions are what matters and investors should evaluate these policies in the context of the organisation’s behaviours. There are no shortcuts and investors need to check, not just accept, inforamtion. ESG claims should be subjected to the same level of due diligence and scrutiny as any other claims regarding company performance or investment management.”
One thing certain is the focus on ESG is escalating and companies need to continue to evolve their actions and disclosures around these issues to support the success of their business. Or the risk is they will disenfranchise retail shareholders, who will take their investment dollars and apply them to assets and management teams that can prove they are looking after the environment and the communities in which they operate.
Auckland Airport chief executive Carrie Hurihanganui is right at the start of an incredible journey. She’s just been appointed head of a very sexy infrastructure asset in investors’ eyes. Plus, post COVID’s border closures, her business is operating in a sector experiencing one of the greatest turnarounds in the history of commerce: travel and tourism. It’s a tantalising story she’s relishing telling. And boy, does she have the pedigree to tell it.
Hurihanganui, who stepped into her new role in February this year, has a competitive advantage in that she has worked across such a diversity of roles airside and landside within the airline and travel industry before stepping into her current role in 2021. This gives her more insights into the workings of an airport than most CEOs in similar roles.
Originally from the US, Hurihanganui initially went to New Zealand for a gap year of sorts, with no thought initially to make it her home. “I became friends with an exchange student from Rotorua in my last year of high school. We had a cunning plan that I would come for a six-week holiday and return home to the US for university. During those six weeks, I met a charming young Kiwi man and I have now lived in New Zealand for 33 years. Living in New Zealand has been a fantastic opportunity, even though I miss the family in the States.”
After falling in love with her now-husband and Aotearoa, Hurihanganui joined Air New Zealand in 1999 as international flight crew at first, as a means to an end, which was to fast track her university studies. It was the start of lengthy career with the airline and she only left the business this year to take up her role with Auckland Airport. She has a Bachelor of Business Studies from Massey University, and has also completed studies at Harvard.
<subhead> A very good place to start
Back at the start of Hurihanganui’s career, after a long-haul flight, she would have a couple of days’ layover and use the time to study and work on her assignments. “That helped me accelerate my goal of getting my degree. But once I had my son, I chose to finish flying and moved into ground-based roles. That allowed me to move through a number of different opportunities, everything from retrofitting flight seats onto aircraft to leading cabin crew in Auckland and London. I was involved in starting a Shanghai base for Air New Zealand. I’ve managed Auckland domestic airport and Air New Zealand’s three subsidiary airlines. I spearheaded a customer experience transformation, which gave me the chance to lead the executive team for ground operations. This led to my most recent role before my current role, Air New Zealand’s chief operating officer.” The job encompassed responsibility for pilots, cabin crew, airports, engineering and maintenance, properties and infrastructure, supply chain, resourcing and airline operations teams. Experience she is now able to lend to Auckland Airport.
Hurihanganui says she is fortunate her career has given her a tremendous opportunity to work across many different aspects of flying. But her current role is perhaps the most rewarding so far. “I have aviation in my bloodstream. I love the industry and the role it plays for New Zealand given tourism and trade is just so important for our economy. Auckland Airport is the strategic gateway to New Zealand, with 90 per cent of all travellers transiting through here. As we come out of COVID, Auckland will play a vital role in New Zealand’s recovery in the short term and support the ongoing growth of the economy. So I am lucky to be in a hugely appealing role and I am just delighted to join the team.”
She says having such deep exposure to the airline and travel sector has given her great insights into what’s important to customers and to airlines. She also has an intimate understanding of the challenges and opportunities they are facing.
“There’s an enormous amount of shared interest between airports and airlines, but they don’t always agree on everything. That’s the nature of business, but those common interests are a tremendous platform on which to build. COVID really brought that to the fore because everybody was facing the same challenges. Collective efforts, insights and discussion between the different parties has helped the industry to navigate the last two years.”
<subhead> Investor relations at the forefront
Just six weeks into her chief executive role when Listed@ASX spoke to Hurihanganui, she says a good chunk of that time so far has been spent talking to investors across Australasia. Some of the focus of that discussion has been Auckland Airport’s recent half year results. Investors are also always very interested in any insights she can give them about New Zealand’s roadmap out of COVID.
The business posted a net underlying loss after tax of $11.5 million for its February half year. Although its reported profit tax was up 274 per cent to $109 million, as a result of a $132 million non-cash investment property valuation uplift. Earnings per share were up 274 per cent to 7.39 cents. Auckland Airport has a market capitalisation of about $10 billion.
“I’m new to the organisation and new in the seat. So we’ve been investing a great amount of time connecting to our shareholders and understanding their thinking. The investor relations team already understands what’s on our investors’ mind. But I’d like to know that first hand. Establishing relationships has been my number one priority, particularly with border settings changing. There’s intense interest in what it means and what the future may look like.
“We’re working through the recovery of aviation and rising travel demand. Some of that is in our control. Some of it’s not. So we have been sharing our COVID strategy, which is: respond, recover, accelerate. We’re in the recover zone, pointed towards accelerate. We’ve been taking investors through that so they understand our thinking and priorities.”
Meeting and building relationships with Auckland Airport’s shareholders has been a priority for Hurihanganui since she started in the role. The company has a broad share registry, comprising institutional investors from around the globe as well as government and retail investors, many of whom have owned shares in the airport since it listed in 1998, only the fifth airport in the world to be publicly listed. The shareholder base has been relatively stable through COVID.
“We have some very longstanding relationships with shareholders and it’s vital to keep the different groups informed of what’s happening. We have a comprehensive investor relations program that includes roadshows at results time, as well as one-on-one and group meetings throughout the year. We’re actively involved in conferences and events, although less so over the past two years given COVID kept us grounded. These have tended to be virtual.
“Those events are part of a comprehensive communication program to ensure investors are fully informed, not only about what’s happening at the airport, but also about what’s happening in the industry. We have spent a lot of time updating our stakeholders on the government’s COVID settings over the last two years, which have constantly changed.”
With the world returning to some level of normalcy, Hurihanganui expects to soon be on the road meeting her overseas shareholders face-to-face for the first time.
“During COVID we spent an enormous amount of time virtually engaging with shareholders. But because I’m new in the role, making connections and forming relationships is really important to me; investor relations is much more than just an information exchange. So, when the timing is right, and as restrictions are lifted, we will shift to a new shareholder engagement program that will involve much more direct contact with investors.”
Hurihanganui says Auckland Airport’s investors are especially interested in talking about infrastructure themes. This is in light of New York-based Global Infrastructure Partners and IFM Investors’ $23.6 billion acquisition of Sydney Airport Corporation, which sees it exit ASX’s boards for the moment.
“Infrastructure has been a hot topic. The market is really interested in this space, especially as there are fewer opportunities to get exposure now, which means some will look to change some of their mix of assets. It’s still early days, but there’s certainly a tremendous amount of interest in infrastructure.”
<subhead> A natural advantage
Being located in the far south Pacific gives Kiwis a unique perspective on the world, something they can use to their advantage. Hurihanganui says the tyranny of distance has pros and cons.
“New Zealand is geographically isolated as an island nation. So international connectivity is critical to our country, economy and success. It’s also important to keep an open mind about the opportunities available to us as a nation.”
The travel sector has come a long way from the early months of the COVID pandemic. Visions of rows of mothballed aircraft were a sad sight. The few planes in the air were cargo and imports and exports increasingly went by sea. Those days are in the past.
Says Hurihanganui: “From a recovery perspective, it is a matter of when, not if. The International Air Transport Association says by 2024, air travel will be back to 2019. Other sources say it will be 2026. So there’s still quite a bit of variability in the forecast. The next six months is going to give us a clearer view of what the recovery will looks like.”
Against that backdrop, giving shareholders guidance about what the future looks like for Auckland Airport requires a balanced approach. “What we can do is provide certainty with regards to our approach, especially about the progress of the airport’s infrastructure program, which was paused with COVID. This includes the triggers required to recommence some of the program’s larger commitments. We’ve worked very hard to take some of the uncertainty out of the picture for investors. They are really clear we have a recovery and accelerate plan we will be following in line with aviation demand recovery.”
She says investors are comfortable with the airport’s story and future, given the executive team has always been open about COVID’s effects on the business. “At the start of the pandemic, Auckland Airport took decisive steps to resize the organisation, after experiencing a 95 per cent drop in international aeronautical activity. That was really tough because that impacted some very good people. We moved early on a NZ$1.2 billion capital raise that created additional liquidity and an extra funding line. That shored up the opportunity to navigate whatever the pandemic was going to create over the last couple of years. It produced a level of comfort and confidence among our investors because they knew we were well positioned.”
<subhead> Diversifying operations
Core to Auckland Airport’s future is the diversity of its operations, not just its airport. It also derives revenue from its hotels, commercial business parks and retail presence. In the future, this will include a new outlet shopping centre opening in 2024.
“We’re focused on maximising our core airport and aeronautical activity, as well making the most of an increasingly diversified portfolio if assets. It’s all about keeping all moving parts going in the right direction. Investors want to understand and see how these things connect,” says Hurihanganui.
Shareholders are an important group for the airport, but so are a range of other stakeholders. “We are the gateway to New Zealand and we’re also an important employer for Auckland. So our stakeholder groups include government agencies, airlines, the community and the mana whenua, which is the local iwi, or Maori stakeholders. We’re privileged to play a really important role in the economy and community. We recognise that importance and work very hard to engage and listen to the interests of all of our stakeholders as part of our decision making processes.”
Hurihanganui says it’s important for the airport to engage with mana whenua in terms of understanding the history of the area, what’s important to the people and which priorities are shared.
“We engage early about our thinking, especially when it comes to the development of the land, to ensure we are respecting important elements to our community. Continuing to invest in the South Auckland community through the Auckland Airport Community Trust, which is focused on education and growth, is a very important part of our sustainability strategy, as are the apprenticeships and job skills training we offer to many people in our community. We want to ensure we’re a good neighbour and do the right thing by everyone.”
The Australian equities market has exhibited substantial volatility through 2022 thanks to uncertainty about a range of micro- and macro-economic elements. Nonetheless, investor sentiment remains bullish. But they are keeping an eagle eye on a range of factors that have the potential to drive the performance of shares for the remainder of 2022.
<subhead> Three variables driving markets
As daily headlines across the business press indicate, inflation, interest rates and geopolitics are the three main economic drivers investors are watching.
BlackRock managing director Charles Lanchester says the team is monitoring inflation across the economy. “It’s not as rampant here in Australia as it is in other parts of the world, particularly the US. But it is still early days, so it will be interesting to see just how persistent and endemic it becomes in the next six months.”
Consensus indicates local headline inflation will reach six per cent in 2022 against underlying inflation of around 4.75 per cent, before easing to around three per cent by mid 2024.
CEO of Redpoint Investment Management Max Cappetta agrees inflation will be the critical factor for markets over the next six months.
“Higher and less transitory inflation will require already-lagging central banks to tighten monetary conditions with the real risk of tipping the global economy into recession in 2023. If inflation has already peaked, there is a chance a recession could be avoided. In this event, interest rates and monetary stimuli will be normalised back to pre-COVID levels, while a loosening of current supply chain issues will support ongoing growth with modest inflation.”
Lanchester says the determining element when it comes to interest rates’ impact on markets will be how fast they rise here and across the world. “The bond market has already priced in a reasonably aggressive step-up in rates. What’s key is the effect on consumer behaviour. The transmission effect of rising rates is much more immediate in this country, because many people have variable rate mortgages. So, their cash flows will change almost immediately as rates go up. We shall see what effect that has on the underlying economy.”
There are various views about the direction of the cash rate. CBA expects the cash rate to be at 1.35 per cent by year’s end, peaking in February 2023 at 1.60 per cent and then on hold over 2023. In contrast, NAB says the cash rate will reach 0.75 per cent by the end of 2022 and reach 1.25 per cent by mid 2023.
Lanchester observes the stock market is predicting consumer spending will weaken even though unemployment is at record lows. The unemployment rate reached a low of 3.9 per cent in April 2022.
Geopolitical risk is the third issue weighing on investors’ minds. “Markets are observing the events in Ukraine and whether there is an improvement or a deterioration in this situation. This has flow-on effects for inflationary pressures across soft commodities, as well as oil and gas,” he says.
China’s pursuit of a zero COVID policy is another geopolitical hot button, says Lanchester. “This has prompted shutdowns of parts of one of the world’s largest economies, adding to inflationary pressures. Just how that develops over the next six months is critical for companies and economies.”
<subhead> Sector perspective
Markets have displayed clear sectoral bias over the past six months. Investors have been long
resources stocks, which tend do well in an inflationary environment, and short technology shares, particularly companies that don’t yet make a profit. This is because with interest rates rising, the discount rate has risen and the value of tech shares has fallen as a result. Analysts use the discount rate, which is the interest rate used in discounted cash flow analysis, to work out the value of a company’s future cash flows.
Lanchester cautions, however, against taking an overly-simplistic, helicopter view of markets. “That’s a very top-down way of looking at the market, particularly with the falls and rises we’ve seen recently. It’s much more interesting to be more stock-specific. We find value across a range of sectors. In particular, we think small and mid-cap industrial stocks across a number of sectors look really interesting. As often happens in times of dislocation, companies at the smaller end of the market can fall a lot harder than the large caps, because their liquidity is lower. It only takes one or two sellers to panic and those shares can move substantially lower. That’s where we are finding value.”
For instance, certain mining service companies are attractive, except those with fixed price contracts. Additionally, selective technology names are of interest. These are companies that have been consigned as loss-making and aggressively sold off this year, but which are actually on track to be cash flow positive, are still exhibiting excellent levels of growth and display proven business models. “Unlike the tech boom of 1999/2000, we think there are some interesting names in that part of the market,” says Lanchester.
Cappetta agrees companies with strong operating positions, which are profitable, growing and paying dividends, may be safe havens for investors. “This points to sectors where consumer spending is expected to remain robust regardless of tighter economic conditions. These include utilities, telecommunications, banking, consumer staples and healthcare.”
Financial services should also benefit in this environment, says Tony Davison, managing director of and financial adviser with Pride Advice Sydney. He agrees market conditions favour resources stocks.
“Banks are showing signs of resilience and this is likely to continue in the near term. While a global slowdown due to rising interest rates is advancing, commodity prices should be beneficiaries of an inflationary environment. We think the sector, particularly the mining majors, are well positioned to take advantage of conditions in the near and medium term. In principle, banks, should be more profitable in a higher interest rate environment, as long as impairments remain low and the majors are operationally sound,” he says.
As for sectors on the decline, Ray David, portfolio manager for Schroder’s Australian Equity Long Short Fund, notes the consumer discretionary sector is facing significant headwinds. This is due to a thriftier consumer, given the absence of the pandemic-induced, government stimulus that brought forward consumption for household items over the past few years.
“Discretionary retailers face challenges with supply chains and reduced access to inventory, which is impacting forward planning. Embedded CPI escalators in lease agreements and union pressure to lift award rates in line with CPI could see fixed costs rise at the fastest pace since the pandemic, putting further pressure on this sector,” he explains.
Generally, however, investors expect local equities will remain attractive in the medium term, unforeseen events notwithstanding.
“The dividend yield and value of our market relative to other assets is likely to be a significant driver of shares over the remainder of 2022. Compared to the income returns of other investments, Australian shares still look fairly attractive,” says Chris Brycki, founder and CEO, Stockspot.
Data backs this up. Despite rising interest rates, cash, term deposits and Australian government bonds still only deliver a return of between 0.5 per cent and 2.5 per cent a year. Residential property rental yields in major Australian cities aren’t much better at 2.7 per cent a year, according to SQM Research.
Also, most global share markets are only paying one per cent to two per cent in dividend income. Comparatively, the Australian share market has an attractive dividend yield of four per cent, which reaches close to five per cent with franking credits. “In fact, the extra dividend return received from investing in Australian indexed shares compared to the RBA interest rate hasn’t looked as good for 20 years,” Brycki says.
Furthermore, from a historic perspective, the Australian share market looks normally priced at the moment, based on its earnings multiple. “The market price-to-earnings multiple, known as the price-to-earnings ratio, measures the market index divided by market earnings. It’s a quick and easy way to see how much investors are prepared to pay for earnings. A higher P/E means people are willing to pay more for earnings. That could be because they’re confident in those earnings growing or simply because alternative investments like cash or term deposits don’t offer much of a return. The Australian market, measured by the S&P ASX/300 is currently near its long term historical average of 14.8 times earnings,” he notes.
Risks abound, however. For instance, Davison notes the rapid decline in the Australian dollar since the beginning of April may have further to play out. He also says it’s important to look beyond these shores when forming investment views.
“Global inflation significantly impacts the Australian market. When it comes to interest rates, where rates go in the US, Australia will go to some extent. So it’s important to see our market in a global context.”
The elephant in the room is ongoing COVID-19 disruption. As recent shutdowns in China due to COVID-19 outbreaks demonstrate, while it’s easy to assume the pandemic is over, this could be wishful thinking. The possibility of a particular virulent strain shuttering global markets once more is also well within the realm of possibility.
On balance, however, investor sentiment remains positive and there are numerous reasons, such as the strength of the local economy, to be bullish about Aussie equities. Time will tell how the market performs for the remainder of 2022.
While access to digital health went ahead in leaps and bounds during COVID, there’s still many opportunities to use technology to make access to health easier access. Updated regulations and education to encourage more uptate of digital tools will help to address this.
Lysn’s founder Jonathan King says while digital health is improving rapidly, there are still major roadblocks that hinder its true potential and impact healthcare for all Australians. Lysn is technology through which patients access video consultations with psychologists.
King says as a start, improvements need to be made so systems and software work cohesively, known as interoperability. He says centralised systems and better clinician training is needed so healthcare workers can make the most of the technology at their fingertips optimised. There also needs to be better use of data to improve how patients are treated.
“The advantage and difficulty of digitisation in healthcare is providing real time data and reporting to create evidence-based treatments. Being able to evaluate care given through digital platforms will help us deliver better services,” says King.
Making the most of available data is only a first step. Digitisation will also help improve the backend of the health system, such as billing. Says King: “We’re restricted by billing frameworks and remuneration models that were built over decades of face-to-face healthcare services. This needs to change to give financial equality and better access to healthcare services for all Australians.”
While the adoption of digital tech accelerated through COVID, parts of the healthcare system are still playing catch-up. For instance, regulations are a handbrake to the widespread adoption of digital technologies in health. Although, this is changing.
“Regulators are collaborating more with practitioners, for example the Digital Mental Health Services Project by The Australian Commission on Safety and Quality in Healthcare which saw the engagement of professionals to help improve clinical safety in digital mental health products,” says King.
“There are still challenges though, one of the major ones being multiple entities have oversight of the healthcare industry. This can make complying with regulations more time-consuming and convoluted than it needs to be,” he adds.
Olga Hogan advises investors and start-ups in the health-tech industry and is an adjunct associate professor for healthcare transformation at Deakin University. She agrees there’s an opportunity to support interoperability between existing systems such as My Health Record, an online record of patients’ digital health run by the federal government and other electronic medical records.
“Being originally from Estonia, a pioneering digitisation and data sharing country, I have seen the efficiencies that can be gained which led to better engagement and health outcomes. The biggest challenges are changing habits, changing systems and ensuring privacy.
“Many existing professionals are simply used to doing things a certain way. Being asked change processes that have been used successfully for many years will of course raise many reasonable concerns. Also at present, the health care workforce is exhausted and burned out and are not able to adapt to new initiatives. I was talking to a project manager who resigned from their role at a healthcare organisation in the middle of COVID because they felt they couldn’t or shouldn’t ask medical staff to adopt yet another digitalisation initiative in the middle of a crisis.”
Ruchika Rawat is a physiotherapist who works in the public sector. She is also co-founder and director of a not-for-profit Community Aid Australia and been involved in Health My Way, the national digital health literacy program delivered by community organisations to support people to gain the skills to manage their health and wellbeing online.
For Rawat, the decision to become involved in digital health is personal. “In 2017 I was admitted to emergency with falling oxygen saturation during the final days of pregnancy. I was shocked to learn it was up to me to tell the doctors about my past and present medical history along with recently developed symptoms. The challenge is to unite the public and private healthcare providers, social insurance schemes and private insurers and support more connected healthcare such as telehealth and e-prescriptions.” She highlights cyber security as a priority to fast-track further digitisation of the heath sector.
Lisa Beckett is the founder of Candor Medical, a platform that gives patients access to medical treatments online. She notes the federal government has proposed a National Digital Health Strategy to give people better access to safe, convenient medical care.
“Patients are already on board with this and say they want more choice and control over their health, with easy to use technology.”
Beckett says companies like hers would benefit if there was better integration between patient data and health systems. For example, prescription monitoring services are currently only available in certain states, and often only to doctors within those states.
“With increasing numbers of nationwide digital medical services, we need the ability to access and share data regardless of location. We’ve achieved a lot in recent years with the introduction of the My Health Record system and digitisation of medical records in hospitals, but there is still a way to go.”
Importantly, she notes it is vital to appreciate not everything is suitable for digital health. “There has been a recent trend towards managing weight loss online using prescription medications. At Candor, we’ve made the decision not to offer these treatments through our platform. The medications used are often off label and have been developed to help treat diabetics. This has resulted in a shortage of available medication for these patients and a notice from the TGA to ensure appropriate prescribing of these treatments. There have also been concerns raised about the potential for abuse in some patients, especially with respect to eating disorders, which could be apparent to a doctor in a physical practice but hidden in an online setting.”
While the pandemic-inspired fast-tracking of digital health solutions is a huge step forward, there’s a lot of work still to be done to digitise the health sector and make services easily accessible to all. Work is ongoing to address this, so expect further improvements to health as technology matures and patients get used to accessing healthcare services online.
<breakout> Luminaries back new AI-powered digital health pioneer
Omniscient Neurotechnology is a pioneer in a new area of medicine called connectomics, which studies brain connectivity to identify brain networks responsible for functions such as language, emotion and cognition. The business is backed by a number of high-profile Australian investors including Gina Rinehart, fund manager Will Vicars and billionaire philanthropist Gretel Packer.
“We develop and sell world-leading artificial intelligence software called Quicktome which is used by clinicians to analyse the networks of the human brain,” says CEO Stephen Scheeler, who was previously CEO of Facebook Australia and New Zealand.
The software received marketing approval by the US Food and Drug Administration last year and became the world’s first digital medical technology to provide neurosurgeons with accurate personalised brain network information via the cloud before a surgical procedure.
A rapidly growing number of clinicians and hospitals in the US use the software to guide surgery for people with brain tumours. More than 2000 people have been treated using the software since the FDA approved it late last year. The business is aiming for regulatory approval for the product in Europe this year and in China by the first half of 2023.
Omniscient Neurotechnology is also developing new products to treat other brain health conditions such as stroke and depression. An application will be made to the US FDA later this year for the technology to be used to help stroke patients recover.
“We are also working with global pharmaceutical companies that make drugs for neurological disorders to better design more precision medicines for individual brains,” says Scheeler.
Future longer-term applications could include treatments for post-traumatic stress disorder, autism and anxiety.
Hydrogen has a critical role to play in the transition to a low-carbon economy, especially when it comes to areas of economy for which electricity generated through renewable sources isn’t a way forward, such as long-haul transport. While the hydrogen sector is still in its infancy, local projects are starting to get off the ground to build capacity.
The inert gas has long been used in the ammonia trade, which consumes around 180 million tonnes of the commodity annually. But now, hydrogen is being positioned as an important part of our future clean energy mix. Forward-thinking businesses are putting in place the technology and infrastructure to distribute it.
Leaders in this space have an eye not only to supply the Australian market with hydrogen, but also to export the gas to regions where clean energy sources are not in abundance, such as parts of Europe and Asia. It’s an immense opportunity, with the Department of Industry, Science, Energy and Resources (DISER) estimating there’s a $130 billion to $185 billion project pipeline required to build the foundations of the Australian hydrogen industry.
“We need to bring the entire economy along in this transition to low carbon energy, including hard-to-abate industries. Areas such as shipping, steel and heavy haulage are areas that need an alternative and hydrogen can provide that,” says Alaster Long, head of future fuels, corporate and institutional, National Australia Bank.
Australia, with its abundance of sunshine and wind, is well-positioned to be a force in the globally renewable energy market, including for hydrogen. Right now, NAB is supporting its clients through the decarbonisation process as the hydrogen sector matures and projects gain magnitude. The bank is also contributing to the industry through industry bodies, such as the Australian Hydrogen Council.
“It’s still early days for the hydrogen industry, with most projects still at pilot stage. Scaling up will require significant project and corporate finance. There is a huge need for investors, banks, governments, insurance companies and others to allocate significant capital to the sector,” says Long.
Over time, it’s expected the hydrogen industry will grow to a size comparable to today’s LNG market, with projects of an equivalent size. “So, while different technologies are involved with hydrogen and it’s a different commodity to LNG, the process banks go through to fund projects in both sectors is similar,” he adds. The existing LNG export market is likely to act as a facilitator for hydrogen exports, with today’s overseas LNG customers expected to be the hydrogen customers of tomorrow.
Given the massive size of the hydrogen opportunity, governments play an important role helping the fledgling sector become viable. “State and federal governments are starting to lay down the regulatory and policy response to help to facilitate the industry. We will work with governments to build the industry,” says Long.
The Australian Gas Infrastructure Group knows all about the importance of government support. It worked with the South Australian government to develop one of the first and most significant hydrogen projects in the country.
AGIG owns gas infrastructure, including gas pipelines, gas distribution and gas storage across all mainland Australian states except the ACT. The business is focused on decarbonising the gas it supplies to homes and businesses and it is starting to deliver renewable hydrogen projects to achieve just that.
“Our board has set a very clear, low-carbon strategy for our business so that by 2030 at least 10 per cent of the gas in our supply systems will be renewable gas, in the form of bio gas and hydrogen. We want 100 per cent renewable gas through our supply system by 2050 and that’s driving the business,” says AGIG CEO Craig de Laine.
AGIG’s first hydrogen project, launched in May 2021 in partnership with the South Australian government, is the state’s 1.25 megawatt Hydrogen Park. It’s Australia’s largest renewable hydrogen production facility to date, and will assist AGIG to meet its ambition of supplying totally clean, green energy to the nation.
“This project, which distributes a 5 per cent hydrogen blend, demonstrates we can safely and reliably deliver renewable hydrogen to homes and businesses in South Australia. We’ve recently announced we’re going to expand the project from 700 to 4,000 customers,” says de Laine.
A blended energy source adds hydrogen into existing natural gas pipelines to create better environmental outcomes.
AGIG’s next project is Gladstone’s Hydrogen Park in Queensland, which is still in development phase. The coastal city is already a major LNG export hub and this project aims to distribute a 10 per cent hydrogen blend to about 1,000 homes and businesses.
“But the big project we’re working on is Hydrogen Park, Murray Valley, a 10-megawatt hydrogen production facility, which is eight times the size of Hydrogen Park South Australia. It’s going to provide a 10 per cent renewable hydrogen blend to 40,000 customers in Albury Wodonga. That’s an incredibly exciting project because it allows us to step up in scale and customer numbers and helps us work towards our targets,” he adds.
NAB is a financial partner to AGIG, providing funding for the $9 billion-plus it has already invested in gas infrastructure. Says de Laine: “We need supportive partners to help us through this transition, including customers, governments and the banks.”
As for the future, a multitude of different stakeholders, including banks, governments, energy businesses and infrastructure providers are working at pace right now to build a hydrogen industry that once up and running, will play an important role in the international renewable energy mix. It’s an exciting time for the sector and it will be fascinating to watch Australia become a leader in this new, renewable energy industry.
Technology stocks have experienced some of the deepest routs of all shares since inflation and interest rate rises started spooking markets. The ASX All Tech index is down 12.68% for the month and down by 39.89% year-to-date, versus the All Ordinaries index, which is down 9.69% over the month and down by 15.21% year-to-date. Cutely-termed ‘pre-revenue’ stocks have been badly beaten up as their discount rates have taken a battering. But there are still opportunities to invest in tech stocks that do return a profit.
The discount rate is the interest rate used to calculate a company’s discounted cash flows, which is a way of estimating an investment’s value based on projected cash flow. When the official cash rate rises, so too does the discount rate and the value of the asset falls. This is what happened to a slew of listed technology stocks that had not yet produced a profit. The local bourse is littered with examples, with unprofitable buy-now-pay-later companies some of the worst-affected. For instance, listed BNPL Afterpay challenger Sezzle’s investors have watched its share price plummet by 96.0% year-on-year and its sector stablemate Zip has seen its share price retreat by 93.5% over the same period.
It’s worth noting the market became enamoured with tech stocks during the pandemic, with share prices appreciating at pace for a range of reasons. Suddenly we needed technology to work from home, streaming became our main form of entertainment and meeting in-person switched to video conferencing. Businesses in these tech sub-sectors and more benefitted as a result. But global economics has shifted as the pandemic’s restrictions have eased and the investment thesis for pre-revenue tech firms has changed.
Equity Story analyst Peter Kopetz agrees there’s been a shellacking of tech stocks since the risk-off rerate. “There are the haves and the have nots, meaning there are some profitable tech stocks that are generally less risky, which have outperformed the non-profitable ones. The profitable line-up is very small and dominated by tech mainstays that have a strong business and dominant market position here in Australia.” He points to Carsales, Pro Medicus, realestate.com.au, Seek, WiseTech and Xero as tech names generating a return.
“We have taken a magnifying glass to these stories and have picked out two stocks that still have a strong business, a rosy long-term outlook and are trading at prices not seen for three years. We call it the ‘2019 run out sale’ for those that like to grab a bargain and hold it for a five-year-plus period. These kinds of sales are the mother of all opportunities if you pick the right stocks.” Kopetz names Xero and Seek as his two favourites of his group of profitable tech stocks.
Xero is also in Morningstar’s analyst Gareth James’ sights, albeit with a number of qualifications. It’s the largest provider of accounting software-as-a-service across Australasia and James expects the company to springboard from this position to take market share in the UK and US. “The capital light business model should enable returns on invested capital to comfortably exceed weighted average cost of capital in the long-term,” he advised clients in a note.
Nevertheless, lower returns are expected from Xero in the near-term, reflecting management’s strategy to reinvest revenue into software development and marketing, with higher revenues anticipated over time. James notes subscriber numbers were up by 19% to 3.3 million in fiscal 2022 and revenue grew 31% to NZ$1 billion.
James also likes WiseTech Global, which turned in a strong fiscal 2021 result, while highlighting the supply chain software leader’s improved disclosures. In a note to clients, James said the company had significantly alleviated Morningstar’s concerns about its accounting policies and earnings quality. “Its first half results still exceeded our expectations and management has increased fiscal 2022 EBITDA guidance by 5%.” Further, James says despite WiseTech’s high, one-year, forward P/E ratio of around 100 and macro-economic challenges, the business is still considered to be significantly undervalued.
Prime Value Asset Management’s equities portfolio manager Mike Younger has two stock picks in the profitable tech category. The first is global financial services software IRESS. “The company was established more than 20 years ago and has been highly profitable throughout the journey,” he explains. “It has a very high market share in equities market data and trading and wealth management, with customers comprising investment banks, fund managers and wealth advisers.”
Younger says although IRESS is well known in the investment community, the company is under-appreciated, largely due to its historical bottom-line growth under-performing market expectations. “With a reset in focus to organic growth and management KPIs linked to EPS growth, we see solid medium-term growth ahead at a reasonable valuation.”
His second pick is Hansen Technologies, which is a founder-led, highly profitable, global provider of billing software to the utilities and communications industries, also established more than 20 years ago. He says organic growth is mild but relatively predictable and driven by growth in its client’s customer bases, as well as regulatory and product changes that open new markets such as energy and water deregulation.
Another profitable tech stock worth a look is Pushpay, according to Benjamin Mellody, equities analyst at Prime Value Asset Management. The business provides management software and payments processing for more than 14,000 US churches in the US. It has a market leading position in medium-sized and larger churches, benefits from high customer switching costs and generates significant cash flow.
“Pushpay is looking to grow organically, with a planned expansion into the Catholic market, as well as continuing to make accretive acquisitions to build its capabilities in adjacent markets, such as digital streaming. Pushpay is an example of a profitable listed technology company and is currently trading on a reasonable multiple. Notably, it has also recently received takeover interest from multiple parties, including private equity firm BGH Capital.”
With life likely to remain tough for unprofitable tech businesses in the immediate term, this smaller group of shares that are in the black are likely to pique the interest of investors that want exposure to tech but don’t want these assets dragging down portfolio returns over time.
One of the best things about the three tech leaders interviewed for this story is the unusual paths they took to arrive in their role. None of them studied technology, programming or computer science to achieve leadership positions in their companies. Rather, their expertise is in communication, marketing and leadership.
Workplace software-as-a-service leader Atlassian’s chief of staff Amy Glancey says her ability to be comfortable in ambiguity helps her be successful in her role supporting co-CEOs, Mike Cannon-Brookes and Scott Farquhar.
Joining the company in 2016 in the director of communication role before moving into her current position two years later, Glancey wasn’t initially sure Altassian was the right fit for her. She had previously worked in consumer and government positions and wasn’t immediately sure about working in a SaaS enterprise tech company.
“I saw Mike and Scott had an opinion, were anti-establishment and bold and courageous in how they spoke about the tech community and their role in it. It was a really exciting opportunity to work with two young tech founders, who wanted to make a difference.
“I found my home in tech, particularly at Atlassian. This environment really fosters smart, dynamic people, who can bring their full selves to their work. You don’t have to be a certain age to get to a certain role. You don’t have to dress a certain way. I flourish in this environment.”
One of Glancey’s mottos is: the magic happens outside your comfort zone. “When you get really comfortable and you know exactly what you’re doing and everything’s intuitive, it usually means you’re not learning. I have always tried to harness that uncomfortable feeling, that anxiety that comes when you are in over your head. I’ve always tried to embrace uncertainty and recognise the feeling and know that’s when I’ve done some of my best work.”
Today, aside from her day-to-day work at Atlassian, Glancey’s role involves supporting Cannon-Brookes’ and Farquhar’s family offices, property acquisitions and political lobbying.
“My number one goal is to drive the CEOs’ agendas, so their agenda is my agenda. I keep them aligned, see where the gaps are and make sure the executive team is humming.”
Glancey has been instrumental in Atlassian’s involvement in Sydney’s new technology precinct, Tech central. She’s also the ‘spiritual leader’ of Atlassian’s 150-strong leadership group and responsible for organising the annual leadership conference.
“Last year we pivoted to a completely remote virtual format, a TEDx-inspired event. This year’s event is in August and we’re blending synchronous sessions with asynchronous sessions. Everything’s in podcast format and people can walk and listen.
“The other big thing on my plate is launching the company’s strategy to our employees. My job is making the strategic content digestible to 8,000 Atlassians, using the founder’s voice to amplify that, to create a moment around it. So that’s another big piece of my agenda.”
Glancey’s message to others who wish to be successful in tech is to be authentic. “Show up with your full intuition, intellect and emotional intelligence. That’s when you really shine and bring value. When you fight that you bring a shadow version of yourself to the role, which is. Be unapologetic.”
Naomi Shepherd, group industry director Meta, always had a penchant for media, marketing and technology. “I’ve lived in the US, the UK and here in Oz. And I’ve taken lots of lessons from some of the best and some of the worst leaders I’ve worked alongside, and really developed a style that works for me and aims to get the very best out of others. The common theme across my career is being really open to opportunities.”
Shepherd names unconscious bias as one of the biggest challenges she has had to overcome. “I remember going for a management role at a point in my career and I’d just had one of my three children. I was asked in the interview, ‘How are you going to cope with the travel, the demands of the role, as a mother?’ I politely inquired if the male candidate who was also going for the role, and who was a father, was being asked the same question. Look, we all have biases. Part of solving that is talking about them and bringing them out into the open. Bias training is mandatory for every single Meta employee. It’s been instrumental in counteracting bias in the workplace. It helps people like me overcome that challenge.”
As for her greatest achievement, aside from her three kids, Shepherd says a highlight is Meta’s involvement in an initiative called Connect to Country. Led by indigenous creative agency Campfire x, its purpose is to connect all Australians to First Nations culture.
“Facebook is a great place to start a movement like this. We’ve seen lots of movements thrive on our platforms like Me Too and Black Lives Matter. But the thing about movements is they are notoriously difficult to engineer, even in social media, they take lots of time, advocates and voices. A real professional achievement is seeing major Australian corporations like Coles, Telstra and Tourism Australia want to be part of this movement.”
Shepherd stresses you don’t have to be particularly technical to work in tech. “You don’t have to be a software engineer. You can work in any role. But because the nature of technology is it’s constantly evolving, you do need to be agile and willing to keep abreast of what’s on the horizon and stay ahead of trends. We need to put more of an emphasis on this, particularly in Australia.”
Nevertheless, she encourages students to take an interest in maths and science. “Technology is such a fundamental driver of every industry and every sector. Future jobs will rely on it. So it’s important to start early.”
Like Shepherd, Bec Nyst, general manager Uber Eats, ANZ, prizes the international experience she has gained in her career. But she came to tech in a roundabout way
“I studied law and creative arts. I was interested in theatre, but also appreciated the intellectual challenge of the law. After that, I went into neither of those areas. I started my career in consulting and after a couple of years, I wanted to go on an overseas adventure. So I just looked at all the different job opportunities around the world, landed in Silicon Valley and ended up doing what turned into a six year stint in the US. That was 2011.
“I worked at eBay, did my MBA at Harvard Business School in Boston and went back to Silicon Valley and spent a number of years working at Google. I got to do all the things you read about. I brought my little puppy to work on the dog shuttle and got to experience onsite masseuse, onsite doctor, onsite swimming pool, all of that. So that was fun and a huge adventure. And I also learned a lot. But I’d always intended to just go away for a couple of years and then come home to Australia. The opportunity came up to join Uber Eats here in Australia in 2017.”
Nyst says it was an exciting time. “Uber was an established company, but Uber Eats was the start-up within that established company, and certainly a start-up here in Australia. But talking to the people in the business, it was really clear there was this growing consumer momentum, clear demand on the restaurant side and an opportunity for someone to come in and think about and build out how Uber Eats works with restaurant partners in Australia, stepping into the general manager role for Uber Eats in December.”
She says building teams is her greatest joy. “When I think about my best moment, building a great leadership team at Uber and a great broader team in my restaurant role, having the opportunity to find amazing people, bring them and see what they can then create has been amazing.”
Nyst says one of her biggest challenges is ensuring she carves out time to spend on strategy and culture. “I want to spend time thinking about this, but there’s so much pressure around the here and now, the today. Balancing short-term and long-term objectives is absolutely necessary and something I am committed to getting right.”
Intriguingly, her advice to aspiring tech gurus is to find someone who is a great coach and who can really help steward your career.
“I think that’s especially true in tech where it’s so fast paced. There’s so much opportunity. You want to be able to innovate and take calculated leaps. When I think about what I’ve observed makes people successful and when I’ve felt successful, it’s really having a fantastic manager who can support you to grow.”
Binuo Erth’s wealth-creation journey began in her homeland, China, at just 15 when she launched an online art trading business. “That’s when I discovered the value in tangible, collectible assets.”
At 18, Erth, who is now 40, had the option of pursuing a degree in art history or finance and chose the latter, which cemented her fascination with investing. “I was always good at mathematics and even then, I could see a number of reasons to follow this path,” says the now-managing partner of funds management business Vellum Australia.
“All business owners need to understand finance, so even if I stayed in art trading, I wanted to make it into a real business that would grow. It also helped that my degree gave me a thorough understanding of different industries and how they operate.”
In 2018, Erth obtained her first financial services license and formed Vellum Group in Hong Kong. In 2019 she became licensed to provide financial services in Australia.
“At the moment, I’m focused on investing in tangible assets like cars and property and ESG-related projects that will benefit the world beyond financial returns. Financial products do not create value themselves; it is the underlying assets and their performance that matters and creates a good investment.”
Erth is a member of a growing cohort of young investors who are taking a unique approach to wealth management. Oscar Ledlin, 29, is another young gun investor. His focus is his $100 million industrial property portfolio.
“I started out as a concreter and quickly recognised the best way for me to make real money would be working for myself. Starting from the ground up has meant I have a deep understanding of all levels of my business,” says the founder of property development firms Ledlin Develop and Ledlin Build.
“My work is centred around creating destinations that invoke a sense of commercial creativity. Places where occupants are proud and inspired to come to work, as are their customers and clients to visit, interact and do business,” he says.
Ledlin concedes in the past some people have seen his young age as a negative. He works hard to challenge that perspective. “A reoccurring question early on was, ‘and how old are you, Oscar?’ My youthful demeanour prompted a level of apprehension among certain vendors, real estate agents, contractors and buyers.”
He says overpreparation was his secret weapon to combat this view. “For meetings, within emails, throughout submissions and proposals, I sought to demonstrate a level of understanding and preparation not expected of my position. This ultimately gave my stakeholders confidence to move forward, irrespective of age.”
Questioned as to what role luck played in his success, Ledin says while he hasn’t has a specific lucky break, he feels privileged having grown up in Australia.
“I consider myself fortunate to have been raised by hard-working parents in an era that has provided more opportunity than was afforded previous generations. I’m grateful to continually find myself surrounded by incredible people. I have also more than once found myself in the right place at the right time.”
Ledlin’s advice to other people who want to build wealth at a young age is to be disciplined, focused and patient. “There’s a strong correlation between self-discipline and all forms of success, including financial success. Pursuit of one thing is always at the sacrifice of another, and financial pursuits are no different. Ambitious wealth goals mean missing social events, less downtime and no frivolous spending. If you’re financially disciplined for three years, you build momentum. If you’re financially disciplined for 10 years, you build an empire.”
Mitch Hills, who owns Mastermind Marketing, knows the ups and downs of building wealth. “I’m not rich but I probably have better financials than the average 27-year-old. I have a net worth of just over $500,000, taking into account my marketing agency and after taking on my investment property mortgage. I also lost $200,000 on a failed business when I was 21, so that set me back a bit.”
Hills has followed three principles to build his wealth and he says anyone can use the same approach. “First, increase your income and earning potential. The best way to do this is by acquiring new skills or starting a business.”
Step two is to figure out how to make money when you’re not working. “Being, say, a graphic designer can pay well, but when you stop, the money stops because all you’re doing is trading your time for money. You can really scale up your income if you can create systems and employ other people to create value”
His final tip is to allocate funds to appreciating assets. “I invest most of my money in the stock market and I also own an investment property and some cryptocurrency. But I largely stick to low-risk, long-term investments like exchange-traded funds and index funds and let compound interest work its magic. This is more to store my money; the real gains come from my business and investing in myself.”
Pete Pennicott, a director of financial advice firm Pekada, says young people have never had such broad access to investment opportunities. It’s easy to assume many are interested in exotic opportunities to make money such as crypto currencies. But in his experience, successful young investors tend to prefer more vanilla structures.
“This age group is more interested in passive ETF and thematic investing around technological disruption. While the percentage of Gen Z investors participating in crypto and NFT markets is likely more than other generations, the lion’s share of their wealth is in traditional asset classes.”
Pennicott’s advice to other young people who want to get serious about building a nest egg at a young age is to get started as soon as you can. “Your biggest asset is time and allowing investment returns to compound. Property and shares are both excellent growth assets and are not mutually exclusive. Aim to build a portfolio of assets that generate capital growth and a solid return over time.”
What do a mathematician, an Ecuadorian master’s graduate and a Japanese-speaking fund manager have in common? They are three senior members of Australia’s investment sector. They also happen to be women.
It’s vital women pay particular attention to their wealth, given the Australian Human Rights Commission’s latest figures show the average super payout for a woman is just $37,000 versus $110,000 for men. Working women also still earn 16 per cent less than men.
Mathematician Kirsten Wymer, head of risk strategies and research at BT Investment Solutions, Daniela Jaramillo, director, sustainable investing, Fidelity International and Catherine Allfrey, principal of WaveStone Capital, whose undergraduate economics degree included a Japanese major, have great advice for building wealth, no matter what gender you are.
Every day, Wymer and her team draw on techniques from maths, physics and statistics to solve problems like asset allocation, asset liability management and also analysis. “It sounds complex, but it’s like being a chef, except our ingredients are mathematical techniques and our finished product is an economic scenario generator.”
Wymer is proud of the pivotal role her team plays in her customers’ financial wellbeing and quality of life. “Our mission statement is to develop asset modelling and money management frameworks that are independently peer-validated as market-best practices. Everyone in the industry should be part of the conversation. So we publish research and work with other practitioners and academics to contribute to thought leadership in the investment industry.”
She says sound financial modelling needs to strike a balance between sophistication and practicality. “That means you need to know when to unleash the full technical beast and when a simple solution is optimal. For example, we do use quite a lot of artificial intelligence and machine learning and they are powerful and highly relevant techniques. But they are not the right tool to use if you just want to compound returns.” Compounding involves adding the interest earned by an investment to its principal to drive returns over time.
Wymer’s interest in numbers was first piqued by her actuary brother. “I’ve always loved maths. I started out as an intern at Macquarie Bank on the trading floor before I moved across to Westpac to take up a role in electricity derivative modelling, before moving into trading. I just fell in love with it. I lost money in the first week, which was a really powerful learning tool. I knew from that point on I wanted to apply maths to investing decisions.”
At Fidelity, Jaramillo says her role is all about change and innovation. “My job is to help our analysts, portfolio managers, product specialists and marketing professionals change how they think about investments and our business. The sustainable investing industry is moving very quickly, with climate change, gender, social inequality, biodiversity and digital ethics just some of the issues driving our thinking. My role is to ensure we are always one step ahead.”
Jaramillo has always been obsessed with how complex change happens and this drives her work today. “The structures, incentives and people involved in big systemic changes have always fascinated me. I wrote my dissertation for my masters at the London School of Economics about how change happened when an oil-dependant economy passed a law to leave oil underground for environmental reasons, a very complex and unlikely change.”
Growing up in Ecuador, a country reliant on natural resources and tourism, where social inequality and poverty are endemic, has also fundamentally influenced her work. “That shaped my career. Environmental and social issues are deeply personal to me. This has been one of my biggest motivations to join and stay in the investment industry, well before ESG became popular.”
Jaramillo says more needs to be done to encourage women to seek out careers in financial services. “We need industry-wide initiatives like asset owners requiring more disclosure about the composition of investment teams.”
She cites the UK Asset Owner Pledge, through which a group of 17 public pension funds representing £1.8 trillion in assets under management has promised to disclose information about the gender breakdown of its staff, as a positive initiative to encourage more diversity among investing teams. Local initiatives like FutureIM/pact, which aims to encourage more women to take up roles in client-facing investment teams, as another important step in helping the sector to become a little less male dominated.
Jaramillo says there is plenty of scope for women to take more control of their wealth. “Everyone owns a piece of the companies our superannuation is invested in, even if it is just a very small share. Our stakes in companies like Amazon, Apple and Facebook give us a voice. As shareholders, we can expect these companies to deliver on our money financially and also on other things we care about, like the environment and society.”
WaveStone Capital principal Catherine Allfrey has more than 20 years’ experience in investment markets. Her role involves investing client funds in the local share market, co-managing the WaveStone team and analysing sectors such as banks, real estate investment trusts and diversified financials.
“I have a competitive nature and want to deliver above-market returns for our clients. I am always curious to learn about the companies we invest in and enjoy engaging with different management teams,” she notes about her work ethic.
Allfrey says it’s good to see women paying more attention to the stock market and their superannuation. “As you get older, your super balance grows. So you naturally become more interested as you have a nest egg you want to protect.”
No matter if you are a man or a woman, there is no great secret to building wealth. What’s important is consistency. As the old saying goes, it’s not timing the markets, but time in the market that counts. Taking advantage of the power of compounding is also important.
“Combine compounding with a savings plan to build an investment portfolio separate to your PAYG income. This is how the rich get richer,” she adds.
There’s scant empirical evidence investment funds that take environmental, social and governance factors into account when selecting investments deliver better returns or lower risk for Aussie investors. At the same time, there’s also no evidence an ESG bias damages returns or heightens risk.
Morningstar’s Sustainable Investing Landscape for Australian Fund Investors report for the second quarter of 2021 shows the value of Australian sustainable investments was $33.42 billion on 30 June 2021, a 66 per cent rise from a year earlier.
“Asset managers have seen this trend and launched ESG funds in an attempt to capture some of the action,” the report’s author Tim Murphy, Morningstar’s director of research for Asia Pacific, notes in his commentary. The research analyses Australian-domiciled global equity funds, given global equities is the asset class with the highest number of ESG funds Australian investors can access.
“On average, there wasn’t a statistical difference between funds that consider ESG compared to the broader index. Some did better, some did worse, some had lower risk, some had higher risk. The important takeaway is you can build a portfolio that’s aligned with your values, that takes these issues into account, without sacrificing returns. But it does come down to individual fund selection,” he adds.
Morningstar’s research also shows it might be too early to tell whether funds that invest with ESG in mind deliver better outcomes. None of the 14 ESG global equity funds Australian investors could allocate money to five years ago have delivered higher returns with lower risk than the broad market index. The results are better across a three year period, with seven funds producing higher returns with lower risk than the MSCI Index.
As Murphy’s faint praise suggests, it’s not a bad outcome, but it’s not a compelling investment thesis. “We want to see some balance to the discussion. More people are very pro ESG, and that’s great, and argue a bias this way delivers superior returns. Equally, more traditional investors may believe limiting your universe of investment assets by applying an ESG screen limits your opportunities. Our evidence says neither is true, in such a black and white sense, with most outcomes landing in a more nuanced middle ground.”
Eddie Barrett, director of investment managers Alvia Asset Partners, says investors should be wary of research about ESG published by fund managers, when the research serves their interests.
“There’s no independent arbiter or framework by which to vet ESG research, so reports that profess negative or positive ESG screening are highly subjective. That’s because assigning a business an ESG rating varies markedly across scoring systems.”
Barrett argues omitting potential investments, or limiting the universe of investments by screening out ‘bad’ companies for ESG purposes, to focus on ‘good’ companies, is unlikely to improve the investment process.
“This is particularly true when the main objective of investment firms that tout a strong ESG focus is to use it as a lever to raise capital. ESG should be one consideration in a comprehensive investment decision-making process, particularly when good ESG practices should already be embedded in a prudent company’s processes as a way of managing long-tail risks.”
Fidelity International portfolio manager Kate Howitt has fascinating insights into ESG and whether a focus on it improves either company or investment performance. “You can come up with all kinds of stories as to why stocks go up and down. But ultimately, it’s about whether there are more buyers than sellers or more sellers than buyers. There are more buyers for better actors than for bad actors.”
Howitt uses as an example the historic demand for energy stocks that normally happens when markets are focused on inflation, which they have been over the past year. “Energy is the sector that has strongly outperformed during previous periods of inflation. To some extent that’s been happening in other markets. But it’s not happening in our market and the only reason you can point to is there’s just not the investor appetite to back hydrocarbons in the way there was in previous inflationary cycles.”
Hydrocarbons are the major component of energy sources such as crude oil and diesel, which are often deemed as having harmful environmental impacts versus renewable energy sources such as solar energy.
“We’re starting to see investors say maybe the future’s not going to be like the past. So, we want our portfolios to deliver a low carbon world. We’re happy to invest in hydrocarbon companies if they’re also charting a course to become hydrogen suppliers of the future. But if they’re not making an appropriate commitment and investment to change their business, then we won’t back them,” she says.
Oil and gas business Santos demonstrates her point. “The stock market is penalising companies like this for their core polluting business and the market doesn’t recognise the value of any emerging green business they are developing. These entities are only recognised by the market once they are spun out of the main business.”
Howitt notes some green tech businesses are trading on extraordinary valuations as investors pile into them. But these are the exception to the rule.
“Look at Fortescue Future Industries. It’s incredibly well capitalised and, if it was carved out of the main Fortescue business, it would be one of the largest pure play green businesses in Australia. But because it’s tucked inside Fortescue, and because Fortescue sells lower grade iron ore that is going to be progressively more disadvantaged as we moved to a decarbonised world, the market is not recognising FFI’s value right now.”
Barrett says it’s difficult to gauge whether companies with strong ESG policies perform better than companies without the same focus on how these elements shape their operations.
“Without a centralised body dictating what qualifies as pro-ESG, the market is being dictated to by the whimsy of well-fed PR machines, determined to greenwash some market players at the expense of others.”
Barrett stresses having strong ESG policies and actually implementing them are vastly different things. “Companies with extensive ESG policies outlined their annual report don’t always do a good job manages ESG considerations across their operations. Equally, company that does not publish may have always considered ESG as part of standard corporate policies and procedures.”