Warnings JobKeeper payments could boost company profits and executive bonuses

“You would hope where the JobKeeper subsidy has been material to the company’s result that will be called out explicitly in the forthcoming reporting season,” he said.


“It’s been such a stimulus that the withdrawal of it will be material, and it’s notable many companies have not been explicit about what the impact of it has been.”

Online sales have continued to boom for retailers during the pandemic and a gradual reopening of stores through May and June has also helped the sector claw back some ground.

ASX-listed footwear retailer Accent Group – which operates brands such as Platypus, Hype DC and Athlete’s Foot – told shareholders on June 25 its total earnings before interest, tax, depreciation and amortisation would be 10 per cent higher for the year, or around $120 million.

Accent cited strong digital sales and the support of government programs as a reason for its increased profit, with the retailer’s 5000-odd employees collecting the subsidies in recent months.

With six payments issued to date, Accent may have received upwards of $30 million from the JobKeeper scheme. The New Zealand government’s wage subsidy index shows the company has received $NZ2.2 million ($2.07 million) for its stores in the country.

Harvey Norman has told investors to expect a 20 per cent boost to profits for the full year.Credit:Scott Barbour

Similarly, Harvey Norman has collected $12 million in payments from the New Zealand government, and founder Gerry Harvey confirmed to The Age and The Sydney Morning Herald a couple of Australian franchisees had also signed on to the JobKeeper scheme. Harvey Norman also told investors to expect a profit boost for the full year, saying adjusted profit before tax would increase 20 per cent to around $450 million.

Mr Paatsch said investors should keep an eagle eye on executive bonuses come the end of the year, given they are closely linked to profit figures and share price performance. Following its profit upgrade, Accent Group shares rose nearly 10 per cent.

“Investors are right to be sceptical where executives are drawing bonuses at the same time as claiming JobKeeper,” he said.”I don’t think it was ever the intention of the government to subsidise executive salaries.”

James Cook, chief investment officer at ESG-focused fund U Ethical, said onus will be on shareholders to strike down any remuneration report which doesn’t accurately reflect government subsidies.

Ownership Matters co-founder Dean Paatsch.

Ownership Matters co-founder Dean Paatsch.Credit:Paul Jeffers

“If executive remuneration has been artificially stimulated at the taxpayer’s expense, that shouldn’t warrant a bonus based on whatever marginal performance that generates,” he said.

“The onus will be on shareholders because it’d be a disappointing free-kick to give to management. It’s certainly something we’d look at in our voting policy.”

Despite the subsidy being a fillip for company earnings, analysts have said they will ignore profit figures for companies taking JobKeeper, with Citi’s head of research Craig Woolford saying it was causing a “distorted picture” of company performance.

“We would discount the relevance of the current year’s figures and prefer to look forward to what 2021/2022 earnings really look like without the prop of JobKeeper,” he said.

The analyst also backed calls for companies to isolate any contribution from JobKeeper on wage expenses when reporting in August.

“What we’ve seen from some companies in New Zealand is they’ve itemised the amount of wage subsidy that they received. I think that disclosure will help us understand the impact that JobKeeper has had on a business,” he said.

In a fact sheet released in early June, corporate regulator ASIC advised companies to take significant discretion with remuneration for the year, including a missive to “avoid unintended variable pay outcomes” arising as a result of COVID-19.

A spokesperson for Harvey Norman said executives’ remuneration was subject to oversight from the company’s remuneration committee, which was aware of ASIC’s warning, especially around “unintended windfall gains”.

Australian Council of Superannuation Investors (ACSI) chief executive Louise Davidson said it was imperative for boards to read the room and ensure discretion over executive payments.

“Given the extent of the economic pain being felt across the entire community and the market, this is clearly a time when investors expect to see restraint on executive pay,” she said.

Accent Group did not respond prior to deadline.

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Aust market finishes week up 2.6pc

Australian shares have finished higher for a fourth straight day, in a mostly quiet session that served as a break from recent extreme volatility.

The benchmark S&P/ASX200 index finished Friday up 25.2 points, or 0.42 per cent, at 6,057.9 points, while the All Ordinaries index gained 21.4 points, or 0.35 per cent, at 6,163.7.

“A little uneventful, a relatively quiet day,” said CommSec market analyst James Tao.

“Of course there is the US public holiday, the Fourth of July, which takes a little bit out of our market today,” Mr Tao said.

Wall Street, where the S&P 500 rose 0.4 per cent overnight, won’t resume trading until Monday.

For the week the ASX200 closed up 153.8 points, or 2.6 per cent, with Monday’s losses followed by four days of gains.

The index has only had four losing sessions in the past three weeks.

Energy, industrials and property collectively declined, while health care and telecom shares led gainers, both collectively rising over two per cent. 

CSL rose 2.7 per cent to $297.46 and Cochlear advanced 5.9 per cent to a three-month high of $204 after announcing the US Food and Drug Administration had approved four new hearing implant products for US sale. 

Afterpay hit an all-time high of $70 early but finished the day down 1.0 per cent to $67.50 – still up 18 per cent for the week.

Adbri Limited, the construction group formerly known as Adelaide Brighton, crashed 25.4 per cent to a six-week low of $2.35 after advising that Alcoa won’t renew a lime supply contract worth $70 million annually when it expires in a year’s time.

Telstra gained 4.0 per cent to a three-month high of $3.36, in its biggest single-day move since November.

The big banks were mixed, with CBA up 0.7 per cent to $71.57 and the others losing ground.

NAB dipped 0.9 per cent to $18.74 and ANZ and Westpac both fell 0.4 per cent, to $19.19 and $18.54, respectively.

Property groups were lower as virus cases surged in Melbourne, with shopping mall owners Vicinity Centres and Scentre Group both down around three per cent.

In the heavyweight mining sector, BHP rose 0.7 per cent to $36.26, while Rio Tinto dropped 1.5 per cent to $96.39 after cutting reserves at its massive Oyu Tolgoi project in Mongolia. Fortescue Metals was down a cent to $14.02.

Goldminers were also mixed, with Newcrest up 0.4 per cent, Northern Star down 2.2 per cent and Saracen Mineral Holdings up 2.3 per cent to an all-time high of $5.80.

Tuas Limited gained 37.7 per cent to 95 cents, on top of Thursday’s 35.3 per cent gain.

The Singaporean 5G network operator debuted on the ASX on Wednesday at 50 cents per share, a spin-off from TPG Telecom as part of its merger with Vodafone Australia.

TPG shares finished Friday down 0.6 per cent to $8.65.

The Australian dollar was buying 69.36 US cents, slightly lower from 69.29 US cents at the close of trade on Thursday.


* The benchmark S&P/ASX200 index on Friday closed up 25.2 points, or 0.42 per cent, at 6,057.9 points

* The All Ordinaries closed up 21.4 points, or 0.35 per cent, at 6,163.7 points

* At 1726 AEST, the SPI200 futures index was down nine points, or 0.15 per cent, at 6,025 points


One Australian dollar buys:

* 69.35 US cents, from 69.27 US cents on Thursday

* 74.54 Japanese yen, from 74.45 yen

* 61.72 euro cents, from 61.39 cents

* 55.61 British pence, from 55.41 pence

* 106.29 NZ cents, from 106.45 cents.

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Hedge fund king Ray Dalio says capital markets are no longer ‘free’

“You’re going to see central bank balance sheets explode, they have to because the choice is the sinking ship,” he said.

Dalio also said that investors should favour stocks and gold over bonds and cash because the latter offer a negative rate of return and central banks will print more money.

Over the last several months, Dalio has written a series of extensive essays that have called for reforming capitalism so that it benefits everyone. He has also said that the US is in “relative decline” as China’s power rises.

Dalio, who counts some Chinese government entities as Bridgewater clients, reiterated his concern about the US’s ability to compete with China.

“China is growing, becoming powerful playing the game in the best way it knows how. We have a different system we’re playing the game the best way that we know how. And my main issue is how well are we playing the game?,” he said mentioning the quality of education as one example.

“It’s a very impressive system,” he said referring to China. “They are very smart, wise people with great historical perspectives.”


Bridgewater’s flagship Pure Alpha II hedge fund struggled this year, falling 20 per cent through May, amid the market chaos caused by the coronavirus pandemic.

The firm got hit by the crisis at “the worst possible moment” because its portfolios were positioned at the start of the year to benefit from rising markets, Dalio told clients in mid-March.

The Connecticut-based firm managed about $US138 billion at the end of April, down from about $US160 billion at the start of the year.


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Metals X to sell copper projects

Metals X is planning to sell its entire copper assets portfolio, including its Nifty operation in Western Australia, following issues with a major shareholder.

The company said it was unable to secure funding required to restart the 2.8 million tonne per annum Nifty operation, which was placed into care and maintenance in November, after Hong Kong-based APAC Resources sought the removal of three Metals X directors in June.

Metals X said it had received notices from APAC requesting the removal of Patrick O’Connor, Brett Lambert and Tony Polglase.

The notices had a material impact on the board to progress Nifty funding proposals, Metals X said, which led to suspension of discussions with the company’s financier on debt repayment rescheduling.

“These circumstances have led the board to conclude that divestment of the copper assets is the most appropriate course of action to ensure the financial integrity of the company and realise value for shareholders,” Metals X said.

“In seeking a sale of the copper assets, the company will endeavour to leverage the significant value that has been added through completion of the scoping study and execution of the farm-in agreement.”

Metals X completed a strategic review of its copper assets last month, which outlined the $32 million farm-in agreement with IGO for a 70 per cent interest in the Paterson exploration project, as well as completion of a scoping study for the development of a long-life open pit mine at the Nifty operation.

The company’s other copper asset is the Maroochydore project, located in the East Pilbara.

Any proposed sale remains subject to shareholder approval, which Metals X will seek at an extraordinary general meeting held by August 24.

Shares in Metals X closed up 9.6 per cent to trade at 9.1 cents.

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Pandemic a catalyst for boosting commercial outcomes, says Starpharma boss

With global markets reacting positively to any news of coronavirus treatment and medical research firmly on the radar of investors , Dr Fairley said that Australia’s dependence on overseas manufacturing has been hard to ignore.

“We have stopped manufacturing many things in Australia over the years and have a greater reliance on importation,” she said.

“We need to encourage a greater level of advanced manufacturing and high tech jobs because I think the evidence suggests that the multiplier effect for those dollars in terms of investment are far greater than in many other industries where that investment has historically been applied.”

Dr Fairley added that the global race to develop a vaccine also drove home Australia may be reliant on other nations for supply if a foreign company commercialised a COVID-19 treatment first, observing we would not necessarily be “top of the list” for accessing orders of a successful vaccine produced in Europe or the US.

Positive news from global pharmaceutical giant Pfizer about its vaccine candidate this week buoyed the Australian sharemarket yesterday, with the S&P/ASX 200 Health Care index ending the session 1.8 per cent stronger. Starpharma shares climbed over 2.2 per cent to $1.17.

Few local biotech companies have taken research from the lab to commercialisation like Starpharma has, having been spun out of CSIRO research and then listed on the ASX 20 years ago. The $435 million business uses dendrimers, man-made nanoscale particles which are structurally perfect and symmetrical, in its products and research.

Over the past few years the company has been expanding the reach of its VivaGel products, including antiviral condoms and a treatment for bacterial vaginosis, across the globe. It also has a range of trials in the works to establish if its dendrimers boost the effectiveness of different cancer drugs.

Like many others, the business has also pivoted its research during the pandemic, and is working on the development of a nasal spray using its pre-existing anti-viral dendrimer, SPL7013.

Dr Fairley said she hoped the product would show through trials that it worked as a preventative measure that could be used by those most at risk, like healthcare workers.

“In addition to PPE, it would actually provide an additional barrier, independent of vaccines or together with them.”

The nasal spray project is one element of a full deck of research and development projects slated for the coming year.

While a number of local biotechs were hit hard by pandemic shutdowns, Starpharma has pushed forward with global deals unaffected. Last month it announced it was starting to sell its condom products into central and western Europe, following on from product deals in South East Asia in February.


Dr Fairley said maintaining those global relationships through the virus shutdowns was not as difficult as anticipated.

“The reality is we’ve done all of the meetings we would have done face-to-face virtually. In some ways, that’s more efficient.”

Over the past few months, investors and founders across the medtech sector have been highlighting the importance of global cooperation to grow successful Australian companies.

Dr Fairley agrees, observing that success in the sector is often driven by global commercial partnerships and research arrangements.

“Big companies understand the role smaller companies play in the whole innovation cycle,” she said.

This global focus should also be considered when incentivising research, she said. The nation’s research and development tax incentive scheme focuses on local expenditure only.

“When you are developing pharmaceutical products, there are many aspects of that development that you simply can’t do in Australia — so I do think that’s an important feature that needs to be looked at.”

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Virgin sale faces first legal obstacle as court fight over jet engines fires up

Administrators estimated Virgin owed 50 aircraft lessors a combined $1.88 billion, making them the third largest group of creditors behind secured lenders and unsecured bondholders.

Virgin leases about half its fleet, or 69 aircraft. Bain is planing to strip Virgin back to a fleet of its domestic workhorse Boeing 737s, of which it currently owns 40 and leases 39. However the group has not said how many aircraft it will be left with in total.

The demand is the first challenge to wide ranging orders granted by the Federal Court to protect the Deloitte administrators during the sale process.

Those orders limited the personal liability of the individual administrators incurred by Virgin continuing to fly leased aircraft, airport fees, for use of the Virgin trade mark owned by Richard Branson, and for essential services such as ground handling, fuel, maintenance and in-flight catering.

The orders were also expected to curb any move by the companies that had provided leasing finance to Virgin from repossessing equipment or planes.

Wells Fargo and Willis are seeking a declaration from the court that a notice given by Deloitte to Willis Leasing regarding the status of the leases was incomplete and did not take into account their rights under an international agreement designed to protect aircraft lessors’ rights to make demands against lessees, known as the Cape Town Aircraft Protocol.


The two groups are also seeking declarations that rent must be paid by the airline and its administrators for the use of their property during the course of the administration.

A spokesman for Deloitte said it told Willis last month that it did not claim any continuing interest in the four engines last month.

“Discussions around their collection are continuing,” he said.

Willis is not the first financier to raise questions about the wide-ranging orders. As The Age and Sydney Morning Herald revealed, another financier, Pembroke had also raised concerns about the orders not allowing them to collect rent or repossess the planes they had leased to Virgin.

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ASX gains 1.6% as Afterpay hits $68

The Australian stock market has hit its highest level since June 11, with gains across the board as Afterpay continued its stunning run by soaring 9.5 per cent to a new all-time high.

The benchmark S&P/ASX200 index finished up 98.3 points, or 1.66 per cent, at 6,032.7 points, in its best performance in two weeks.

The broader All Ordinaries index finished up 101.3 points, or 1.68 per cent higher, at 6,142.3.

“Clearly a reasonably strong day on the market today,” said SG Hiscock & Company portfolio manager Hamish Tadgell.

“It’s been driven by pretty broad gains across the market today,” Mr Tadgell said.

Mining was the only sector that didn’t join the rally, with goldminers taking a break after several days of strong gains and the diversified miners subdued.

Buy now, pay later giant Afterpay led the tech sector higher, closing at $68.16, up 133 per cent since the start of the year and more than eightfold from the intraday low of $8.01 it hit during the market crash back on March 23.

Its rivals also had a good day, with Zip Co rising 5.6 per cent, Splitit soaring 16.3 per cent and Openpay adding 2.6 per cent.

“You’ve got consumption growth and stimulus; those two things feed into it,” Mr Tadgell said.

“I don’t know if it’s coming from offshore. It’s hard to value these stocks on fundamentals or earnings at the moment.”

Afterpay now has a market capitalisation of $18.3 billion, making it Australia’s 19th most valuable company – worth more than the ASX Limited, the operator of the stock exchange.

It is profitable in Australia and New Zealand but declared an overall first-half loss of $32.1 million in February.

Elsewhere, all the big banks had a solid performance with CBA, NAB and Westpac all rising 1.8 per cent – to $71.10, $18.90 and $18.61 respectively – while ANZ added 2.0 per cent to $19.26.

Kathmandu gained 9.3 per cent to $1.175 after the Kiwi outdoor retailer outlined a strong recovery in sales since reopening stores in May, and declaring it expected earnings to drop but stay above $70 million.

Temple & Webster soared 17.9 per cent to $7.44 following a $40 million institutional placement in which it sold seven million shares at $5.70 each.

Tuas Limited gained 35.3 per cent to 69 cents, a day after falling 24.4 per cent.

The operator of a 4G mobile network in Singapore made its ASX debut on Monday as part of the TPG/Vodafone merger.

In the mining sector, BHP gained 0.5 per cent to $36.01, Rio Tinto added 0.7 per cent to $97.81 and Fortescue Metals rose 2.0 per cent to $14.03. 

In the US, the S&P 500 and Nasdaq indices closed higher after drugmaker Pfizer said a vaccine being developed with German firm BioNTech showed promise and was found to be tolerated in early-stage human trials, but Mr Tadgell did not believe that was the reason for the rally.

The Australian dollar was buying 69.29 US cents, up from 68.98 US cents at the close of trade on Wednesday.


* The benchmark S&P/ASX200 index on closed up 98.3 points, or 1.66 per cent, at 6,032.7 points

* The All Ordinaries closed up 101.3 points, or 1.68 per cent, at 6,142.3 points

* At 1736 AEST, the SPI200 futures index was down four points, or 0.07 per cent, at 6,009 points


One Australian dollar buys:

* 69.27 US cents, from 69.07 US cents on Wednesday

* 74.45 Japanese yen, from 74.30 yen

* 61.39 euro cents, from 61.50 cents

* 55.41 British pence, from 55.80 pence

* 106.45 NZ cents, from 106.98 cents.

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What is Modern Monetary Theory?

In these days of rampant acronym proliferation – from LOL to WFH* – one three-letter acronym keeps rising to the fore: MMT, or Modern Monetary Theory.

The set of economic ideas has been around for a while but has risen to prominence recently through the work of American economist and adviser to Bernie Sanders’ 2016 presidential campaign, Stephanie Kelton, whose book The Deficit Myth was released in June.

But it is an Australian economist, Bill Mitchell, from the University of Newcastle, who is credited with coining the term.

A word of warning: a trip down the lane of MMT involves countenancing some truly mind-bending and somewhat pointy-headed concepts.

Ultimately, it’s a trip into the very heart of what money really is and the role of government in society. So, strap in and don’t say you weren’t warned.

What is MMT? Why does such an obscure economic theory keep cropping up? Why do some people think it offers a solution to our current economic woes of rising joblessness and spiralling government debt? And, crucially, does it?

* Laugh out loud, working from home

Stephanie Kelton, author of The Deficit Myth.Credit:Roy VanDerVegt

What is money, anyway?

According to MMT proponents, governments create “money”. Thanks to their mastery over the money supply, governments could – if they chose – create enough money to eradicate the scourge of joblessness immediately.

It is certainly true that governments print currency – the rectangular plastic sheets and circular gold coins that you and I exchange at cafes and stores.

For a long time, economists thought such currencies – backed by the power of a scarce commodity such as gold or silver – held the key to the value of money in the economy. Fierce debates raged in economic circles throughout the 20th century about the correct design of a global system for money.

But MMT proponents reject the idea of money as a scarce commodity. Money – and the value it holds – is a construct of governments. They call this “fiat money”.

Because governments control the money supply, any debts issued in their currency never have to be repaid.

Do you still have to pay taxes under MMT?

According to mainstream economics, governments must match their spending by raising tax revenue, and borrow the rest. Because there is a limited supply of loanable funds in the world, when governments borrow, they “crowd out” private borrowers and ultimately push up interest rates.

But according to MMT, government creates new money every time it spends. There is no need for government to borrow offsetting funds through the process of issuing bonds (essentially, borrowing).

But you still have to pay taxes under MMT. Although in MMT governments are not constrained by a need to raise sufficient tax revenue to offset spending, taxes still definitely exist. Why? To both encourage citizens to conduct their exchanges in the currency denominations of their government so that they can pay their tax bills (and not use an alternative such as bitcoin or foreign government currencies) and to control inflation (which is where prices go up, eroding the value of wages) by sapping the purchasing power of citizens, as needed.

What about hyper inflation?

Critics of MMT accuse proponents of giving no thought to inflation, and the potential for unlimited money supply to create the sort of hyperinflation that brought Germany’s interwar Weimar Republic undone.

In reality, MMT proponents worry about inflation too. Just not as much.

Should inflation arise, MMT proponents say governments should step in to reduce the purchasing power of consumers by increasing taxes.

Additionally, governments could curb inflationary pressures by imposing caps on private lending. Sounds weird, until you remember that’s exactly what our prudential regulator did during the last housing boom.


What is the role of a central bank in MMT?

Not much. Ironically, although MMT has “monetary” in the title, proponents actually have little appetite for what is conventionally known as “monetary policy” – the setting of official interest rates. In the MMT world, official cash rates should just be set to 0 per cent and governments should, under the advice of Treasury departments, take sole responsibility for managing demand in the economy with “fiscal policy” – government tax and spend decisions.

Such an idea goes against decades of policy orthodoxy, in which governments have delegated power for smoothing fluctuations in the business cycle to an independent central bank.

Why is MMT getting so much attention now?

Perhaps because the world MMT proponents prescribe increasingly resembles the one that exists today.

Globally, interest rates are at, or close to, zero. Central banks have, to a large extent, run out of ammunition to boost economies, bringing the role of fiscal policy to the fore.

Furthermore, central banks are now in the business of creating money, by buying government bonds. Cut out the middle man, MMT proponents say, and just get governments to expand the money supply by spending.

More recently, as governments have sought to ward off mass joblessness arising from coronavirus shutdowns with job subsidies, they have also come close to implementing another of the MMT policy prescriptions: that of a universal jobs guarantee.

What is an MMT job guarantee?

MMT proponents think that every adult citizen should, as a birthright, be guaranteed a job, albeit at a minimum wage.

Full employment is both the aim of the game and a moral imperative for MMT advocates. According to them, joblessness is evidence that a currency monopolist – the state – is deliberately restricting the supply of money, to the detriment of its citizens.

So what would a jobs guarantee look like? That is less than clear. Interestingly, most MMT proponents see their jobs guarantee as a tool for keeping a lid on wages, not for empowering workers. One of the ways that inflation is controlled in an MMT world is by pegging many workers to a relatively lowly paid, albeit guaranteed, job.

What jobs would workers do under a jobs guarantee? That is also unclear. Most MMT supporters think that, unlike the concept of a universal basic income, a jobs guarantee should provide people with active work. Some left-wing critics of MMT have noted that this concept almost resembles a “work for the dole” style of welfare.

What are the limits of MMT?

So, do governments really exclusively control the money supply? And do they really possess the power to tax citizens in an unlimited way?

No, MMT critics say.

In theory, there would be a point at which citizens might reject the coercive power of taxation by revolting or, at the very least, voting out a government that demanded such coercive control.

And while economies have evolved a long way from the days of simple barter and exchange, the option of black markets is still open to private citizens. Indeed, cryptocurrencies such as bitcoin demonstrate the ability of citizens to develop alternative systems of exchange.

Indeed, if a populace lost faith in its government’s ability to control the money supply, citizens would still have it in their means to go about their business – albeit in a limited way – by bartering and exchanges in kind.

The root impulse of capitalism is the desire of people to trade with one another. Money sits at the heart of that system of exchange. And at the heart of money is trust.

How much trust could there be in a system where policy makers, and ultimately politicians, hold the power to create unlimited money? Not much, critics say.

And then there’s the question of whether governments granted a blank cheque would spend it in ways that actually reduced unemployment and improved the lives of citizens, as promised.

Just as it is possible to overestimate the ability of free markets to deliver good outcomes, it is also possible to overestimate the omnipotence of public servants to make good decisions. History provides examples of both.

So, is MMT the answer?

Most economists think not. MMT certainly challenges the idea that governments must flip the switch to austerity after unleashing fiscal stimulus.

But, just as critics of MMT oversimplify it into a straw man, so to do MMT advocates appear to underestimate how much of their objectives could also be achieved within the mainstream framework.

Governments of both stripes have chosen to unleash massive fiscal stimulus packages during both the GFC and coronavirus to help manage the economy.

It is now commonplace under mainstream economics that governments should intervene to support private demand when it fails and to invest in assets that will increase the productivity capacity of the economy overtime.

In reality, much of the desires of MMT proponents – for less joblessness and an expanded role for fiscal policy in economic management – can be achieved and are being pursued by governments within mainstream economic frameworks.

The only real and present danger would be if policymakers or politicians came to believe that such policies, such as fiscal stimulus and job support, were incompatible with the orthodoxy and dismissed them.

But there is little evidence of that, yet.

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Kathmandu pessimistic about recovery, despite sales surge after lockdowns

“We remain cautious about medium-term levels of consumer demand. We believe that some short-term factors, including government support packages and pent-up demand are underpinning current sales,” he said.

“The heightened level of uncertainty that currently exists is likely to persist over the medium term, and we are focused on being well prepared to respond to the associated risks and opportunities as they emerge.”

We remain cautious about medium-term levels of consumer demand. We believe that some short-term factors, including government support packages and pent-up demand are underpinning current sales.

Kathmandu CEO Xavier Simonet

Sales at the company saw a significant rise from May 18 to June 28, up 12.5 per cent at Kathmandu and 21 per cent at RipCurl. These increases were largely powered by online sales, which increased 78 per cent and 151 per cent at Kathmandu and Rip Curl, respectively.

However, overall sales in the ten months to the end of May declined 15.1 per cent as the retailer was forced to shut stores and stand down staff due to the government’s strict social distancing measures.

Regardless, investors welcomed the sales rebound, sending Kathmandu’s shares up as much as 11.6 per cent to $1.20 in early trade. The stock is still far below its all-time high of around $2.50, at which it traded in early February.


Freshly acquired surfwear retailer Rip Curl was one of the worst affected retailers, with its wholesale trade declining 26 per cent. Wholesale contributes to 40 per cent of RipCurl’s sales and 10 per cent of Kathmandu’s overall profit, with the company boasting nearly 3000 wholesale locations globally.

Kathmandu acquired Rip Curl for $350 million in October last year from its founders Brian Singer and Doug Warbrick. At the time, the company said the tie-up would significantly boost the business’ earnings, delivering an with Rip Curl expected to add approximately $50 million to the company’s net profit.

Kathmandu’s gross margin is likely to be around 61 to 63 per cent, slightly lower than last year’s 63.6 per cent. The company’s balance sheet remains strong with $300 million in liquidity following its $200 million capital raise in early April.

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