The Distillery: Premier protest

Premier Investments billionaire Solomon Lew eviscerated the outgoing government yesterday as his chief executive Mark McInnes handed down some disappointing numbers. While there are prospects for growth in the Premier stable, Lew’s hopes for big rate cuts and GST reform aren’t looking too good, according to our business writers.

Fairfax’s Elizabeth Knight reports that Premier’s “particularly difficult” sales quarter, according to Lew, had a lot to do with our warmest winter in a century and constant front pages of feuding politicians.

“But he can't tell whether the lift in sales that Premier's brands have experienced over the past week is because consumers are buying summer clothes early or they are happy to see a new government. Lew reckons the incoming Coalition government understands it has to get business behind it and Tony Abbott is sympathetic to policy that creates jobs.”

Lew wants 50 basis points of interest rate cuts before Christmas (which would bring the cash rate down to 2 per cent) and is continuing to call for the GST threshold on imported goods to be slashed from its current level of $1000.

The Australian Financial Review’s David Bassanese notes the latest minutes from the Reserve Bank of Australia indicate that Lew’s rate cut wish is a big stretch, particularly at 50 basis points. Meanwhile, The Australian Financial Review’s Michael Smith points out that retailers are divided amongst themselves on the GST issue, as the big supermarkets don’t want prices to rise on consumers.

“That is the dilemma the new government finds itself in as it seeks to be seen to be embracing big business, while risking making a politically unpopular decision that would make prices higher for consumers. Tony Abbott and Treasurer Joe Hockey have said there will be no change to the GST in the government’s first term ahead of a wider tax review. However, the issue is increasingly being played out on a state level, with NSW Treasurer Mike Baird wanting the threshold dropped from $1000 to between $100 and $200. This would [have] raised an estimated $2.6 billion for the states in additional revenue by 2016, according to PricewaterhouseCoopers numbers. Retailers are also campaigning hard over penalty rates and enterprise bargaining agreements.”

It’s a crucial point Smith makes. The Commonwealth might enforce and distribute the GST but it’s an issue that is a constant source of contention with the states.

It’s not all unfulfillable dreams for Lew. Business Spectator’s Stephen Bartholomeusz points out that Premier has two good brands on the march despite industry conditions.

“Solomon Lew has traditionally been cautious, which suggests he is positioning himself for some kind of upturn, although it is conceivable that the two brands in which the major investments are being made — Smiggle and Peter Alexander — are immune to external conditions at this point in their development. It is worth nothing that Premier remains cashed up, with $313 million of cash, only $102 million of debt and a $185 million investment in Breville that could be cashed out if necessary within a balance sheet with total assets of $1.56 billion. Whether it is to support the growth of the existing brands offshore or online (where sales were up 37 per cent) or to make a major acquisition, Premier has significant firepower if it wishes to deploy it.”

The Australian’s Richard Gluyas reports that Premier is still on the hunt for value-adding acquisitions as it pursues organic growth inside and outside Australia.

“Britain is seen as a good fit for Smiggle's minimal space requirements, and competition is relatively scarce. So confident is McInnes about the growth prospects for Smiggle that he predicted that Britain could have 200 stores and $200 million in sales within five years, outstripping the domestic operation. Peter Alexander has undergone a similar investigation of its growth opportunities and expects to grow its business by 40-50 per cent over the next three years by opening six to eight stores a year. The brand started life in the mail order business, so it's thought to be well-suited to the online environment.”

In other company news, The Australian Financial Review’s Chanticleer columnist Tony Boyd says TPG Telecom’s David Teoh has acted shrewdly in taking advantage of the change of government with his proposal to roll out fibre to 500,000 apartments in Sydney, Melbourne and Brisbane.

Fairfax’s Adele Ferguson reports on the improving fortunes of Leighton Holdings after a handful of project wins and the decision by majority shareholder Hochtief to increase its stake through creep provisions.

And finally, The Australian’s John Durie, who’s reporting from Indonesia this week, reports that an estimated 50 per cent of the country’s horticulture production is lost through dodgy middlemen and poor infrastructure.