At the time of writing the profit-reporting season was drawing to an end. So prepare to be inundated with post-mortems of the results by analysts, investor websites and the media over the coming week. In aggregate, profits lifted by almost 87% over the year to $40 billion. Clearly this result is significantly affected by bell-whether companies like BHP Billiton and News Corp. But stripping out those companies still reveals a 30% lift in aggregate earnings. And averaging the results reveals a similarly impressive 45% lift in earnings. In the smaller sample of 34 ASX 200 companies reporting half-yearly results, earnings have lifted on average by 78% compared with a year ago.
Interestingly, the lift in profitability wasn’t driven by consistent gains in sales (revenue). In fact average revenue growth was just under 5%. But neither were businesses slashing expenses to boost profitability. On average across the major companies, expenses fell by 5% over the year. But unlike last year write downs certainly weren’t an influence on profit results. A year ago companies (especially in finance and property sectors) were forced to downwardly mark to market the value of assets but over the past year asset values stabilised and there were rare upward revisions.

One other stand-out feature of the profit-reporting season has been the sharp lift in cash holdings. As at June 30, the 138 ASX 200 companies that have reported results had cash holdings of almost $100 billion, up 13% on a year ago. Not only are companies back in the black but they are cashed up for expansion. Retained earnings are even healthier at $136 billion, up 15% on a year ago.

Bloomberg has also compared the latest profit results with analyst expectations. Of the companies that reported full-year earnings, 45% were above consensus earnings per share estimates while 55% fell short of estimates. (Bloomberg assigns results to either positive or negative surprises and doesn’t have an “in line” category). Most positive surprises were in the basic materials sector (58%) while only 32% of results in the financial sector beat expectations.

While there was some disappointment on earnings from an analyst perspective, the lack of guidance from companies has also been a concern. Overall, analysts and investors alike should be happy with the health of company balance sheets, but as always it is the uncertain future that dominates. And that suggests that the sharemarket will continue to move sideways until better signs emerge on the US economy.

The week ahead

In the coming week not only does the calendar flip over from August to September but winter comes to an end. And as is usual with a change in seasons, there will be barrage of economic data to usher in the transition to spring. In fact there are no fewer than a dozen key indicators to be released over the week with GDP (economic growth) figures one of the stand-outs on Wednesday.

On Monday the Bureau of Statistics releases data on profits, sales and inventories. On Tuesday (”terrific Tuesday”) retail trade, building approvals, government finance, private sector credit and the current account are issued with a speech by Reserve Bank Assistant Governor Guy Debelle thrown in for good measure. The Performance of Manufacturing index is released on Wednesday alongside the GDP figures while international trade is issued on Thursday and the Performance of Services index and tourism data are slated for Friday.

At this early stage of data collection, we expect that the Australian economy grew by 1.1% with household spending and dwelling construction both higher and the trade sector likely to add a small 0.1 percentage point contribution to growth. Overall the result will signify that Australia is well on its way to notching up 20 consecutive years of economic growth, but it will mask the weakening in economic momentum over the past two months.

This loss of momentum has clearly shown up in consumer spending, up just 0.5% over the past five months. But the longer that the Reserve Bank stays on the interest rate sidelines, the better the outlook for retailers will be. We expect that retail trade lifted 0.4% in July after a 0.2% gain in June.

Dwelling approvals probably rose by 1.5% in July, for the simple fact that recent declines appear over-done. In fact approvals have fallen in five of the past six months and fell by 3.3% in June.

Of the other data, expect another solid trade surplus, flat readings for manufacturing and services activity and further weakness in tourism flows.

If the US is to avoid a ‘double-dip’ recession it all boils down to whether there is a pickup in job growth. If jobs aren’t created, consumers don’t spend and businesses don’t receive income, causing them to constrain investment and employment. Certainly businesses have been making money but they have been more focussed on cutting debt rather than growing.

Unfortunately economists don’t believe that the start of the jobs recovery began in August with predictions that only 44,000 private sector jobs were created in the month. And unemployment is tipped to have lifted modestly from 9.5% to 9.6 cent with no change in the average number of hours worked.

The other economic indicators are expected to provide mixed readings. Personal income and spending may have both lifted by 0.3% (Monday). And consumer confidence may have also edged higher in the latest month (Tuesday). But economists believe that the ISM manufacturing index eased from 55.5 to 53.3 in August (Wednesday) while the ISM services index may have also softened in the month (Friday).

Other indicators to watch over the week include house prices (Tuesday); construction spending, auto sales and the ADP employment index (Wednesday); and pending home sales (Thursday).

Sharemarket

If the conventional wisdom is to be believed, the Australian economy will continue to be protected from any gloom in the US and Europe by virtue of its strong links to Asia, especially China. But that rationale certainly hasn’t played out on the sharemarket – for this year at least. Two-thirds of the year is almost over and the Australian sharemarket has fallen by just over 10%. By contrast the US Dow Jones is holding up far better, even with an economy at risk of a double-dip recession. The Dow Jones has only fallen 3.5% over the year with the Nasdaq down 5.6%. Even in Europe the German Dax has only fallen 1% this year while the UK FTSE is down by 5.6%.

We haven’t changed our projection for the end of the year, but it is looking more challenging by the day. CommSec continues to tip the All Ordinaries/ASX 200 at 4,800 points by end year. While company balance sheets are healthy and the outlook for the Australian economy remains promising, our sharemarket continues to track offshore markets closely, especially the US Dow Jones.

Interest rates, currencies & commodities

The gap between fixed and variable mortgage rates has narrowed markedly in recent months and the process may have further to go. The Reserve Bank reports that 3-year fixed rates are around 7.50% currently, compared with 7.40% for the standard variable rate. Earlier this year, fixed rates were just over one percentage point higher than variable rates. In large part the gap has narrowed because variable rates have risen. But fixed rates have also eased 30 basis points between April and July. And with market rates down around 25 basis points over the past fortnight, fixed housing rates could fall even further, dropping below the variable rate. Just goes to show that you always need to keep your eye on the ball.

The Australian dollar is on track for a very average year. Over the past 25 years, the Aussie dollar has fluctuated on average by US13.5 cents a year. So far this year the Aussie dollar has moved US13.2 cents.

Setting fees is always a difficult proposition for service businesses and pricing an intangible is much harder than pricing a product. Your fee will, however, represent what you and your expertise are worth.
Get paid what you’re worth.  Setting fees that will represent what you are worth and make money for your business, is based on good judgment, knowing your client, having a good sense of self worth and also knowing what your options are.

Service Fee Options
Hourly fee: This option pays you for your time. This is not advisable as it is severely limiting to the growth of your business, and affects your perceived value with your clients. When you bill this way, each professional in the firm and every support person eventually reaches their limit of billable hours and then you need to add a new resource to the firm. As a client, I always wonder if I’m being billed as I chat on the phone to my accountant and he asks me about my holiday…tick, tick, tick…I always get the feeling that the focus is on billing more than service.

Contingency/success fee: This often comes to play when your service is helping a client to win a major piece of business, tender or project. If you charge a fee contingent upon success, you will only get paid when the client wins the business, although you are certainly backing yourself! However, there are many things that can affect the outcome over which you have no control. It is far better to charge for the service, and if the stakes are high, charge a success fee on top of that. It’s like a bonus for exceptional performance.

Project fee:   The best way to charge a set fee for a project is in staggered tranches. For example, you will always be paid faster if you don’t start the project until you receive the commencement fee. If the project is to take five months, for example, and you leave the bulk of the amount to be invoiced at completion, you may not be paid for eight months. A better option is 50 percent up front, 30 percent at completion of a (pre-agreed) major milestone and the remainder on completion of the project. Alternatively, you may decide to invoice 50 percent up front and 50 percent on completion if it is a relatively short project. Never leave the bulk of the fees to be invoiced at the end of the project.

Retainer: A retainer is the ultimate goal of all people in the service profession.  There are many forms for different types of services: monthly fee retainer for the provision of ongoing consulting/advisory services, monthly support fee (for software), monthly licence fee, monthly fee to be available on request for support/training, and so on. You may decide to charge a retainer on a monthly or quarterly basis in advance.  Do not nter into a retainer arrangement where you are paid after the service has been delivered. You could end up delivering three months of service and wondering when you will be paid. If your clients really need your help, they will accept your terms – terms that are agreeable to you!

To be continued…   (Reprint from DynamicBusiness.com.au)

Australia’s property market is ripe for investors.  If you own a property and think property investing is out of your league, then it’s probably time to reconsider.  The past few years have seen a dramatic increase in property prices so there’s a good chance of having a nice amount of equity waiting to be used.  If, however, city median house prices are above what you can afford, why not consider a mining town?

Thanks to revisions in the RSPT and a bound back in commodities, now might be the right time to snap up property in Australia’s mining towns, said Cameron Kusher, RP Data senior analyst.  It now seems the resources sector are moving back up after a sluggish growth during the peak of the global financial crisis that began in September 2007, where many mines either scaled back or closed down.

Although mining areas were considered high risk investments, it may also have high rewards.   What makes the risks acceptable is that mining towns can have particularly high returns.

One town known for being such is Moranbah, a large coal mining town in the Bowen Basin in Queensland, which accumulated 9% in rental yields in April and the five year grown rate rests at 102%, according to RP date figures.

In RP data released on July 18, below are three regions where house prices should rise:

§  Northwest Western Australia, especially iron ore-rich towns of Karratha and Dampier;

§  Coalfield town in Queensland such as Moranbah, Dysart and Clermont, all located in the Bowen Basin;

§  Queensland’s Western Downs, popular for burgeoning coal-seam gas industry.

“There is likely to be a higher level of demand for Australian mines to pull resources out of the ground at a more rapid pace,” said Kusher. “That means more workers and more demand for housing in what are generally chronically undersupplied markets.”

In Queensland’s Bowen Basin, median prices were $405,000 and median rents for houses were a whopping $750 a week. Not a bad starting price considering predicted growth.

If you feel like burning a little more cash, WA might be the place to go where house prices fell by 9.3% last year.  Median house prices in north-west WA now sit at $880,000, 3.3% below the peak and rents are high – on average around $1575 a week.  This results in a 9.3% rent return – outstanding in anyone’s books.

While buying in a high risk area certainly has its advantages, you need to be prepared to think fast, and smart. If you’re new to the investment game, try to learn as much as you can from experts in the field and reputable publications and decide on the best investment strategy that will work for you. (With report from YourMortgage.com.au)

Businesses worldwide are finding it increasingly difficult to plan ahead in the economic downturn.  This  was reported last November by the ICAEW’s 2009 Global Enterprise Survey which set out a comprehensive picture of how the crises has impacted organisations around the globe.

Although Australia was considered to be let off with the main effects of the downturn compared with the UK, Europe, Asia, and the USA we are still competing in a global market.  If we step back and look at the current situation here and with the rest of the world we have no room to be complacent.  We suggest you use our specialists in business recovery to do a safety check on your business.  Learn more

Recent Federal Court decisions have reasserted the powers of the Australian Securities and Investments Commission (ASIC) to disqualify company directors who have failed to fulfill their responsibilities.

The Full Court of the Federal Court of Australia this week dismissed an appeal initiated by Brian Malcolm Culley, who challenged ASIC’s decision to disqualify him from managing corporations for two years.
ASIC stated that the Full Court’s dismissal of the appeal is significant because it reaffirms ASIC’s power to disqualify directors within a “reasonable time”.

ASIC stated that the recent decisions serve to protect future creditors, investors and employees who may otherwise be involved with a director who has a history of being involved in failed companies.