The Economic and Financial Outlook

Darryl GobbettManaging Director

Chief EconomistRepresentative and Adviser

Prescott Securities LtdAFSL 228894

Adelaide – Thursday, 5 June 2014

© Governance Institute of Australia

Any advice contained in this presentation is general advice based on the investment merits of the security or issuer alone without taking into account any person’s investment objectives, financial situation and particular needs.

The information contained within this presentation was compiled by Prescott Securities Limited (PSL) and PSL provide no warranty regarding the accuracy or completeness of the information. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice by PSL. PSL assume no obligation to update this presentation after it has been presented.  Except for any liability which by law cannot be excluded PSL, its Directors, employees and agents disclaim all liability (whether in negligence or otherwise) for any error, inaccuracy in, or omission from the information contained in this document or any loss or damage suffered by the recipient or any other person directly or indirectly through relying upon the information.

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World Outlook Improving But Bringing More Challenges

2014 will be 6th year of growth globally• Spending, Output and Profits higher than 2007 peaks• Portugal, Ireland and Greece now accessing capital markets • North America, China, Asia, Africa to grow strongly • Europe and Japan still slow, Australia slowing

Inflation alongside fears of Deflation• Interest rates to stay low• House and Commodity prices lifting

Public Sector deficits shrinking

Companies doing very well• Profits, Cash flows, Balance sheets

Another surge of change coming

The Big Issues and Trends

Structural Change is accelerating • The world is changing

– Urbanisation, Increasing Wealth, Ageing – Second Rise of Asia– Freeing up of markets– Climate change– Technology, Innovation

o Immediate and mobile infotainment and value exchangeo 3D printing; Drones to deliver parcels; driverless carso New energies o Biosciences: gene technologies, growing human spare partso Meta data

• More researchers than ever before

Patents (PCT) Applied For, by Country of ApplicantSource: Organisation for Economic Cooperation and Development (OECD.statextracts)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

United States Japan

Germany China

Korea France

United Kingdom Other

The Big Issues and Trends

Structural Change is accelerating • Issues specific to Australia

– $A, – Costs– Change of Governments, Budget tightening– Demographics

o Ageing and more immigrant populationo Workforce, Health, Spending, Investments

• Australian Households still saving• We spent the mining boom before it arrived

– Another one within a decade• Tourism and Agricultural surges on their way

Global Growth and Inflation Divergences, Low inflation and Interest Rates

Output Growth, Inflation Adjusted, % pa

2009 2010 2011 2012 2013e 2014F 2015F

United States -2.6 +2.4 +1.8 +2.8 +1.9 +2.8 +3.0

Japan -6.3 +4.5 -0.8 +1.4 +1.7 +1.4 +1.0

Euro Area -4.1 +2.0 +1.4 -0.7 -0.4 +1.2 +1.5

China +9.2 +10.4 +9.2 +7.7 +7.7 +7.5 +7.3

India +6.8 +10.1 +6.8 +3.2 +4.4 +5.4 +6.4

Indonesia +5.7 +6.2 +6.5 +6.2 +5.3 +5.5 +6.0

ASEAN 5 +1.7 +7.0 +4.5 +5.4 +5.8 +4.9 +5.4

Brazil -0.6 +7.5 +2.7 +1.0 +2.3 +1.8 +2.7

World Output -0.5 +5.1 +3.8 +3.1 +3.0 +3.6 +3.9

Inflation: Advanced Emerging

+0.1+5.2

+1.5+6.1

+2.7+7.2

+2.0+6.1

+1.4 +5.8

+1.5+5.5

+1.6+5.2

$US 6mnth LIBOR 1.1% 0.5% 0.5% 0.7% 0.4% +0.4% +0.8%

Source: IMF, World Economic Outlook April 2014

US Growth back to Pre GFC levelsHousehold consumption, Housing, Business Investment, Exports

Budget Deficits falling in Most Major Economies

Federal Reserve Board Taper Decisionsare good news

Source: US Federal Reserve Board 18-19 March 2014

Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, Central Tendency

2014 2015 2016

Economic Growth (Real), % pa 2.8 – 3.0 3.0 – 3.2 2.5 – 3.0

Unemployment rate % 6.1 – 6.3 5.6 – 5.9 5.2 – 5.6

Consumer Inflation% pa 1.5 – 1.6 1.5 – 2.0 1.7 – 2.0

Based on more certainty of growth.Cash rates staying at 0-0.25% well into 2015.Declining US Budget deficits - Cut supply of new Bonds to under monthly purchases.Longer term US interest rates lifted from mid 2012 in anticipation

Tapering well anticipated: US Interest Rates up since mid 2012Now easing

USA Labour Market Lifting Slowly but on Right trackUnemployment at 6.7% in April, cf 10% 2009, 4.4% 2007

Risks already apparent for Australian Gas and Coal Exporters, Farmers, Manufacturers.Manufacturing shifting back to USA. China is estimated to have a bigger resource than USAUSA defence positioning

US Fraccing Gas Surplus now recognised as Game Changer

* Birinyi and Associates, Wall Street Journal Market Data Centre, 28/4/2014

US Corporates continue to increaseProfits and Cash Holdings

US Company Profits at Record Levels (Dec Qtr 13) on National Accounts Basis

March qtr likely weather related.Likely further rises in 2014 and 2015

For S&P500 companies, Forward Price to Earnings Ratio now 15.7* vs 16.4 trailing ave (since 1954)“Cash” held by Non-Financial Corporates

Dec 2013: $US1,581.1 billion Up 13% yoy

Dec 2007 Dec 2013

Cash/ Market Value of Equities

7.2% 7.4%

Debt/Net Worth 42.8% 47.1%

Further Growth in Earnings per Share into 2014/15 is forecast

Source: Yardeni Research Inc, 28 April 2014

Forward P/Es OK for low Inflation and Interest Rate Outlook

Source: Yardeni Research Inc, 28 April 2014

Europe a basket case but no longer in Crisis

Breakup of Eurozone and demise of Euro$ no longer issues• Populations generally in favour of keeping Euro & European Union

together• Germans realised low Euro$ helped their exports• Greeks recognised risks of being cast out• Concern is more with how the politicians messed up so badly• Recent elections indicate the depth of feelin

Integrity of Eurozone always more than economics and politics• Real fear of return of nationalism and war• Human and Economic costs of breakup are high and unknown• Status of individual countries in break-up would drop even further

– Compared with USA, China, India, Russia

• Risks remain – Still significant differences on work and business practices, productivity,

social support• Contributing to horrendous unemployment, deflation

– Banks under undercapitalised, Private and Public Degearing – Populations generally growing slowly and rapidly ageing

• Bright Points– Technologies, fashions, brands: What the Emerging economies want

• Capital goods, Design services, inputs to manufacturing• High end consumer items: autos, airplanes, wine, foods, medicals • Buy the company – eg Volvo, Saab, Jaguar, Lenovo, RM Williams,

Smithfield Foods, – Services: Financial, Medical, Business, Tourism, Education – Property as a possible bolt-hole from Asia and Middle East

Europe a basket case but no longer in Crisis

Overseas Monetary Policies very Stimulatory

Aim is to Increase Inflation to 2% Cash Rates:

• Financial Repression• European Central Bank 0.25%, Bank of England 0.5%, USA 0.25%, Japan 0% • Keep retail deposit and loan interest rates very low: USA eg

– Mortgages: 30 Year fixed 4.25%, variable 3.26%; New car loan 5 yr 2.86%– CMA 0.62% (>$50,000), 5 year CD 1.4%, 10 year Bonds 2.7%

Quantitative Easing• To continue in Europe and Japan.

o Buying long term public and private debto Additional offset to Budget deficit reductions

• Pullback now in USA and UK with stronger economies

Growth Driven by Emerging Economies’ Urbanisation &

Middle Class Households

Major Changes for HumanityComing Down Out of the TreesFireAgricultureUrbanisationAgeing

Spending by the Global Middle Class$US billion, 2005 Purchasing Power Parity Exchange Rates

Source: OECD Development Centre Working Paper No 285,

The Emerging Middle Class in Developing Countries, Jan 2010

Global Motor Vehicle Market

Production of all motor vehicles, million

Motor vehicle fleet 2011

2006 2013 Total, million Per 1000 people

China 5.708 22.117 115 85

USA 11.980 11.045 253 812

Japan 10.800 9.630 75 589

Germany 5.758 5.718 52 634

South Korea 3.699 4.521 19 379

India 1.627 3.881 22 18

Brazil 2.528 3.740 50 259

The Rest 27.123 26.648

Total 69.223 87.300

Source: www.oica.net, wikipedia.org

Other sectors growing withRising Urban Middle Classes

Food• More, Greater Diversity, Better, More Western

– More Meat, Edible Oils, Dairy, Alcohol, Sugar, More take away– McDonalds aims to increase China stores by 50% to 2000 in

2013– Yum! Brands in China has 3,300 KFC & 651 Pizza Hut: aim is

20,000

Services• Travel, Education, Children’s expenses, Communication and

Entertainment, Health Care, Aged Care, Financial Services– Chinese tourists biggest spenders globally and in Australia in

2011/12:– Indians likely to be next largest– More living past work – Diseases of the West and the Aged– More outsourcing of aged care

Buying up Overseas Businesses, Farms and Resources– Motor vehicles, Pork, Dairy, Wine, Sugar, etc etc

Focus on Brands, Quality, Authenticity

Interest in Australian Dairies is not to sell us more Iced Coffee

$A now about right on current $US Commodity Prices

$A now about right on current $US Commodity Prices

China’s Growth on Target at 7.5 - 8.0% pa,but changing

Source: RBA Statement on Monetary Policy, May 2014

Spread benefits of growth• Increasing wages• Lift Value Add in Industry• Rising consumption• Better and more housing

• 10 million new homes pa

• Increased outbound tourism• Better care for Aged• Reduced pollution• More Western & better

quality foodReduced regulation• Finance• Trade

Source: China 2030, World Bank and Development Research Centre of the State Council, the People’s Republic of China, 2012

Some Indicative Numbers for China

2011 Constant value $US 2010 2020 2025 % change on 2010

GDP, $US billion 7,298 15,462 20,594 +182%

Investment, $US billion 3,386 5,876 7,414 +119%

Consumption, $US billion 3,547 9,278 12,975 +266%

Consumption per Head $US 2,630 6,650 9,200 250%

Sources: China 2030, World Bank and Development Research Centre of the State Council, the People’s Republic of China, 2012International Monetary Fund,Prescott Securities Ltd

Directions of Chinese Reforms

Some points from 3rd Plenary Session of 18th CPC Central Committee

– Improve and develop socialism with Chinese characteristics

o Build law-based and service oriented government o Modernise governing system 7 capabilities, Establish modern fiscal

system

– Set up Central Leading Team for comprehensively deepening reform

o Accelerate reforms in education, employment, income distribution, social security, public health

– Markets’ decisive role in allocating resourceso Public ownership remains dominant; More free trade zones, relax

investment restrictions – Allow people living outside cities to equally participate in

modernisationo Changes to residency system – Hukouo Property rights for farmers; New agribusiness systems

– Drawing red line for ecological protection– Relax one child policy

Provincial, State Owned Enterprises and City debts and guarantees• High, but owed to each other. Very low personal mortgage debt. • Very regionalised SOE, not national as in the USA • Low Central Government budget deficits and debt• Very high foreign currency reserves and real assets• Revamp of income tax system to reduce reliance on property transactions

Overbuilding• Still another 300m people are planned to shift to urban centres by 2030• Rail and road system still only a fraction of that in the USA for 4X population

Wages costs showing strong growth• Necessary to boost consumption, reduce savings, limit social unrest

Pollution and Ecological damage• Remediation and prevention are now a big focus

China Risks

The Budget and Commission of Audit

Budget Deficits need to be cut:• Not so much an issue now but will be chronic in the future• Income Tax and Interest Expense burden impacts

Sense of Entitlement needs to be wound back• Personal• Industrial • Business• State Governments

Productivity and Flexibility constraints have to be reduced

Risk of becoming the white trash of Asia

Focus of Policy:

“…the Budget we announce tonight is the first word and not the last word on Budget repair. There is much work that still needs to be done.”• Cut some entitlements, including in superannuation but main impacts are years out • Increase taxes on high income earners• Infrastructure Spending to build prosperity• Seems to be underlying concerns about robustness of the Australian economy

Dodged the Productivity issue, as have most Governments

Dodged the reform of the tax system

Focus of Policy?: “…the Budget we announce tonight is the first word and not the last word on Budget

repair. There is much work that still needs to be done.”• Cut some entitlements, including in superannuation but main impacts are years out • Increase taxes on high income earners• Infrastructure Spending to build prosperity• Seems to be underlying concerns about robustness of the Australian economy

Dodged the Productivity issue, as have most Governments

Dodged the reform of the tax system

12/13f 13/14e 14/15f 15/16f 16/17f 17/18f

Payments -% Growth -% of GDP

-1.025.9

+11.825.3

+0.424.8

+2.824.7

+4.624.8

+5.224.8

Receipts -% Growth -% of GDP

+6.223.1

+3.523.0

+6.123.6

+6.424.0

+6.424.4

+7.124.9

Cash Balance (Underlying) - $ billion -% of GDP

-18.8 -1.2

-49.9-3.1

-29.8-1.8

-17.1-1.0

-10.6-0.6

-2.8-0.2

Source: Australian Government 2014/15 Budget Paper No. 1

Major Financial Projections

Main Revenue ItemsCash Basis, $b and % change

12/13 13/14e 14/15e 15/16e 16/17p 17/18p

Individuals 156.3+5.7%

163.8+4.8%

178.8+9.2%

193.6+8.3%

208.3+7.6

223.7+7.4

Companies, FBT, RRTs 72.7-0.3%

73.7+1.4%

77.95.8%

82.2+5.5%

87.1+5.9%

91.7+5.3%

Superannuation 7.7+1.6%

6.5-14.8%

7.7+17.6%

10.4+35.1%

11.3+8.7

11.8+4.7

Excises and Customs 33.6+3.2%

34.7+3.5%

35.6+2.6%

36.7+3.1%

39.1+6.4%

41.0+4.8%

Sales Taxes 49.8+5.8%

52.2+4.9%

55.1+5.6%

58.4+6.0%

61.96.0%

65.35.6%

Carbon Pricing Mechanism(2013/14 Budget est)

3.6(+4.2)

7.2(+6.3)

1.7(+6.4)

0(+4.6)

All Taxes 326.4 341.6 360.4 385.3 411.7 437.6

Source: 2010/11 Federal Budget Paper No 1

Bracket and Super Creep Getting Worse

Source: Australian Government 2014/15 Budget Paper No. 1

Not A Sustainable Personal Tax Situation

Company Tax Rates and Take also High

Source:OECD.org /ctp/tax-policy/revenue-statistics-tables

Company Tax as % of GDP

Main Expense ItemsAccrual Basis , $b

12/13 13/14e 14/15e 15/16e 16/17p 17/18p

General Public Services 26.0 34.2 23.2 22.8 23.4 23.1

Defence 21.1 22.8 24.2 25.2 25.7 27.6

Education 28.5 29.7 29.6 30.2 31.8 32.8

Health 61.3 64.5 66.9 68.2 71.8 74.9

Social Security and Welfare 131.9 140.6 145.8 149.3 158.4 169.6

General Revenue Assistance to State and Local Governments

51.5 53.2 57.1 60.5 63.9 67.3

Public Debt Interest 12.5 13.5 14.7 16.1 17.2 17.9

Other 49.8 56.8 53.3 58.8 61.6 62.2

Total 382.6 415.3 414.8 431.1 453.8 475.4

Source: 2010/11 Federal Budget Paper No 1

Source: Australian Government 2014/15 Budget Paper No. 1

% change, inflation adjusted(Italicised are PSL forecasts)

10/11 11/12 12/13e 13/14f 14/15f 15/16f

Household Consumption 3.1 3.2 2.0 2.5 3 3.25

New Motor Vehicle Sales, m* 1.001 1.03 1.10 1.13 1.2 1.25Private Investment - Dwellings

3.0 -3.6 -0.1 3.5 7.5 5.5

No. of Private Dwellings Started (‘000)*

154 141 156 165 175 185

- Non Dwell. Construction 8.8 37.6 13.9 -2.5 -9.5 -12.5

- Equipment 3 10.1 -4.3 -9.5 -2 7

Private Final Demand 3 6.2 2.8 1.25 1.5 2

Public Final Demand 3.4 2.3 -1.3 1.75 1.5 1

Source: Australian Government 2014/15 Budget Paper No. 1

* PSL Forecasts

The Australian Economy: The Federal Government’s Forecasts

Consumer & Business Confidence Headingin Different Directions

Net Worth Improving But Households Likely to stay Big Savers

Source: RBA Chartpack June 2014

Private Investment Expected To Fall But Likely Less Dire

Gross Investment by Major Industry Sector, $b, Current $

2010/11 11/12 12/13 13/14 5th Est

14/15 1st Est

Mining 46.9 82.0 94.7 102.4 74.2

Manufacturing 12.3 13.2 9.4 8.9 6.3

Electricity, Gas & Water 6.2 5.4 5.4 5.9 5.0

Construction 5.4 4.7 4.2 3.3 1.7

Wholesale & Retail Trade 7.4 7.5 7.3 8.1 6.5

Transport, Post & Warehousing 11.6 13.7 10.7 11.6 8.4

Rental, Hiring & Real Estate 11.9 10.5 9.1 10.1 9.0

Other 17.6 17.9 24.1 16.8 13.7

Total 119.3 154.8 168.2 167.1 124.9 (121 – 156)

Source: ABS 5625.0 Private New Capital Expenditure and Expected Expenditure, Australia, Dec 2013

The Australian Economy: The Federal Government’s Forecasts

10/11 11/12 12/13e

13/14f 14/15f 15/16f

Employment, % change to June qtr 2.2 0.5 1.2 0.75 1.5 1.5

Unemployment Rate, % June qtr 4.9 5.25 5.6 6 6.25 6.25

Labour Force Participation Rate, % June qtr

65.5 65 65.1 64.75 64.5 64.5

Household Savings Ratio, % June qtr, trend

11.4 11.5 10.5 10

(PSL)

9

(PSL)

9

(PSL)

Source: Australian Government 2014/15 Budget Paper No. 1

The Australian Economy: The Federal Government’s Forecasts

% change, inflation adjusted

10/11 11/12 12/13e 13/14f 14/15f 15/16f

Exports 0.2 4.7 6 5.5 5.5 7

Imports 10.4 11.8 0.5 -3 2 2.5

-Net Contribution to Growth

-2 -1.3 1.2 1.75 1 1.25

Gross Domestic Product

2.0 3.4 2.6 2.75 2.5 3

Nominal GDP 8.3 5 2.5 4 3 4.75

Source: Australian Government 2014/15 Budget Paper No. 1

The Australian Economy:The Federal Government’s Forecasts

10/11 11/12f 12/13e 13/14f 14/15f 15/16f

Consumer Prices, % change to June qtr 3.6 1.2 2.4 3.25 2.25 2.5

Wage Price Index, % change to June qtr 3.8 3.7 2.9 2.75 3 3

Terms of Trade, % change +20.6 +0.4 -9.8 -5 -6.75 -1.75

Current Account Deficit

-$billion

-% of GDP

33.0

2.4

44.3

2.7

55.3

3.6

51.5

3.25

65

4

64

3.75

Source: Australian Government 2014/15 Budget Paper No. 1

RBA Forecasts for Inflation and Growth: - $A higher than earlier expected - Inflation in the 2-3% range

Source: RBA Statement on Monetary Policy, May 2010Source: RBA May 2014 Statement on Monetary Policy

Domestic Inflation and Wages Slowing, $A to again dampen Imported Inflation

Source: RBA Chartpack June 2014

Markets See Cash Rates on Hold to 2016

Longer Term Rates likely near cycle lows

Australian Share Prices & Profits

Australian Profits Rising but Investors stay Cautious

Forward Price/Earnings Ratios Up since May 2013 but Improved Earnings Outlook

Australia Late 80s

Now

Dividend Yields 4 - 5% 4.3%

Inflation 7–8% 2-3%

10 Year Govt Bonds 12–13% 4 - 4.25%

Source: RBA Chart Pack June 2014

Summary

Global Share markets should move higher in 2014• Profits growing strongly, huge cash holdings• US and European companies still technological leaders• New economies seeking brands and technologies• Emerging market turmoil will be short term and corralled • Western banks well capitalised and system liquidity is high• Financial markets regulation still poor, greed has not gone away• Interest rates remaining very low as Authorities err on side of caution

Australian share markets should also move higher• Investors still seeking income: Equities have attractions of franking credits • Retiring Baby Boomers will strengthen the demand for income generating

equities• Cash Interest rates on hold at 2.5% but yield curve steepening• Broader economy to lift through 2014/15: Housing, Private Consumption, Public

investment • Commodity prices should keep rising as global economy lifts• $A around $US0.90 - $US0.95• Continued rapid change makes stock selection very important

Some Issues for South Australia

Small, Regional Economy: 1.67 million people• Smaller than Western Sydney or Brisbane• Irrelevant nationally, Federal Focus elsewhere• Population older & ageing faster, sicker, less educated

– Housing, retail, tax base, attitudes, national representation

• No Exports, No growth• Industry structure still adapting from 1960s, skills shortages• High $A, More international competition

Restricted public finances• Low per capita income, slower population growth• Large Public Sector, High Deficits & Growing Debt • Likely less support from Federal Govt• Don’t criticise the Government

Where we are headed

Metropolitan Home Prices Flat, Activity Up

Auction clearance rates

March 2014 63%

Jan-Feb 2014 51%

March 2013 55%

Jan- Feb 2013 58%

For 2014• Employment flat, population to

grow • Interest Rates on hold to higher • Vacancy rates should steady• High land costs continue• Funding constraints to ease

further• Dominance of the big banks

impacting competition • First Home Buyer Affordability and

overall confidence are the big issues

Building Activity Starting to Recover

Food Turnover

Retail Turnover

Retail Turnover

Retail Turnover

Retail Turnover

SA New Motor Vehicle Sales

Business Confidence Down post electionsSensis Small and Medium Business Index, March qtr 2014

But Individual Expectations in SA Improving? Sensis Small and Medium Business Index, March qtr 2014

Economic Forecasts: South Australia

Retail Turnover % (Nominal, year total)

7.9 1.7 0.7 1 -0.4 3 5

New Motor Vehicle Sales (000)

59,400 66,080 62,836 65,340 70,268 70,000 73,000

Business Investment % (Real, New) Plant & Equipment, New 0.1 7.4 6.6 11 -17.2 0 5Non Residential Construction, New

12.3 -8.5 19.1 6 13.8 0 5

- Cultivated Bio Resources & Intel Property

-8.5 -2.2 11.1 7.6 9.3 8 8

Public Investment 27.3 56.9 -12.1 -7.1 -12.7 -10 -5

Unemployment Rate % (June, Trend)

5.6 5.4 5.3 5.6 6.3 7 7.3

Actuals ABS, forecasts , PSL, SA 2013/14 Budget Forecasts in parantheses

2008/09 2009/10 2010/11 2011/12

1.8

2012/13

Private Dwelling Commencements

11,676 11,061 10,058 8,653 8,367

1.2 1.6 -0.6

10,500

GSP(Total Output) % (Real) 2.3 1.2 2.3

Private Avg Weekly Earn % (FTAOT, (Yr to May)

7.4 0.7 4.5 3.2

Population Growth % (Yr to June)

1.3 1.1 0.8 1

4.5

0.8

1.3 +0.5 (2.5) +2 (+2.5)

4.6 4

0.9 0.8

0.4 -2 (+1) -1 (+1)

2014/15f2013/14f

9,000

Employment Growth % (Year to June, Trend)

0.7

South Australian Growth: Where?Gross Value Added, ABS Cat 5220.0

1989/90 - 1999/00

1999/00 - 2005/06

2005/06 - 2012/13

2012/13 Share of State Gross Value Added,

Current Prices

Health care and social assistance 3.1% 3.9% 3.4% 9.8% Supportive Demographics

Manufacturing 1.8% -1.3% 0.5% 9.0% Tough, changing

Financial and insurance services 3.7% 3.2% 5.0% 7.9% Stronger in 2014, Oligopoly

Construction 2.9% 5.1% 5.0% 7.6% Housing and public infrastructure

Public administration and safety 3.6% 3.2% 2.3% 6.8% Slower as cutbacks start

Professional, scientific and technical services 2.9% 4.0% 4.3% 6.8% Stronger from 2015

Agriculture, forestry and fishing -0.5% 7.3% 4.5% 6.3% Continue strong on overseas demand

Education and training 2.0% 1.4% 1.8% 5.9% Should lift on overseas demand

Retail trade 3.3% 4.5% 2.4% 5.6% Better but changing

Electricity, gas, water and waste services -1.3% 4.4% 1.3% 5.4% Slower on regulatory issues

Transport, postal and warehousing 3.0% 2.6% 3.8% 5.0% Tourism, online sales

Wholesale trade 2.8% 3.4% 3.7% 4.7% Online sales, OutsourcingMining 1.8% 0.7% 7.4% 3.8% Continue strong on overseas demand

Total of Above 84.8%

Average of Annual Rates, inflation adjusted

Business, Credit and Governance Issues

Asian Middle Class Urbanisation offers opportunities of a scale not seen before

– Quantitatively and Qualitatively– Issues of Skills, Infrastructure, Regulation, Costs

Ageing issuesAccelerating change means Demand and Revenue trends across

sectors and businesses will remain very mixed Tax and Public sector charges high in SA for the foreseeable future

• Public sector “restraint” not enough to sufficiently reduce high deficits

• SA ALP Government support for small business is shrinking– Needs change of focus– Increased support and/or reduced costs for local and small

business– Recognise State’s role in export infrastructure

• The Liberals are not a small G government party• Federal/State relationship changes will likely be adverse • Poor Productivity performance is a big challenge

Multifactor Productivity GrowthSelected Countries and Regions, Average annual growth rates, %

Sources:The Conference Board Total Economy Database TMPeter Harris, Chairman of the Productivity Commission, Speech to the May 2014 Conference of the Stock Brokers Association of Australia, Melbourne, Australia

Likely facing Slower Growthin Living Standards

Source: Australian Government 2014/15 Budget Paper No. 1

The changing world at a faster paces offers many and big opportunities for adaptive businesses:

– Industries are Changing, Emerging, Disappearing– Big established names being challenged and

destroyed – Labour and Government driven costs/regulatory load

need to be worked around– Staff shortages, Turnover and Expectations are all

increasing– Be prepared to have various working relationships – Being adaptable is likely to be more important than

having a detailed plan– Getting the Productivity challenge right will be a big

advantage

Business, Credit and Governance Issues

Keep up with Prescott Securities at www.prescottsecurities.com.au

@PrescottSec

@DarrylGobbett

@AndrewSterzl

@TravisAdamsCFA

http://www.youtube.com/PrescottSecurities

Prescott Securities Limited

245 Fullarton Road

Eastwood SA 5063

prescottsecurities.com.au

Thank You

© Governance Institute of Australia