All articles in Volume 12 Issue 23

Identifying India’s high potential

India

Understanding India’s economic geography is crucial for companies looking to maximise growth opportunities in the country, says McKinsey & Company.

But to make the most of it, particularly if Australia finalises a free trade agreement with India, companies must identify growth opportunities at a granular level by pinpointing growth drivers and high-potential markets.

In a paper entitled India’s economic geography in 2025: States, clusters and cities, McKinsey focuses on distinct geographic opportunity at each level of granularity and finds that India’s 29 states and seven union territories are at different stages of demographic and economic evolution.

Classifying these into four broad groups based on their relative 2012 per capita GDP, it found that eight high-performing states will account for 52 per cent of India’s incremental GDP growth from 2012 to 2025.

Along with four very high-performing city-states, these eight will have 57 per cent of India’s consuming-class households in 2025.

McKinsey adds that rapid urbanisation and the associated income growth will propel the high-performing states to per capita income levels similar to those of today’s middle-income nations. In 2025, for instance, Maharashtra’s 128 million residents will have a purchasing power parity similar to Brazil’s today.

The study also examines India’s metropolitan clusters and finds that 49 out of 183 districts will account for about 77 per cent of India’s incremental GDP, 72 per cent of its consuming-class households, and 73 per cent of its income pool from 2012 to 2025.

Within the urban areas, the report focuses on the top 100 cities, distinguishing between metropolitan areas and others in this group. For example, in 2012 India had 54 metropolitan cities, which together with their hinterlands (65 districts) accounted for 40 per cent of GDP and 45 per cent of consuming-class households.

Full details can be found here.


FTA boon for resources and agribusiness

Australia's recent free trade agreement (FTA) with China has been welcomed by leading directors.

The FTA marks the third such agreement in 2014, following similar deals signed with Japan and Korea earlier this year.

While all three FTAs are of monumental significance to the future economic prosperity of Australia, placing the country on the global economic stage, the recent deal with China is of particular importance, says Graham Bradley AM FAICD, non-executive chairman at HSBC Bank Australia, Stockland Corporation and EnergyAustralia Holdings.

"The China FTA is a ringing endorsement by the Chinese government to its citizens and businesses that Australia is recognised as a good place to do business, to invest and to welcome into China as a business partner," he said.

"It is much more than your average FTA. It will bring tremendous opportunities beyond our hard commodity trade, especially quality agriculture and a range of services. It also tells Chinese citizens that we are a good place to send their children for education."

While the short-term benefits of the FTA are likely to be small, in the long term, Australia is likely to benefit from greater capital flows into agriculture, finance, tourism, infrastructure and mining.

Major improvements for dairy and horticulture products are also expected, as Chinese tariffs are phased out over a decade.

Drawing comparisons with New Zealand's dairy industry, Christine Hawkins FAICD, managing director at consulting firm Cinnabar International added that the deal is a "big win" for the dairy and agricultural sectors.

"If you look at New Zealand's FTA with China, the dairy industry was completely revitalised as a result.. Admittedly there are differences between New Zealand and Australia, but this has the potential to very significant for us," she said.

Steven Cole FAICD of WA-based corporate and commercial consultancy firm Cole Corporate agrees the resources and agribusiness sectors should see long-term gains.

"Two very significant benefits from a Western Australia perspective would be an investment capital injection into the resources sector, in a current capital starved environment, and agribusiness exports into what has been a tariff protected environment,” he said.


Preparing for shareholder activism

The rising tide in shareholder and stakeholder activism in Australia is likely to continue to dominate boardroom discussions in the next year, so directors must ensure they are prepared.

In an article entitled Shareholder Engagement in the Age of Activism, Sally Freeman GAICD, national managing partner, risk consulting at KPMG, said directors and the board must ensure they proactively manage stakeholder activism so they are prepared for threats before they happen.

“Activist investors are looking for opportunities to disrupt and are challenging boards and executives across areas of governance, strategy, operations and sustainability – all in the name of maximising shareholder value,” Freeman said.

Freeman added that even in the US, where activism has been more commonplace, companies are often caught off guard, and respond to campaigns as they occur, rather than being ahead of them. Australian companies must learn from those lessons and take action to pre-empt activism and prepare for threats before they happen, she said.

“In order to be truly strategic, boards and management should be addressing the issues that currently attract activists and trying to anticipate the likely issues of the future. Building strong relationships with shareholders is a critical part of the solution,” she added.

Highlighting potential risk areas where shareholder activism can occur, Freeman focuses on different ends of the investor spectrum and pinpoints red flags that may help directors understand the activists’ agenda.

Of particular importance, says Freeman, is the board’s role in overseeing the development and implementation of the stakeholder engagement framework.

For a full copy of the article, click here.


Financial framework for disability services launched

National Disability Services (NDS), in conjunction with Western Australia’s Curtin University, has developed a national costing and pricing framework for disability services.

NDS is the peak industry association for disability services and represents 950 non-government organisations around Australia.

The framework has been released to help mission driven organisations understand the cost of service delivery and to help them plan effectively for the National Disability Insurance Scheme (NDIS).

It provides a set of principles and definitions that can be applied to achieve a mature approach to costing and pricing practice.

CEOs and boards of disability service providers are being encouraged to adopt the framework and to share it with others who have a role in funding, purchasing services from, overseeing or auditing the provision of disability services.

NDS says it is developing an online learning program aligned to the framework to help disability service providers develop practices appropriate to their needs.

It will be developed and progressively implemented over the next 12 months and cover topics such as:

  • Starting off - how to implement costing.
  • Costing practice.
  • Starting off - how to implement pricing.
  • Costing and pricing in the NDIS.
  • How to manage the target price gap.
  • Related financial topics.
  • Solvency and sustainability.

 

The framework has been acknowledged by the Institute of Chartered Accountants Australia and New Zealand, and has been developed in response to the significant changes occurring in disability services, NDS said.

 

For more information click here.


Money driving young professionals

Not-for-profit (NFP) organisations may have difficulty retaining young employees, whose loyalty to a company is determined by their remuneration package, a study has found.

The Life of a Professional survey by online professional network LinkedIn, which surveyed more than 6,000 students and young professionals, found that the size of the pay cheque was one of the main things keeping young people at the same workplace for more than two years.

Money was also a driving factor for 77 per cent of professionals with one to five years’ experience, who said that if they were considering leaving their current job, a pay rise would convince them to stay.

Less experienced professionals also showed little loyalty to their employers, with 23 per cent of professionals with one to five years’ experience saying they thought they should stay at their current position for two years before moving to another job.

In contrast, 33 per cent of professionals with over 15 years’ experience said they thought they should stay at their current job for at least ten years before moving on.

The survey also found that career expectations were high among students and early professionals, with more than one fifth expecting to receive a promotion within the first year of starting a position, compared to only 10 per cent of workers with 15-plus years of experience.

The three most important factors in a dream job for young people were happiness at work (66 per cent), money (39 per cent) and getting along with colleagues (38 per cent).


Shareholder support for exec comp falls

US shareholder support for executive compensation plans declined in 2014 at mid-cap, small-cap and micro-cap companies, according to the latest edition of ProxyPulse.

The publication, produced jointly by Broadridge Financial Solutions and PwC’s Centre for Board Governance, analysed 4,113 shareholder meetings held between 1 January and 30 June 2014 by US publicy-listed companies.

It found that while average support levels for executive compensation plans rose to 91 per cent from 89 per cent at large-cap companies, a greater percentage of mid-cap and small-cap companies failed to attain at least 50 per cent shareholder support.

Although shareholders continued to support “say-on-pay” proposals (where shareholders have the right to vote on the remuneration of executives), at the same high levels, on average, as they did in the 2013 season (89 per cent), the percentage of plans at mid-cap firms attaining support in the 90-100 per cent range fell from 72 per cent to 71 per cent and the percentage of plans that failed to attain majority support doubled from 3 per cent (18) to 6 per cent (41).

There was also some weakening in support among small-cap companies.. The percentage of plans attaining support in the 90 per cent range decreased from 73 per cent to 70 per cent, and the percentage of plans with support in the 50-69 per cent range increased from 6 per cent to 8 per cent.

Eight in 10 US directors surveyed said that “say-on-pay’ has caused their board to look at compensation disclosures in a different way and that there has been an increase in the influence of proxy advisory firms.

Nearly 75 per cent of directors believe “say-on-pay” has increased shareholder dialogue and prompted directors to change the way they communicate about compensation.

A full copy of the report can be downloaded here.


ASIC announces financial reporting program

The Australian Securities and Investments Commission (ASIC) has announced the eight areas it will be focusing on during its surveillance program for 31 December 2014 financial reports.

The program covers the financial reports of listed entities and other entities of public interest with many stakeholders and aims to ensure meaningful information is provided to investors and other users.

The eight key areas of focus identified by ASIC are:

  • Asset values and impairment testing.
  • Amortisation of intangible assets.
  • Off balance sheet arrangements and new standards.
  • Revenue recognition.
  • Expense deferral.
  • Tax accounting.
  • Estimates and accounting policy judgements.
  • Impact of new revenue standard.

“Directors and auditors should focus on values of assets and accounting policy choices, which are important to providing meaningful information for investors and everyone else who uses financial reports,” said ASIC commissioner, John Price.

On making the announcement, ASIC said that even though directors do not need to be accounting experts, they should seek explanation and professional advice supporting the accounting treatments chosen if needed.

The regulator also encouraged, where appropriate, directors to challenge the accounting estimates and treatments applied in the financial report. “They should particularly seek advice where a treatment does not reflect their understanding of the substance of an arrangement,” ASIC said.

Further information on directors and financial reports can be found here.

Further details of the financial reporting requirements can be found here.


Philanthropy Australia CEO resigns

Philanthropy Australia is searching for a new CEO following the resignation of Louise Walsh after only two years in the job.

The president of the peak philanthropic body, Alan Schwartz AM, said that Walsh had taken the decision to leave for both professional and personal reasons.

Following Walsh’ departure, Philanthropy Australia has decided to restructure the executive of the company, and as a result, there will no longer be a deputy CEO role.

This means Anna Draffin, deputy CEO, will also be leaving the organisation.

Schwartz praised Walsh for leading Philanthropy Australia through a series of successful and very significant changes including the expansion of the Sydney office, the opening of offices in South Australia and Queensland and the launch of the New Generation of Giving program for young donors between the ages of 20 and 40.

***

Founder and long-standing managing director of Primary Health Care, Dr Edmund Bateman, has announced his retirement from the medical centre, pathology and radiology business.

The 72-year-old has advised the board that he will step down in January 2015, although he will retain his position on the board.

Dr Bateman has been with the company for almost 30 years. He began a period of sick leave in September, while suffering from an undisclosed illness. In his absence, finance director, Andrew Duff, stepped into the role of acting managing director.

Following the announcement, chairman Robert Ferguson said the board is working with an external consultancy to find a replacement. The process will involve internal and external candidates, he said in a statement.


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