Top Business News Stories - 24 June 2024

Myer Proposes Major Acquisition of Premier Investments' Apparel Brands

In a bold move set to reshape Australia's retail landscape, Myer has proposed acquiring Premier Investments' Apparel Brands division. This strategic acquisition would bring iconic brands like Just Jeans, Jay Jays, Portmans, and Dotti under Myer's umbrella.

The proposal, part of a broader review led by Myer's new executive chairwoman Olivia Wirth, would see Premier receive new Myer shares in exchange for its Apparel Brands. Premier would then distribute these shares to its shareholders, with billionaire Solomon Lew becoming Myer's largest investor.

Key points of the proposal:

• Myer to acquire Premier's Apparel Brands division
• Premier shareholders to receive Myer shares
• Solomon Lew to own nearly 30% of Myer

The potential deal has already sparked market enthusiasm, with Myer's shares surging 20% to 77 cents, valuing the company at $577 million.

Wirth highlighted the significant opportunity to reinvest in Myer's product offering and customer engagement capabilities. "The combination of Myer and Apparel Brands offers significant potential synergies and prospects for growth," she stated.

Industry analysts suggest the Apparel Brands division could be worth around $1.2 billion. The merger could deliver substantial synergies in purchasing and procurement, potentially driving sustainable earnings growth for Myer.

As due diligence proceeds, this proposed acquisition could mark the biggest shake-up in Solomon Lew's retail empire in nearly two decades, potentially reshaping Australia's retail sector.

Cettire Shares Plunge as Luxury E-commerce Faces Headwinds

ASX-listed luxury fashion retailer Cettire has experienced a significant setback, with its shares plummeting nearly 40% following a profit warning. The company announced that its full-year earnings are expected to fall more than 20% below analyst forecasts, citing challenges in the luxury e-commerce sector.

Key Points:

• Adjusted EBITDA forecast between $32 million and $35 million, well below the $44.1 million consensus estimate
• Annual sales projected at $735-$745 million, missing the $750 million analyst expectations
• Shares dropped to $1.345, down from $2.24 at Friday's close
• Challenging environment during northern spring and summer promotional period

The luxury e-commerce industry has faced significant hurdles in 2024, with players like Matchesfashion facing bankruptcy and Farfetch requiring a bailout. Even luxury giant Richemont is scaling back its online retail exposure.

Cettire, known for undercutting larger rivals, had hoped to capitalise on industry struggles. However, the company has not been immune to the wave of discounting as weaker operators flood the market with marked-down goods.

The profit warning has divided opinion among investors. While hedge funds Regal and Cat Rock have increased their stakes, short interest in the stock has risen to 7% of shares on issue.

Analysts have described the update as "weak" during a key trading period, with some suggesting the company may have been loss-making in the fourth quarter.

As the luxury e-commerce landscape continues to evolve, Cettire's ability to navigate these challenges will be crucial for its future success in the Australian market.

Star Entertainment Group Faces Earnings Slump Amid Sydney Licence Uncertainty

Star Entertainment Group, a leading Australian casino operator, has warned shareholders of a significant drop in full-year earnings. The company is grappling with multiple challenges as it awaits a decision on its Sydney casino licence.

Key Factors Impacting Earnings

1. High-roller exodus
2. Persistent cost-of-living pressures
3. Rising remediation costs

Star expects group revenue of $1.68-1.69 billion and normalised EBITDA of $165-180 million for the year ending 30 June 2024. This represents a substantial decline from the previous year's figures of $1.9 billion in revenue and $317 million in earnings.

Leadership Changes and Challenges

• Ben Heap has officially left his position as interim CEO and board member
• CFO Neale O'Connell will assume CEO responsibilities until a successor is found
• A new group CEO announcement is expected in the "near term"

Sydney Casino Licence at Stake

The fate of Star's Sydney casino licence hangs in the balance as an inquiry assesses the company's cultural changes, financial resources, and compliance with internal controls. The final report is due on 31 July 2024.

Financial Outlook and Strategy

• 3.3% fall in revenue for the quarter, primarily due to economic conditions
• Significant drops in premium gaming revenue across Gold Coast, Brisbane, and Sydney properties
• Plans to reduce operating costs and sell non-core assets

As Star Entertainment Group navigates these challenges, investors and industry observers are closely watching the company's efforts to secure its future in the Australian casino market.

Armaguard Secures $50 Million Lifeline from Major Customers

Australia's sole cash transport company, Armaguard, has secured a crucial $50 million bailout from its eight largest customers, including major banks and retailers. This financial lifeline comes as the company grapples with the challenges of declining cash usage across the nation.

Key Points:

• Armaguard to receive up to $50 million over the next 12 months
• Eight major customers, including big four banks, to provide monthly payments
• Forensic accountant to oversee financial compliance
• Independent pricing arrangement to be implemented

The deal ensures Armaguard's survival for at least another year, allowing the industry time to develop a more sustainable model for cash distribution. This comes after Armaguard rejected a previous bailout offer in March, citing concerns over commercial information disclosure.

Cash usage in Australia has plummeted from over 60% of transactions in 2010 to just 13% in 2022, severely impacting Armaguard's business model. The company has struggled to maintain its nationwide cash delivery services as volumes decrease and costs rise.

Bailout Conditions

Under the agreement, Armaguard must meet specific efficiency and restructuring targets. A forensic accountant will monitor the company's books to ensure compliance and prevent fund diversion to parent company Linfox.

The eight major customers - Commonwealth Bank, ANZ, Westpac, NAB, Coles, Woolworths, Bunnings, and Australia Post - have insisted on an independent pricing arrangement to address concerns over Armaguard's monopoly in cash transport.

While Australia rapidly transitions to a cashless economy, with mobile wallet transactions soaring from $750 million to $93 billion over four years, cash remains crucial for many Australians. The Reserve Bank reports that one in four Australians would face significant hardship without access to cash.

This bailout aims to stabilise cash distribution services and prevent potential disruptions that could lead to cash hoarding or financial instability.

Cleanaway's Citywide Waste Acquisition Faces Potential ACCC Hurdles

Cleanaway's recent $110 million acquisition of Citywide's waste and recycling business in Melbourne has raised eyebrows among industry experts, drawing parallels to Veolia Environnement's 2021 purchase of Suez.

The deal, which includes a $35 million investment to redevelop the Dynon Road waste transfer station, may face scrutiny from the Australian Competition & Consumer Commission (ACCC) due to concerns over market competition.

An unnamed industry source told Business Australia News, "You can draw parallels with Veolia. There's some uncertainty it will get the green light from the ACCC."

The acquisition gives Cleanaway access to Victoria's second-largest waste transfer station and approximately 1,500 municipal, commercial, and industrial customers in Melbourne. This move could potentially reduce competition in the city's waste disposal and collection market.

RBC Capital Markets analysts view the acquisition positively, stating it "appears sound" and is expected to "deliver valuable efficiencies and facilitate growth" for Cleanaway.

However, the ACCC's past decisions, such as requiring Veolia to divest certain assets to Remondis following its Suez acquisition, suggest that Cleanaway may face similar regulatory hurdles.

As the waste management landscape in Australia continues to evolve, all eyes will be on the ACCC's decision regarding this significant industry consolidation.

Corporate Climate Action: Challenges and Setbacks in Australia

In recent years, many Australian businesses have faced difficulties in meeting their climate goals. Despite initial enthusiasm, companies are now grappling with the complexities of reducing greenhouse gas emissions and implementing sustainable practices.

Key Challenges

1. Underestimated Complexity: Many organisations set ambitious targets without fully understanding the work involved.
2. Technology Gaps: Some industries struggle with clean energy solutions for manufacturing processes.
3. Regulatory Uncertainty: Lack of clear government policies and support hinders progress.
4. Infrastructure Delays: Slow rollout of renewable energy capacity and grid connections impede transition efforts.
5. Measurement Issues: Inconsistent carbon footprint calculation methods create confusion.

Notable Examples

• Unilever scrapped plastic pollution and biodiversity goals, citing unpreparedness.
• Bank of America softened its stance on financing fossil fuel projects.
• Volkswagen adjusted its emissions reduction timeline, pushing targets to 2030.

Investor Perspective

Large investors are now demanding evidence of action rather than mere ambition. Climate Action 100+, a group of 700 major investors, has shifted focus from target-setting to implementation.

Looking Ahead

Despite setbacks, progress continues. The Energy & Climate Intelligence Unit reports that over two-thirds of annual revenues from the world's largest companies are now aligned with net-zero goals.

As Australian businesses navigate these challenges, improved regulations, technological advancements, and consistent measurement standards will be crucial for achieving meaningful climate action.

Japanese Firms Leverage Australian Gas to Boost Regional Influence

In a strategic move to counter China's growing influence in South-East Asia, Japanese energy giants are capitalising on surplus Australian gas. Companies like JERA, Mitsubishi, and Tokyo Gas are on-selling approximately 38 million tonnes of liquefied natural gas (LNG) annually to countries including the Philippines, Vietnam, and India.

This clever manoeuvre comes despite Japan's declining domestic LNG demand, which is expected to drop by 25% by 2030 due to increased renewable and nuclear power generation. The surplus gas is being used to forge stronger economic ties in the region, with Japanese firms investing heavily in distribution infrastructure.

Former Japanese ambassador Yamagami Shingo's vigorous lobbying for increased LNG development in Australia now appears to have been part of this broader strategy. Japan's Ministry of Economy, Trade and Industry (METI) has set an ambitious target for Japanese companies to buy and sell 100 megatons of LNG by 2030, far exceeding projected domestic needs.

This approach allows Japan to:

1. Secure its economic future as an energy trader
2. Strengthen relationships with rapidly developing economies
3. Compete with China's Belt & Road Initiative

Japanese companies are establishing LNG-fired power plants and distribution assets across South-East Asia, capitalising on the region's growing energy demands. For instance, Tokyo Gas recently signed a five-year agreement to operate an LNG terminal in the Philippines.

As Japan positions itself as a key player in the regional energy market, it's clear that Australian gas will continue to play a crucial role in shaping the geopolitical landscape of South-East Asia.

Melbourne AI Firm Affinda Doubles Valuation in 18 Months

Melbourne-based artificial intelligence company Affinda Group has secured $10 million in funding, doubling its valuation to $120 million in just 18 months. The 12-year-old firm, led by brothers Ben and Tim Toner, has attracted major law firms and ASX-listed companies as clients for its innovative document processing solutions.

Key Highlights:

• Affinda raised $10 million from investors, including Paul Little's family office and former MYOB CEO Greg Ellis
• The company's valuation has jumped from $60 million to $120 million since 2022
• Affinda plans to expand its workforce from 65 to 100 employees within the next year
• The firm's products include Draftable for document comparison and Affinda for processing resumes and other documents

CEO Tim Toner told The Australian Financial Review that the company has been profitable for years but decided to raise capital to capitalise on the growing interest in AI solutions. "We've been around for 12 years, growing as fast as a start-up, but we're thinking about more of a scale-up growth expansion stage now," Toner said.

Affinda's success stems from its high-profit margins and innovative AI-powered solutions. The company's Draftable product is used by law firms like Allens for document comparison, while recruitment firm Seek utilises Affinda to process multilingual resumes.

The recent funding will be used to hire AI engineers, software engineers, data scientists, and sales and marketing experts. Toner emphasised the company's preference for patient investors over venture capital, stating that he and his brother view Affinda as their life's work.

As AI continues to transform industries, Affinda is well-positioned to capitalise on the growing demand for intelligent document processing solutions in Australia and beyond.

Sydney Property Veteran Launches Co-Working Hub in Former WeWork Space

In a bold move to fill the void left by WeWork's departure, Sydney property veteran Phillip George has launched his own co-working business, King Street Studios, in the heart of the CBD.

WeWork's exit from 66 King Street last year was part of the company's global restructuring efforts before its recent collapse. Rather than seeking a new tenant, Mr George saw an opportunity to capitalise on changing work preferences and launched King Street Studios.

"I believe people will be back to the office sooner than you think," Mr George said. "Businesses are under stress, productivity is low, and unemployment may rise. You cannot move up the corporate ladder by working from home."