AFRGA1 A017 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● www.afr.com | 18-19 February 2017 Companies AFRWEEKEND Lion global markets MD Matt Tapper has great ambitions for exporting craft beers to Asia. PHOTO: DOMINIC LORRIMER Lion’s Little Creatures tries to grow wings and crack the China market Beer appeal China’s middle class is ripe for a ‘crafty’ onslaught. Carrie LaFrenz Will China keep delivering? 8 - 9 March, 2017 | Sydney Book now afrsummit.com There are hundreds of millions of [millennials]. And they are incredibly connected in terms of technology, they are incredibly social and looking for new experiences. Matt Tapper, Lion head of global markets Continued next page From Fremantle to Hong Kong, brew- ing giant Lion is hoping to capitalise on China’s growing middle class and its changing tastes from traditional cheap local lager to craft beer like Little Creatures Pale Ale. China is not only the biggest con- sumer of alcoholic drinks in the world, taking the lead over the United States in 2011, but it is also set to become the world’s largest beer market in value this year. The niche $400 million craft beer segment in China has also grown rap- idly in recent years, as consumers look for premium products with new fuller tastes from smaller brewers. Lion has recently opened a Little Creatures brewery in up-and-coming Kennedy Town, in Hong Kong’s west, where there has been a surge in trendy bar and restaurant openings. Matt Tapper has worked at Lion for nearly two decades and is spearhead- ing the group’s push into Asia. As head of the recently formed seg- ment called global markets, he looks after beer and wine around the world and likens it to being part of a start-up within the behemoth food and bever- age company. Tapper is focused on growth mar- kets, and more specifically taking its highly successful home-grown craft beer hero, Little Creatures, to Asia, and beyond. The craft beer is already being sold in 15 countries outside Australia and New Zealand, five of them in Asia. ‘‘While it’s early days, we are seeing really positive signs in China with craft continuing to be an emerging category especially amongst the millennial con- sumers – those 18 or 20 to 35-year-olds are our primary focus,’’ he tells AFR Weekend. ‘‘There are hundreds of mil- lions of them. And they are incredibly connected in terms of technology, they are incredibly social and looking for new experiences, and they are highly trusting of great brands from our part of the world.’’ The micro-brewery sees 2500 weekly visitors looking for a premium craft beer experience. And it’s not just expats, with Tapper revealing half the customers are local Chinese. He expects similar trends in Shanghai, where Lion has opened a Little Creatures pop-up bar. It’s mulling the possibility of opening another pop-up in Singapore. ‘‘Hong Kong and main- land Chinese look to those Western bars as a lead indicator as to what’s popular,’’ says Tapper. Tapper says millennials are part of the emerging middle class, willing to pay for premium experiences, just like they would in other categories like tea and fashion. He has lofty goals that Little Creatures can be a leader in a number of global cities in craft beer. Big beer makers like Lion have scooped up smaller craft breweries to gain expos- ure as the traditional beer market goes backwards. Lion has also recently lost a number of popular imported brands like Corona and Stella Artois, following the merger of Anheuser-Busch InBev and SAB Miller. Lion, which is owned by Japan’s Kirin Holdings, bought the balance of WA-based Little World Beverages (Little Creatures’ owner) it did not already own in 2012 in a deal valuing the company at $382 million. It also bought White Rabbit at the same time. Other brands in its craft portfolio include NZ Panhead Custom Ales and Byron Bay Brewing Co, both which were bought last year. James Squire One Fifty Lashes is the best-selling craft beer by volume in Australia. Tapper says he has a lot of autonomy to experiment from the parent com- pany, and looks at the business unit through three-month cycles. He is focused on growing the Little Creatures presence in Asia through distributor partners, brand ambassadors and e-commerce sites like imbeer and Shanghai9, although he has set up shop on China’s e-shopping giant, Alibaba. ‘‘Being a reasonably impatient char- acter, I have aspirations that over five to 10 years we can make a significant dif- ference to Lion. I’m very focused on today, tomorrow and next week to find new sources of growth. And amplify those successes as quickly as we can,’’ he says. But it won’t be easy changing peo- ple’s taste, or competing with local cheap brews. China’s biggest selling beer is Snow – made by state-backed China Resources Enterprise – and it’s cheap at 4 rmb ($0.76) a can or 12 rmb ($2.28) a litre. Tapper says he’s not worried about going head-to-head with big brands, and the focus on premium products reflects a shift in China’s 1.4 billion con- sumers. Themenh Nguyen, co-founder of Upbeat mood punctuated by the misses Earnings season Vesna Poljak Continued p20 The profit season has helped lift the Australian sharemarket by almost 200 points but that has failed to spare mar- ket darlings such as Domino’s Pizza, Treasury Wine Estates and Magellan Financial Group from further pain as they collided with the reality of lofty expectations and high valuations. As of Friday, the S&P/ASX 200 Index closed at 5805.80, up 185 points since the start of February. Broad-based earnings upgrades and a bullish mood fuelled by the Trump rally and positive Chinese economic data mean Austra- lian companies are on track for a return to earnings per share growth in 2016-17 for the first year in three. But investors remain cautious about the quality of earnings. ‘‘I don’t think there’s a lot to shout about,’’ said Anton Tagliaferro, the founder of Investors Mutual. ‘‘The resources sector is going to have a good half but if you look at the results of Wesfarmers in areas like supermar- kets, Telstra in telco, CBA, they weren’t great results.’’ In spite of this, ‘‘we’ve got this hugely effervescent market like we’re going to the stars.’’ Mr Tagliaferro said were an investor to look past the market euphoria of Donald Trump’s election victory and China’s stimulus, not a lot has improved for the average Australian listed com- pany. ‘‘The truth is we’re still in this economy that’s grinding forward.’’ Algorithmic trading systems and in select cases, short-sellers, have exacer- bated falls in stocks on results day. That means the domestic reporting season has started to behave more like US stocks in the quarterly reporting cycle with big moves creating anguish for investors. While some share price reactions have proved inexplicable, the market darlings have seen even slightly disap- pointing results herald a punishing market response. Big falls in the past week came from Domino’s Pizza, down 14 per cent on Wednesday after failing to upgrade full- year profit high enough and inviting consensus downgrades; Treasury Wine Estates down 4.7 per cent on Tuesday, emphasising its focus on the United States; Magellan Financial Group down 4.5 per cent on Thursday after booking just $3.6 million in performance fees; and Cochlear, down 3.6 per cent on Tuesday amid a a sharp decline in Chinese government purchases. Bucking the trend was JB Hi-Fi which dismissed a cool retail sector to upgrade its full-year sales guidance; its shares rose more than 3 per cent. Companies reporting so far have delivered revenue growth on average of 3.2 per cent, earnings are ahead 6.8 per cent helped by cost manage- ment, and dividends are up 6.8 per cent, according to Credit Suisse. Assessing the performance of global equities, Mr Tagliaferro made a strong case for arguing that the market had gotten ahead of itself because the United States Federal Reserve is tight- ening monetary policy and inflation has bottomed, the volatility index is at depressed levels, China is ‘‘still unpre- dictable’’ and Europe’s issues risk Mauled Medibank retreats in order to move forward Insurance Ben Potter Continued p20 Medibank chief executive Craig Drum- mond says the private health insurer has no choice but to ‘‘go backwards’’ in operating profit for the full year as it fights to win back customers. The woes in the private health insur- ance sector crunched Medibank’s oper- ating profits in the December half year, but a big jump in investment income left the company with a flat bottom line profit. The investment boom papered over Medibank’s losing battle to retain members and net profit rose 1.9 per cent in the half year to December 31 to $231.9 million. But higher claims by members, investments in winning back soured customers and the costs of new inform- ation technology dragged health insur- ance operating profits down 8.2 per cent to $249.4 million. Overall operating profit fell 6.4 per cent to $250.2 million. Directors declared an interim dividend of 5.25¢ – up from 5¢ – out of earnings per share of 8.4¢ (8.3¢ previ- ously). Medibank reaffirmed earlier guid- ance that health insurance operating profit for the full year is expected to be about $490 million – down from $512 million last year. Mr Drummond said the increased spending on customer service, IT and benefits would more than account for the difference in operating year com- pared with last year. ‘‘We are saying we are going to go backwards,’’ he said. ‘‘This is about building sustainability into the busi- ness by investing in the customer.’’ Mr Drummond has previously warned that Medibank has not been serving its customers well and that private health insurance is at a ‘‘tipping
There are hundredsof millions of[millennials]. Andthey are incrediblyconnected in termsof technology, theyare incredibly socialand looking for newexperiences.Matt Tapper, Lion head of globalmarkets
Continued next page
From Fremantle to Hong Kong, brew-ing giant Lion is hoping to capitalise onChina’s growing middle class and itschanging tastes from traditional cheaplocal lager to craft beer like LittleCreatures Pale Ale.
China is not only the biggest con-sumer of alcoholic drinks in the world,taking the lead over the United States in2011, but it is also set to become theworld’s largest beer market in valuethis year.
The niche $400 million craft beersegment in China has also grown rap-idly in recent years, as consumers lookfor premium products with new fullertastes from smaller brewers.
Lion has recently opened a LittleCreatures brewery in up-and-comingKennedy Town, in Hong Kong’s west,where there has been a surge in trendybar and restaurant openings.
Matt Tapper has worked at Lion fornearly two decades and is spearhead-ing the group’s push into Asia.
As head of the recently formed seg-ment called global markets, he looksafter beer and wine around the worldand likens it to being part of a start-upwithin the behemoth food and bever-age company.
Tapper is focused on growth mar-kets, and more specifically taking itshighly successful home-grown craftbeer hero, Little Creatures, to Asia, andbeyond. The craft beer is already beingsold in 15 countries outside Australiaand New Zealand, five of them in Asia.
‘‘While it’s early days, we are seeingreally positive signs in China with craftcontinuing to be an emerging categoryespecially amongst the millennial con-sumers – those 18 or 20 to 35-year-oldsare our primary focus,’’ he tells AFRWeekend. ‘‘There are hundreds of mil-
lions of them. And they are incrediblyconnected in terms of technology, theyare incredibly social and looking fornew experiences, and they are highlytrusting of great brands from our partof the world.’’
The micro-brewery sees 2500weekly visitors looking for a premiumcraft beer experience. And it’s not justexpats, with Tapper revealing half thecustomers are local Chinese. Heexpects similar trends in Shanghai,where Lion has opened a Little
Creatures pop-up bar. It’s mulling thepossibility of opening another pop-upin Singapore. ‘‘Hong Kong and main-land Chinese look to those Westernbars as a lead indicator as to what’spopular,’’ says Tapper.
Tapper says millennials are part ofthe emerging middle class, willing topay for premium experiences, just likethey would in other categories like teaand fashion.
He has lofty goals that LittleCreatures can be a leader in a number
of global cities in craft beer. Big beermakers like Lion have scooped upsmaller craft breweries to gain expos-ure as the traditional beer market goesbackwards. Lion has also recently lost anumber of popular imported brandslike Corona and Stella Artois, followingthe merger of Anheuser-Busch InBevand SAB Miller.
Lion, which is owned by Japan’sKirin Holdings, bought the balance ofWA-based Little World Beverages(Little Creatures’ owner) it did notalready own in 2012 in a deal valuingthe company at $382 million. It alsobought White Rabbit at the same time.Other brands in its craft portfolioinclude NZ Panhead Custom Ales andByron Bay Brewing Co, both whichwere bought last year. James SquireOne Fifty Lashes is the best-selling craftbeer by volume in Australia.
Tapper says he has a lot of autonomyto experiment from the parent com-pany, and looks at the business unitthrough three-month cycles. He isfocused on growing the Little Creaturespresence in Asia through distributorpartners, brand ambassadors ande-commerce sites like imbeer andShanghai9, although he has set up shopon China’s e-shopping giant, Alibaba.
‘‘Being a reasonably impatient char-acter, I have aspirations that over five to10 years we can make a significant dif-ference to Lion. I’m very focused ontoday, tomorrow and next week to findnew sources of growth. And amplifythose successes as quickly as we can,’’he says.
But it won’t be easy changing peo-ple’s taste, or competing with localcheap brews.
China’s biggest selling beer is Snow –made by state-backed China ResourcesEnterprise – and it’s cheap at 4 rmb($0.76) a can or 12 rmb ($2.28) a litre.
Tapper says he’s not worried aboutgoing head-to-head with big brands,and the focus on premium productsreflects a shift in China’s 1.4 billion con-sumers.
The profit season has helped lift theAustralian sharemarket by almost 200points but that has failed to spare mar-ket darlings such as Domino’s Pizza,Treasury Wine Estates and MagellanFinancial Group from further pain asthey collided with the reality of loftyexpectations and high valuations.
As of Friday, the S&P/ASX 200 Indexclosed at 5805.80, up 185 points sincethe start of February. Broad-basedearnings upgrades and a bullish moodfuelled by the Trump rally and positiveChinese economic data mean Austra-lian companies are on track for areturn to earnings per share growth in2016-17 for the first year in three.
But investors remain cautious aboutthe quality of earnings.
‘‘I don’t think there’s a lot to shoutabout,’’ said Anton Tagliaferro, thefounder of Investors Mutual. ‘‘Theresources sector is going to have a goodhalf but if you look at the results ofWesfarmers in areas like supermar-kets, Telstra in telco, CBA, they weren’tgreat results.’’ In spite of this, ‘‘we’ve gotthis hugely effervescent market likewe’re going to the stars.’’
Mr Tagliaferro said were an investorto look past the market euphoria ofDonald Trump’s election victory andChina’s stimulus, not a lot has improvedfor the average Australian listed com-pany. ‘‘The truth is we’re still in thiseconomy that’s grinding forward.’’
Algorithmic trading systems and inselect cases, short-sellers, have exacer-bated falls in stocks on results day. That
means the domestic reporting seasonhas started to behave more like USstocks in the quarterly reporting cyclewith big moves creating anguish forinvestors.
While some share price reactionshave proved inexplicable, the marketdarlings have seen even slightly disap-pointing results herald a punishingmarket response.
Big falls in the past week came fromDomino’s Pizza, down 14 per cent onWednesday after failing to upgrade full-year profit high enough and invitingconsensus downgrades; Treasury WineEstates down 4.7 per cent on Tuesday,emphasising its focus on the UnitedStates; Magellan Financial Group down4.5 per cent on Thursday after bookingjust $3.6 million in performance fees;and Cochlear, down 3.6 per cent onTuesday amid a a sharp decline inChinese government purchases.
Bucking the trend was JB Hi-Fiwhich dismissed a cool retail sector toupgrade its full-year sales guidance; itsshares rose more than 3 per cent.
Companies reporting so far havedelivered revenue growth on averageof 3.2 per cent, earnings are ahead6.8 per cent helped by cost manage-ment, and dividends are up 6.8 percent, according to Credit Suisse.
Assessing the performance of globalequities, Mr Tagliaferro made a strongcase for arguing that the market hadgotten ahead of itself because theUnited States Federal Reserve is tight-ening monetary policy and inflationhas bottomed, the volatility index is atdepressed levels, China is ‘‘still unpre-dictable’’ and Europe’s issues risk
Medibank chief executive Craig Drum-mond says the private health insurerhas no choice but to ‘‘go backwards’’ inoperating profit for the full year as itfights to win back customers.
The woes in the private health insur-ance sector crunched Medibank’s oper-ating profits in the December half year,buta big jumpininvestment incomeleftthe company with a flat bottom lineprofit.
The investment boom papered overMedibank’s losing battle to retainmembers and net profit rose 1.9 percent in the half year to December 31 to$231.9 million.
But higher claims by members,investments in winning back souredcustomers and the costs of new inform-ation technology dragged health insur-ance operating profits down 8.2 per cent
to $249.4 million. Overall operatingprofit fell 6.4 per cent to $250.2 million.
Directors declared an interimdividend of 5.25¢ – up from 5¢ – out ofearnings per share of 8.4¢ (8.3¢ previ-ously).
Medibank reaffirmed earlier guid-ance that health insurance operatingprofit for the full year is expected to beabout $490 million – down from $512million last year.
Mr Drummond said the increasedspending on customer service, IT andbenefits would more than account forthe difference in operating year com-pared with last year.
‘‘We are saying we are going to gobackwards,’’ he said. ‘‘This is aboutbuilding sustainability into the busi-ness by investing in the customer.’’
Mr Drummond has previouslywarned that Medibank has not beenserving its customers well and thatprivate health insurance is at a ‘‘tipping
AFRGA1 A020
AFR18-19 February 2017The Australian Financial Review | www.afr.com
ANZ Banking Group’s quarterly updategave the sector another leg up on Fri-day as caution gave way to renewedoptimism for Australian banks.
The bank reported a 31 per cent risein cash profit to $2 billion for the threemonths to December 31 driven byhigher markets income, lower thanexpected provisioning and better con-tributions from its retail and commer-cial divisions.
Performance has been benchmar-ked against the average quarterly resultfrom the last two halves as the bankcontinues its transformation.
CEO Shayne Elliott said the resultwas evidence that the strategy to sim-plify activities was working and theoutlook for the bank was improving.
‘‘It is still too early to be definitiveabout the year as a whole, however thefirst quarter together with our experi-ence during the first six weeks of thesecond quarter suggests the creditenvironment is marginally better thanwe expected,’’ Mr Elliott said.
ANZ rose 1.8 per cent or 56¢ to $30.77on Friday, within striking distance ofthe bank’s 52-week high of $31.84. Therise was in contrast to the broader mar-ket, which was down 0.2 per cent.Commonwealth Bank and Westpacalso rose while NAB eased.
The one cloud on the horizon was a
decline in the net interest margin(NIM) or the difference between therate at which bank borrows and rate atwhich it lends. The bank said thedecline was ‘‘several’’ basis points (bps)but did not define the quantum.
Bank watchers have interpreted thestatement to mean a mid-single digitdecline from its NIM of 200 bps as ofSeptember 30, 2016.
Ausbil Investment Managementfounder and chief investment officerPaul Xiradis said that the figures repre-sented a solid result after accounting forthe one-offs including realised propertygains. The rise in funding costs howeverwas something to keep an eye on.
‘‘My concern is that the net interestmargin was weaker than anticipated.
Having said that, the quality of thebank’s loan book is strong, bad anddoubtful debts are receding and capitalpositions for all the banks are lookingquite strong.’’
The bank has said that the weaknessin NIM has come from higher fundingcosts that flowed from growth inhousehold and commercial deposits.
The $2 billion headline figure beatanalyst expectations by between$300 million and $400 million. Reven-ues grew at 7 per cent for the quarterwhile expenses were down 4 per cent,delivering the analyst community withthe highly sought after positive jaws.
Lower than expected provisioningfor bad and doubtful debts also contrib-uted to the result, with the bank report-
ing a small rise of 1.8 per cent to $283mfor the quarter.
Higher income from markets alsoprovided a handy fillip with the bankreporting a 40 per cent increase in mar-kets income to $706 million as bondprices fell and the USD strengthened.
The bank also singled out contactlesspayment systems such as Apple Payand Android Pay in attracting new cus-tomers. ANZ Bank is the only one of thebig four to embrace Apple Pay.
Macquarie analyst Victor Germansaid investors should be cautious aboutextrapolating the numbers to the restof calendar 2017, however the unexpec-tedly strong result should lead to around of 12-month consensus shareprice upgrades from analysts.
SOURCE: BLOOMBERG, FINANCIAL REVIEW
Share price moves after profit announcements
Rogue ones
Village Roadshow shares lost 5.6% after the film distributor, and theme park/cinema operator fell to a first-half loss and said it would consider asset sales to reduce debt.
Magellan Financial shares fell 4.5% after a 20% drop in interim profit.
Telstra shares lost 6.6%, the biggest one-day fall in six years, after interim profit fell 14.4% and investors fretted over CEO Andy Penn’s growthstrategy.
IOOF shares fell 7.7% after the wealth manager revealed its net profit fell 45%.
Nick Scali shares rose 9.6% on strong sofa sales, which CEO Anthony Scali linked to high property prices making home owners feel wealthy.
Aurizon shares rose 2.5% to a record high after investor response to new CEO Andrew Harding’s progress on reducing costs and his “cautiously optimistic” outlook.
FRIDAYMONDAY THURSDAYWEDNESDAYTUESDAY
l 45%.to highproperty pricesmakinghomeowners feel wealthy.
Domino’s Pizza shares slumped 14.5% aftera profit upgrade delivered by CEO Don Meijwas not big enough to satisfy investors.
par /operator fellto a first-halfloss and said it would consider asset sales toreduce debt.
r
Boral shares rose 6.1% after interim profit rose 12.3% and CEO Mike Kane said Aussie housing was “the gift that keeps on giving”.
Primary Health Care shares fell 11.9% after revenue fell and earnings guidance was downgraded.
+2.5%
-14.5%
-6.6%-7.7%
-4.5%-5.6%
+9.6%
+6.1%
-11.9%
MikeKane
AndyPenn
Don Meij
Misses punctuatethe upbeat mood
From page 17
returning to the fore. Yet, ‘‘you’ve got tobe a brave man shorting the market atthis stage because the momentum isclearly there,’’ he said.
The fund manager observed theimpact of increased competition insupermarkets and telcos, linking thetrend to the actions of central bankssuch as the Reserve Bank of Australialowering the cost of funding.
‘‘Your cost of funding is almost zero
and you can try and move into areaswhere the margins are good,’’ he said.That being the case, ‘‘exactly why ratesare this low is a little bit of a mystery.’’
Telstra missed estimates reporting a3.5 per cent fall in revenue, and earningsin the lower range of its guidance. Itsshares fell more than 6 per cent onThursday. Commonwealth Bank ofAustralia delivered a record interimcash profit of $4.89 billion on Wednes-day and lifted the interim dividend 1¢ to$1.99 a share but warned prudential reg-ulations were limiting investor loangrowth.
On Friday, ANZ Banking Group’squarterly update showed better cashprofits but a decrease in net interest
margin of ‘‘several basis points’’ whichANZ said reflected lower earnings oncapital and higher funding costs.
ASIC’s reported short positions datashows that the stocks in the line of fireinclude Aconex, which delivered aprofit downgrade in confession season,Mayne Pharma, Myer, Nine Entertain-ment, Syrah Resources, TFS Corp,Vocus Group, Western Areas andWorleyParsons.
Fund manager Ben Griffiths fromEley Griffiths said it was still early in thereporting season to draw conclusionson sectors, but in his view the bankshave managed to meet expectationsjudging by the numbers out of CBA andANZ.
Medibank retreats inorder to go forward
Craig Drummond says Medibank will go backwards at first. PHOTO: PAT SCALA
From page 17
point’’ with members downgradingpolicies or dropping out altogetherafter years of health costs running twoto three times above income growth.
He acknowledged Medibank – whichis fighting to retain its market leader-ship – still has a long way to go.
‘‘We still have a long way to go todeliver on our commitment to be bestin class among our major privatehealth insurance peers BUPA, HCF andNib,’’ he said.
About 63,000 policyholders quit thecore Medibank Private brand fromDecember 2015 to December 2016,although this was partly offset by anincrease of 22,000 in policies issued byAHM, which offers policies through
aggregators and has a younger clien-tele.
Medibank sustained customer com-plaints at more than twice the rate of itsmarket share – 61 per cent – in theSeptember quarter. Mr Drummondsaid this fell to 48 per cent in theDecember quarter and he was confid-ent it would be below share by the endof this year.
Medibank’s market share by policiesslipped below 30 per cent five years ago
and slid to 27.6 per cent – just abovenumber two BUPA – by June 30 lastyear. Medibank already lagged behindBUPA in revenue, and the slide in shareof policies continued to 27.2 per cent byDecember.
Management have given themselves
three years to turn around the marketshare slide. Mike Murray, healthcareanalyst at Australian Ethical Invest-ment, said the fund was happy to con-tinue to hold Medibank shares.
‘‘We think the stock is a premierasset with a low capital requirement
and a great market position. We thinkthe company is doing the right thingand eventually they’ll get their marketshare stabilised and their IT sorted andthey’ll be in a good position.’’
The shares shed 10¢ to $2.70 by mid-afternoon, well down on the $3.28 peakthey touched in May last year beforeMedibank owned up to the depth of itsoperating problems. The shares wereissued at $2 to retail investors and $2.15to institutions in a heavily hyped publicfloat just over two years ago.
Medibank took advantage of strongfinancial markets in the latter half oflast year to book $76.8 million in invest-ment income – which it earns on itscapital accumulated over the years –compared with just $18.6 million in theyear-earlier period.
But struggles in the core health insur-ance business were apparent. Premiumincome grew by just 1.2 per cent. Overallrevenue inched up 0.5 per cent cent –well below inflation – to $3.39 billion.
Job losses in the back offices of somefinancial services giants may be the res-ult of the Australian SecuritiesExchange’s plan to redesign its systemsusing a ‘‘blockchain’’, but chief execut-ive Dominic Stevens says the ‘‘pro-found’’ pay-off for the industry will beworth the pain.
‘‘There is a whole industry aroundreconciliation and if there was a centralpoint that everyone, including investors,auditors, intermediaries, the regulator,the ASX could rely on and see it at thesame time, it could be rolled out on anenterprise wide basis,’’ he said. ‘‘It can beprofound for the industry as far as costsaving is concerned in the reconciliationprocess and as far as the operationalparts of financial services firms.’’
Mr Stevens could not be drawn onthe numbers of jobs that may be lost,but he said it was important for theindustry to ‘‘keep moving on forward’’.
‘‘It’s hard for me to say because I’mnot running a back office at these organ-isations, but as to the jobs, there will beefficiencies brought about by electronicreconciliation, replacing manualstraight-through processes,’’ he said.
‘‘The winners in the last 30 years havebeen those countries and organisationswho welcome that and try to work withit rather than saying ‘we want to ignorethe technology because we’re worriedabout the implications’.’’
As part of the plan, the ASX has beenengaging in large-scale stakeholder
conversations about the work it isdoing with Digital Asset Holdings tobuild a ‘‘distributed ledger’’ that couldultimately replace the clearing and set-tlement systems provided by the ASXthrough its CHESS platform.
Mr Stevens’ comments came as theASX posted a 3 per cent rise in half-yearunderlying net profit to $219.4 million,which he attributed in part to the trad-ing activity surrounding the election ofUS President Donald Trump.
Total revenue was $386.6 million, up2.8 per cent or $10.4 million.
‘‘The confidence I expressed in thequality of the ASX business when Ibecame CEO is borne out in the com-pany’s financial results for the first sixmonths of the 2017 financial year andits progress on key strategic initiatives,’’Mr Stevens said.
An interim dividend of $1.02 fullyfranked was declared, up 2.9 per cent.
The stock is up 22.35 per cent for theyear to December 2016.
The benchmark S&P/ASX 200 indexwas up about 12 per cent over the sameperiod.
ASXHalf year 2017 2016
Sales ($m) 465.2 455.2Pre-tax ($m) 311.9 304.0Net ($m) 219.4 213.1EPS 113.4 110.2Int div $1.02 99.1¢Payable* March 29
