Managing business operations in Australia

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Marcus Hunter
8 years ago
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1 Managing business operations in Australia Andy Dyer Global Transaction Banking Head, Network

2 Banking environment Banking environment Banking environment dominated by the big 4 banks (ANZ, CBS, WPC, NAB) with around 75% of assets. Foreign banks being present, but in general with limited banking activities, for which in general a relationship with a local bank is required. Mandatory Pensions (Superannuation) limited to local banks. Significant advantages on Merchant services and cards for local banks. Payments system Sophisticated banking and clearing system. Low value real time payment system being developed (NPP - New Payments Platform). NPP system similar to FAST, to be operational in second half of Highly digitalised system, over the last two years ~55% of traditional purchased by cash transactions have been displaced by card payment in Australia Opportunities to lower operating costs for cash-handling/logistics, reconciliation benefits, stock management. 2

Mandatory Pensions (Superannuation) limited to local banks. Significant advantages on Merchant services and cards for local banks. Payments system Sophisticated banking and clearing system.

3 Financial Markets considerations Currency AUD Fairly volatile currency, with high correlation to commodity prices and exposure to the Chinese market. ANZ s view on the AUD/USD is still a short AUD bias, believing we haven t seen the last of commodity and Chinese equity instability. Lower exchange rate makes it attractive to acquire assets in Australia, however it is a challenge for treasurers to minimise FX impacts on business operations. Interest rates Interest rate levels have historically been higher than for other large currencies, providing a comparatively high return on surplus cash Interest rates pressure continue in Australia, with two interest rate cuts in the first half of 2015, from 2.5% to 2%. Exchange Rate evolution Interest Rate evolution Regulatory impact (Basel III) Australia is an early adopter of Basel III regulations, requiring banks to hold additional levels of capital. Operating accounts have become increasingly valuable to banks, favouring multi-product banking relationships. New products as 31 day deposits can offer unique opportunities for corporates. 3

Lower exchange rate makes it attractive to acquire assets in Australia, however it is a challenge for treasurers to minimise FX impacts on business operations.

4 Company Structure and Taxes Company structure Investors will generally need to choose between establishing a new company, registering as a foreign company or acquiring an existing company. If establishing a new business, a variety of business structures are available, each with their own regulatory and tax considerations. Businesses may also need to establish their identity through a trade mark, online and/or physical presence. Australian Accounting Standards (IFRS) are legislative requirements for corporations. Taxes Complex tax system with higher tax rates than Singapore. Taxes and Liquidity structure are a big factor to be taken in consideration when defining the company and operational structures. Ruled by the ATO (Australian Taxing Office) Corporate tax at 30% fixed nationwide. In some instances state-based taxes also apply, most commonly for payroll tax. Tax credits (franking credit) available to individuals receiving dividends. Capital gain taxes apply, while concessions may apply to small businesses. Liquidity management structures under increasing scrutiny by the ATO Transfer pricing Withholding tax Which liquidity management structure / technique? Thin capitalisation 4

Businesses may also need to establish their identity through a trade mark, online and/or physical presence. Australian Accounting Standards (IFRS) are legislative requirements for corporations.

5 Workforce and regulations Workforce Workforce skills profile Skilled workforce: world s highest secondary education enrolment rate. Almost 40% has tertiary qualification or advanced diploma. Minimum wage in Australia is currently A$17.29 per hour or A$2,766 per 160 hour month (before tax). There is no minimum wage in Singapore. Importance of operational efficiency: while employment conditions are flexible, regulatory environment makes hiring low-qualification staff expensive. Organising operations to minimise clerical work in country would be advisable. Superannuation Mandatory for employers to provide pension contributions for all employees in Australia. Currently at 9.5% of employees salary, and progressively growing to 12%. Superannuation programs currently only available through local banks. Source: Austrade 5

Importance of operational efficiency: while employment conditions are flexible, regulatory environment makes hiring low-qualification staff expensive.

6 Innovation and Customer behaviours Retail Payments Paradigm Shift Decrease in cash: Cash transactions in Australia have decreased from ~75% in 2005, to ~60% in 2013, and are expected to decrease to below 50% by 2020, in favour mainly of cards. Contactless card payments: Australia is the global lead on contactless card payments (PayWave type), while Singapore is close. Merchant networks are controlled by the local banks. Mobile payments: instant peer to peer transfers are available just using a Mobile phone number, an account number is not even required. Other innovations: withdrawing cash in an ATM without your card is already available (Cardless cash) Corporates - Generating Efficiencies Big Data: ability to provide customer analytics and intelligence to predict trends Digitization of traditional Trade Finance capability having improved focus on working capital management (e.g. BPO) Online Banking Portals with Single sign on, complex liquidity structures and Online portals taking on the role of facilitating complex accounting entries (i.e. Inter Company Lending) New Payments Platform (NPP): Real time interbank payments with enhanced data Australia is leader in contactless card payments Source: RFi Group ANZ already processes more retail transfers using the Mobile peer-to-peer platform (ANZ GoMoney) than through internet banking 6

Merchant networks are controlled by the local banks. Mobile payments: instant peer to peer transfers are available just using a Mobile phone number, an account number is not even required.

7 ANZ Home Market Advantage ANZ is the most International of the Australian banks and the most Australian of the International banks - the natural partner for international companies doing business in our Home Markets ANZ combines the deep capabilities and resources of a local bank in Australia with the global reach and presence of an International bank, with operations in 34 markets across Asia-Pacific Domestically Internationally Best Treasury and Cash Management Provider in Australia (Global Finance 2014) Whole of bank offerings from Retail, SME through to Institutional Deep experience and understanding of the local market, with more than 180 years of experience Top 4 Corporate Bank in Asia (Greenwich 2014) Extensive network and presence Global Relationship Model Globally consistent product offerings FRANCE MYANMAR* 7

Asia-Pacific Domestically Internationally Best Treasury and Cash Management Provider in Australia (Global Finance 2014) Whole of bank offerings from Retail, SME through to Institutional Deep

Invest and Protect Companies considering investing in Australia should plan how to manage and protect those investments What we are seeing: Treasurers and CFOs are being proactive Decreases in

8 Invest and Protect Companies considering investing in Australia should plan how to manage and protect those investments What we are seeing: Treasurers and CFOs are being proactive Decreases in discretionary spending Increases in Hedging Strategies, including FX and commodities exposures Companies investing in Australia often have to change strategy, operating and capital structures when they transition from a development phase to an operating phase Factors to consider: Banking Environment Financial Markets considerations Company structures and taxes Workforce and regulations Innovation and Customer behaviours 8

in Australia often have to change strategy, operating and capital structures when they transition from a development phase to an operating phase Factors

Key learning points I

Key learning points I What do banks do? Banks provide three core banking services Deposit collection Payment arrangement Underwrite loans Banks may also offer financial services such as cash, asset, and