Big mines and airlines anticipate better profits due to rising commodity prices and recovery from COVID-19, whereas supermarkets, banks, and manufacturers are suffering from inflation and stagnating wages. Australia’s businesses are divided along these lines.
Annual company results and profit projections show a difference in the 13th-largest economy in the world between mostly international companies and profit from rising prices and those that are primarily focused on the domestic consumer and are compelled to absorb the increased expenses.
Australia, the leading coal exporter in the world, has benefitted from sanctions & freight restrictions related to Russia’s assault on Ukraine, which has increased demand for coal as well as other commodities and raised prices.
The largest firm in Australia, miner BHP Group Ltd (BHP.AX), announced its highest profit since 2011, while on Thursday, Whitehaven Coal (WHC.AX) & South32 Ltd (S32.AX) also reported earnings increases.
According to Whitehaven CEO Paul Flynn, prices the miner obtained for a tonne of coal almost nearly tripled in a year. Coal prices are at time highs, and customers are more concerned than ever about energy security.
Australia’s largest airline, Qantas Airways Ltd (QAN.AX), reported a roughly A$2 billion ($1.4 billion) annual decline as operational issues wracked the sector but predicted record flying demand, which it claimed was unaffected by rate rises following nearly two years of closed borders. Shares increased by 8%.
According to senior market analyst Matthew Simpson, at Stone X Financial, as COVID regulations have been loosened or eliminated, supply chain bottlenecks are dissipating and demand for the overseas travel has surged.
However, at the same time as eye-watering inflation is forcing central banks to raise interest rates at their fastest rate in decades, business confidence is declining as consumers continue to feel the pinch.
Since May, the Reserve Bank of Australia has increased interest rates each month. Additional increases are anticipated as the central bank works to control inflation, which is estimated to peak at 7.75% late in the year, or roughly three times the average wage growth.
Both consumers and the businesses that supply their everyday necessities are being impacted by rising costs and borrowing rates.
A standout stock under COVID limitations, number one retailer Woolworths Group (WOW.AX), said that customers were going without necessities like red meat, whose costs have increased as animal numbers have been decimated by bad weather.
Woolworths said that the increased shelf pricing and rate increases have made budget-conscious buying more popular than item-focused purchasing. Shares of it dropped 4%.
Brad Banducci, CEO of Woolworths, stated on an investor call that there comes a time when one can no longer pass the cost on to customers and must simply accept a poor profit.
Two-thirds of all supermarket sales in Australia are made by Woolworths and its smaller rival Coles Group Ltd (COL.AX).
The demand for mortgages, which is the bank’s main source of income, is being stifled by rising interest rates, which also affect the entire cross-section of the population.
The largest mortgage lender in Australia, Commonwealth Bank of Australia (CBA.AX), reported that there were indications that rising living costs were undermining customer confidence.
Additionally impacted is discretionary retail.
JB Hi-Fi Ltd (JBH.AX), an electronics retailer, reported sales growth of 10% in July, the first period of its fiscal year, but did not elaborate on how it translated to profits as analysts noted softening demand.
The largest standalone buy-now-pay-later business in the nation, Zip Co, reported that due to “lower anticipated growth rates,” its annual loss roughly doubled to A$1 billion.
While rising interest rates are bad for consumer-facing enterprises, wholesale energy prices, which are up 141% since last year as the Ukraine war limits supplies, are bad news for manufacturers of building materials, who are also suffering weaker demand because of a slowdown in the housing market.
The largest, James Hardie Plc (JHX.AX), a manufacturer of sheeting materials, increased its profit projection four times last year as record-low interest rates sparked a boom in home construction. As a result of rising freight and raw material prices, it now anticipates its first yearly profit decline in five years.