Queensland, Australia economic performance 2013

Deloitte Queensland IndexGala edition – August 2013A review of Queensland listed companies on the Australian Securities Exchange

1. Executive summary 1

2. The Queensland economy: Current conditions and outlook 3

3. Deloitte Queensland Index: The year in review 5

•SuncorpGroupLimited

•FlightCentreLimited

•SuperRetailGroupLimited

•CromwellGroupLimited

•BankofQueenslandGroupLimited

•TattsGroupLimited

4. Deloitte Queensland Index League Table – FY13 10

5. Australian coal, where to now? 15

6. India and Australia: Driving growth with the Asian Tiger 18

7. The reality of ‘hacking’: What is your response? 21

8. Property and the gas boom: Challenges and opportunities 23

9. Tax structuring: Will you be in the firing line? 25

10. The dichotomy of Australian Agribusiness 28

11. Life sciences in Queensland: An attractive proposition 31

Contents

DeloitteQueenslandIndex|1

ThisspecialeditionoftheIndexshowcasesthetopfive performingQueenslandlistedcompaniesbymarketcapitalisationoverthepastyear.TheGalaEditionalsoincludesfeaturearticlesthatdiscusskeyissuesfacingQueenslandcompanies.

Asthegrowthimpetusoftheminingboomdeclines,theQueenslandeconomyfacesatransitionperiod.Ian HarperandClaireLysterdiscussthecurrentconditionsandoutlookfortheSunshineState.Whilst the transitionfromtheinvestmenttoexportphase ofthestate’sminingboomandgrowthin non-resourcerelatedsectorsisnotfreeofrisk,the outlookfortheQueenslandeconomyisbrightas Queenslandis anticipatedtocaptureagrowingshare of thenationaleconomyovertime.

Thistransitionisnowheremorepronouncedthaninthecoalindustrywheretheintensedevelopmentphasewehaveexperiencedhaspulledback.RobinPolsonandAndrewWellslookatwheretonowforcoal?Whereasconstrainedinfrastructure,inparticularbelowrailandterminalcapacity,hashadmuchofthecoalindustryheadlinesoverthepastdecade;withtheshiftintheoutlookforcommodities,wehaveobservedashiftfromascrambletosecurecapacitytoanactivesecondarymarketforcapacity.Therehasbeenachangeinagendafromgrowthandmoregrowthtoproductivityandcostimprovement;weareinafighttoretainmarketshareinexportcoal.Thecoalstoryishoweverbynomeansoverwith1,199newbaseloadcoalgeneratorsbeingproposedglobally.Itisclearlyallstilltoplayfor;providedwecanachieveandembedabetterlevelofproductivityandstaycostcompetitive.

OneofthepotentialopportunitiestounderpinfuturegrowthistradewithIndia.ReubenSaayman,HarshShahandHiteshMehtalookatdrivinggrowthwiththeAsianTiger.Over thenextfewyears,DeloitteAccessEconomicspredictsthatIndia’sgrowthratewilloutperformthe rest oftheworld,includingChina.

Indiaisalreadythethirdlargestexportdestinationfor Queensland,whichnotonlyunderlinesthegrowingimportanceofIndiabutspeaksvolumesforthepotentialofpartneringwiththeAsianTiger.Further,IndiaisnowthelargestsourceofpermanentmigrantstoAustralia,overtakingChinesearrivals.OurconnectionstoIndiaaregrowingandthiswillhaveanincreasingimpactontheAustralian,andmoreparticularlytheQueenslandbusinessenvironment.TheinitialforaysbytheAsianTigerintoAustraliahavehowevernotbeenwithoutchallengesandcapitalisingontheIndiaopportunityisnotpre-ordained;wewillhavetoliftourgameincompetitivenesstobetherewhenitcounts.

Hackingandcybercrimearegrowingrealitiesfacingcorporationsworldwide.Queenslandcompaniesoperatingoffshoreareatanincreasedriskofbeingtargetedbycybercrime.ChrisNobleandCraigMitchellconsiderthisriskinlightofthelegislationcurrentlybeingdebatedinParliamentthatwillrequirecompaniestopublicallydisclosedatabreacheseachtimetheyoccurto thePrivacyCommissioner.

ResidentialandcommercialpropertiesinregionalandurbanareasofQueenslandhavebeengreatbeneficiariesofsignificantspendingoncoalseamgasandliquefiednaturalgasprojectsinrecentyears.However,withpredictionsofapeakincapitalinvestmentastheprojectsmoveintotheiroperationalphases,PhilipWindusandDamianWinterburnconsiderhowtheseassetswillbe impactedgoingforward.

1. Executive summary

Welcome to the 2013 Deloitte Queensland Index – Gala Edition, an annual review of Queensland stocks and indices

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Multinationalcorporationsareunderincreasedpublic scrutinyforstructuringtoavoidpayingtheir‘fairshare’oftax.JohnBland,SteveHealeyandEvanLastdiscusstheresponsefromtheOrganisationforEconomicCooperationandDevelopment,specificallytheBaseErosionandProfitShiftingreportpresentedtotheG20asaglobaltaxactionplanaimedattaxavoidance.

FavourabledemographicchangesarebehindtheemergingpotentialoftheQueenslandagribusinessindustry.However,alargenumberoffarmingoperationsacrossthenationarefacingfinancialdistress.Rob McConnel,TimHeenanandJackieWhiteexplorewhatisdrivingthisdichotomy,suggestingsolutionsforAustraliatoimproveproductivityandbestreapthebenefitsofthe AsianCentury.

TonyBelfieldandRyanParlettdiscussthegrowthofthelifesciencesindustryinAustraliathatcontinuestogainmomentumwithAustraliabecominganincreasinglyattractivelocationforconductingclinicaltrials.Despiteattractiveregulatoryeaseofundertakingclinicaltrialsthe industryisrestrictedbythelimitedavailabilityofventurecapitalfunding.

Queenslandbusinessiscurrentlyfacingasignificanttransitionperiod–movingfromtheintensedevelopmentoftheresourcesboomtoanexportphasewherewemustfighttoholdontoandgrowmarketshare.Thisisprovidinganewlandscapeofchallenges.AtDeloitte,webelievethisalsopresentsgreatopportunitiesforourclientswheretheycanbenimbletoembracethischange.Weareembracingthischangingenvironmentandarecommittedtotakingourclientsonthisjourneywithus.

John Greig Managing Partner, Queensland Tel:+61733087108 [email protected]

Robin Polson Partner, Corporate Finance Tel:+61733087282 [email protected]


2. The Queensland economy: Current conditions and outlook

TheQueenslandeconomy,liketheAustralianeconomyasawhole,isintransition.Asthegrowthimpetusfromtheinvestmentphaseoftheminingboomfades,greaterreliancewillbeplacedonminingexportsandstrongeractivityin non-resource-relatedsectors(seeFigure2.1below).Intheshort-term,thistransitioncouldbebumpy;thenon-resourcesectorsarestrugglingtothrowofftheshacklesofahighexchangerate,pocketsofresidentialover-building,cautioushouseholdsunwillingtoloosentheirpursestringsanddeepcutbackstogovernmentspending.

Figure 2.1: The Australian economy is changing gears

However,inthemediumtermandbeyond,manyofthefoundationsforprosperitythathaveservedQueenslandwellinthepastappeartobeintact–thenaturalendowmentsthatattractpeopletotheStatetoliveandwork,orastourists,andthatproviderawmaterialsforexports;proximitytotheglobaleconomy’sengineroominAsia;andmacroeconomictrends,includinglowerinterestratesandalowerexchangerate,arealsofavourable.

GrowthinQueenslandhasbeenstrongoverthepastdecade,astheSunshineStatehasviedwithWesternAustraliaforthetitleof‘Australia’sfastestgrowingstate’.Indeed,StateFinalDemandroseby3.5%intheyeartoMarch2013,thefastestgrowthrateofthemajorStates.ExpenditureonresourcedevelopmentinQueenslandhasbeen,andwillcontinuetobe,significant.Fortheimmediatefutureatleast,theresourceandresource-relatedsectorswillcontinuetoleadthewayinexportsandengineeringconstruction.

However,thetwo-speedeconomycontinuestobeevidentinQueensland(seeFigure2.2).While growthintheresourcesandresource-relatedsectorsis strong,othersectorshavebeenweak.Constructionisconcentratedinresource-relatedsectors.IncomparisontootherStates,residentialconstructionhasbeenweak,despitethedemandcreatedbynatural-disaster-relatedconstruction.

Inaddition,tourismcontinuestocontendwiththestrengthoftheAustraliandollar,andexportsofeducationserviceshavedeclinedoverthepastyear.Overall,these effectshaveseenunemploymentinQueenslandriseabovethenationalaverage(butstillremainbelowunemploymentlevelsinVictoria,SouthAustraliaand Tasmania)andjobgainshavebeenmodest.

WhilerecentcutbacksingovernmentspendinginQueenslandhavebeensignificant–14,000publicservicejobswereeliminatedlastfinancialyear–theStatebudgetisexpectedtoremainindeficitinthecurrentfinancialyearbeforereturningtosurplusin2014–15.Inaddition,inthemostrecentStatebudget,theGovernmentflaggedafurther$100minpublicsectorsavingsoverthenextfouryears.

Inrecentyears,businessinvestmentinQueenslandhas beensupportedbymassiveengineeringconstructionin LNGprojects.Investmentintheseprojectsisexpectedtopeakthisyear.Futureinvestmentinmoremarginalresourceprojects,includingcoal,isunlikelytooccur.Thefailureofsomeengineeringconstructionprojectstoeventuateandrecentdevelopmentsincommoditypriceshaveraisedconcernsaboutthefutureforoilandgasprojectsgenerally.

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Article 2 - Chart 2.1

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Figure 2.2: Queensland industry growth, year to June 2012

WhiletheconstructionphaseofmajorLNGprojectsdrawstoaclose,asignificantincreaseinproductionandexportsshouldfollow,whichwillhelptosustaintheState’srateofeconomicgrowth.Itwillstillbenecessary,however,forinvestmentinotherpartsoftheeconomytotakeuptheslackleftbysharplylowerlevelsofengineeringconstruction.

Queensland’sproximitytothelarge,dynamicAsianeconomiesisalong-termpositivefortheeconomy.In additiontothelargeexportmarkets,thereishugescopetoforgeclosertieswiththeregion’sbusinessesand burgeoningmiddle-classtocreateeconomiclinksthatwillberobustatboththepeakandtroughofthecycle.

Inall,theoutlookforQueensland’seconomyispositive.TheimpactofStatebudgetcutbacksappearstohaveplateauedandQueensland’spopulationgrowthratehasbeenrising.Recent457VisadevelopmentsattheFederallevel,however,maycompromisetheoutlookforpopulationgrowthgiventheState’srelianceonmigrantlabour.

NotwithstandingthehighvalueoftheAustraliandollar,tourisminQueenslandhasbeengrowingstronglyoverthelastyear,atrendthatisexpectedtocontinueandperhapsstrengthenifthelong-anticipateddepreciationcontinues.

Combinedwiththelowerinterestratesandforecaststrongerincomegrowthoverthenextfewyears,these developmentsshouldsupporthouseholdconsumptionandhousingconstruction.Thetrendin dwellingapprovalsisrising,andalthoughmonthlyapprovalsarestillwellshyof‘average’levels,thesectorshouldcontributetogrowthgoingforward.Thiswillhavea positiveimpactonjobsgrowth,whichshouldinturnimprovetheoutlookfortheState’sunemploymentrate.

Whilethesepositivedevelopmentsdonotcompletelyeliminatetheriskofashort-termslowdownduringthetransitionfromtheinvestmenttotheexportphaseoftheState’sminingboomandwhilethenon-resource-relatedsectorspickupthepace,themostlikelyprospectisthattheSunshineStatewillcontinuetocarveoutagrowingshareofthenationaleconomyovertime.

Other services

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Wholesale and retail trade

Education

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Agriculture, forestry and fishing

Information, media and technology

Utilities

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Article 2 - Chart 1.2

Ian Harper Partner, Deloitte Access Economics Tel:+61396717536 [email protected]

Claire Lyster Analyst, Deloitte Access Economics Tel:+61293227069 [email protected]


Duringthe2013financialyear(FY13),theDeloitteQueenslandIndex(theIndex)increasedby6.8%to2,240points.However,theIndexwasoutperformedbytheS&P/ASXAllOrdinaries,whichincreased15.5%to4,775pointsoverthesameperiod.Out ofthe 188companiescurrentlylistedontheIndex,72companiespostedanincrease, 110companieslostground,whiletheremainderweresteady.

TheperformanceoftheIndexagainstrelevantindicesandcommoditiescanbeseenin Table3.1below.

Table 3.1: Performance of the Deloitte Queensland Index compared to relevant international indices

3. Deloitte Queensland Index: The year in review

Index Name Last 12 months

Last six months

Last month

Last two months

Last three months

Last four months

Last five months

Since inception

DeloitteQueenslandIndex 6.8% (1.5%) (5.0%) (8.3%) (6.4%) (7.7%) (5.7%) 124.0%

DeloitteQueenslandE&RIndex (27.6%) (26.9%) (10.6%) (10.2%) (16.1%) (24.3%) (27.2%) 407.0%

S&P/ASXAllOrdinaries 15.5% 2.4% (2.8%) (7.6%) (4.1%) (6.7%) (2.6%) 63.1%

E&R indices

S&P/ASX200Energy 5.1% 0.8% (5.8%) (3.4%) (4.5%) (8.0%) (4.4%) 211.3%

S&P/ASX200Materials (10.2%) (20.0%) (10.3%) (8.2%) (11.8%) (21.0%) (21.2%) 112.5%

Reuters/JefferiesCRBIndex (3.0%) (6.6%) (2.2%) (4.3%) (7.0%) (5.9%) (9.3%) 21.7%

BalticDryIndex 14.6% 64.7% 42.3% 32.1% 26.5% 52.0% 51.4% (15.8%)

Major international indices

DowJonesIA 15.8% 13.8% (1.4%) 0.5% 2.3% 6.1% 7.6% 96.4%

Nikkei225 51.9% 31.6% (0.7%) (1.3%) 10.3% 18.3% 22.8% 45.8%

FTSE100 11.6% 5.4% (5.6%) (3.3%) (3.1%) (2.3%) (1.0%) 67.0%

HangSeng 7.0% (8.2%) (7.1%) (8.5%) (6.7%) (9.6%) (12.3%) 129.3%

Commodities

SpotGold (23.7%) (27.0%) (12.2%) (16.9%) (23.3%) (22.5%) (26.4%) 278.3%

LMENickel (17.0%) (21.5%) (6.5%) (10.0%) (17.3%) (18.1%) (25.6%) 115.0%

LMEAluminium (5.7%) (17.3%) (6.8%) (6.3%) (8.0%) (12.2%) (16.5%) 33.6%

LMECopper (11.2%) (16.5%) (6.8%) (4.6%) (11.0%) (13.8%) (17.4%) 362.6%

NYMEXWTICrudeOil 13.7% 5.2% 5.0% 3.3% (0.7%) 4.9% (1.0%) 217.1%

Source:CapitalIQ,ASX

The Index increased by 6.8% to 2,240 points during the 2013 Financial Year

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ThefollowinggraphdepictstheprogressoftheIndexagainstmajorinternationalindicessinceinceptioninSeptember2002.

Figure 3.1: Performance of the Deloitte Queensland Index compared to major international indices (relative to one)

Source:CapitalIQ,ASX

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Dow Jones IA Nikkei 225 FTSE 100 Hang Seng S&P/ASX All Ordinaries Deloitte Qld Index

Table 3.2: Largest increases and decreases in market capitalisation (FY13)

Largest Increases $m % Largest decreases $m %

1 SuncorpGroupLimited 4,928 47.3% 1 DiscoveryMetalsLimited -555 -89.4%

2 FlightCentreLimited 2,056 108.5% 2 PanAustLimited -529 -32.3%

3 SuperRetailGroupLimited 941 66.8% 3 EchoEntertainmentGroupLimited -418 -14.2%

4 CromwellGroupLimited 870 108.5% 4 ALSLimited -371 -10.1%

5 BankOfQueenslandLimited 731 35.9% 5 BillabongInternationalLimited -368 -83.7%

6 AurizonHoldingsLimited 595 7.2% 6 NewHopeCorporationLimited -365 -11.0%

7 G8EducationLimited 472 238.7% 7 MaverickDrilling&ExplorationLimited -328 -66.8%

8 EnergyDevelopmentsLimited 345 85.3% 8 CardnoLimited -300 -28.7%

9 VirginAustraliaLimited 234 27.4% 9 Brisconnections-UnitTrusts -203 -56.5%

10 RetailFoodGroupLimited 227 79.1% 10 AusencoLimited -195 -44.1%


Suncorp Group Limited

Figure 3.2: Suncorp Group’s share price performance (FY13)

Source:CapitalIQ

Suncorp GrouppostedthelargestincreaseinmarketcapitalisationontheIndexinFY13,increasingby$4,928m,or47.3%.Suncorp Groupprovidesgeneralinsurance,banking,lifeinsurance,superannuationand investmentproductstoretailandcommercialclients.

AtthebeginningofFY13,thecompanyreportedstrongresultsforFY12,includinganincreaseinnetprofitaftertax(NPAT)of59.8%to$724m.Theresultwasalsohighlightedbythecontinuingimprovementinthequalityofthecompany’scapitalposition.

Throughouttheperiod,Suncorp Grouphasbenefittedfrompositiveindustrytailwindsincludinghigherequitymarketlevels.

InJune,Suncorp Groupannouncedtheresolutionofthenon-corebankingportfoliowiththesaleofa$1.6bportfolioofcorporateandpropertyassetsataweightedrealisationof60centsinthedollar.Thesalewasasignificantpositiveintermsofriskreductionforthebank.

Suncorp Groupendedtheyearatnumberoneonthe Index.

Article 3 - Suncorp

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Flight Centre Limited

Figure 3.3: Flight Centre’s share price performance (FY13)

Source:CapitalIQ

Flight Centre’smarketcapitalisationincreasedby$2,056m,or108.5%,duringFY13.Flight Centreisatravelagencyserviceprovidingacompletetravelserviceforleisureandbusinesstravellers.

Despitemixedconsumerandbusinessconfidence,Flight Centregrewstrongly,expandingitssalesnetworkwithsalesstaffandstorenumbersgrowing5% respectively.Thecompanyreportedpositivehalfyearresults,with profitaftertaxof$91.8m,anincreaseof13%on theprecedingperiod.

InFebruary, Flight CentreannouncedplanstoexpandinAsiaandtheMiddleEastaspartofthecompany’songoingplantoexpanditsglobalfootprintby6–8%annually.Thecompanyviewstheregionasasolidgrowthopportunityandaredevelopinganetworkof leisuretravelshopsthatwilloperatealongsideitsmore establishedcorporatetravelbusinesses.

ThecompanyalsorecentlyupgradeditsFY13marketguidanceonunderlyingprofitbeforetax(PBT)expectationtobetween$325–340m,representing a12–17%growthonPBTachievedinFY12.

Flight CentreendedFY13atnumberthreeontheIndex.

Article 3 - Flight Centre

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Ofthe72companiesthatpostedanincreaseduringFY13,wereviewtheperformanceofthefivelargestdollarincreasesinmarketcapitalisationbelow.WehavealsoincludedacompanyprofileonTattsGroupLimitedthatdoesnotfitthecriteriatobeincludedintheFY13Index,howeverhasrecentlyrelocatedtoQueenslandandwillbeincludedintheIndexgoingforward.

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Super Retail Group Limited

Figure 3.4: Super Retail Group’s share price performance (FY13)

Source:CapitalIQ

Super Retail Grouphadaconsiderableincreaseinmarketcapitalisation,withanincreaseof$941m,or 66.8%duringFY13.Comprisingofanumberofindividualbusinesses,Super Retail Groupoperatesasaretailerof automotiveandleisureproducts.

Super Retail GroupstartedFY13reportingstrongresultsforFY12withsalesandNPATincreasingby51%and50%respectively.Thestrongresultdemonstratedtheresilienceofthecompany’sbusinessmodel,deliveringearningsgrowthdespitesubduedretailconditions.

Thecompany’sstrongperformancecontinuedthroughouttheyearwithstellarmid-yearresultsreportinga74%increaseinNPATontheprecedingperiod.

InMay,thecompanyannouncedthatcomparablesalesforitsauto,sportsandleisuredivisionshadincreased5.1%,7.8%and3.0%respectivelyforthe43weekperiodto27April.

Super Retail GroupendedFY13atnumbernineonthe Index.

Cromwell Group Limited

Figure 3.5: Cromwell Group’s share price performance (FY13)

Source:CapitalIQ

ThemarketcapitalisationofCromwell Groupincreasedby$870m,or108.5%,duringFY13.Cromwell GroupisanAustralianRealEstateInvestmentTrustandPropertyFundManagerwithover$2.7bassetsundermanagement,managingcommercialpropertiesthroughoutAustralia.

Cromwell Groupproceededwithitsstrategyofprovidingsecure,steadygrowingdistributionstoinvestorsthroughthemanagementofaportfolioofhighqualityassetstogreateffectthroughoutFY13.

InMay,thecompanyannouncedthepurchaseofaportfolioofsevenofficeassetsfromtheNewSouthWalesStateGovernment.ThePortfoliocomprisedofthreeSydneyCBDassetsandfourregionalNSWassets,valuedat$316mand$89mrespectively.ThecompanyalsoannouncedtheacquisitionoftwoBrisbaneofficebuildingsforacombinedpurchasepriceof$65m.

Duringtheyear,Cromwell Group announceda$250mequityraisingtopartlyfundtheacquisitionoftheportfolioassetsfromtheNSWStateGovernmentandtorepayexistingdebt.Theraisingconsistedofa$128minstitutionalplacementanda$122monefor12non-renounceablepro-rataentitlementoffertoexistingeligiblesecurityholders.

Cromwell GroupendedFY13atnumbertenon theIndex.

Article 3 - Cromwell Property Group

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Bank of Queensland Group Limited

Figure 3.6: Bank of Queensland’s share price performance (FY13)

Source:CapitalIQ

Bank of Queenslandrecordeda$731m,or35.9%,increaseinmarketcapitalisationduringFY13.Bank of Queenslandisafinancialinstitutionofferingcorebankingservices,equipmentfinance,wealthmanagementandinsurance.

PerformanceinearlyFY13washinderedbythecompany’slegacyassetqualityandfundingprofilewhichcontinuedtoinhibitnetinterestmargins.However,Bank of Queensland halfyearresultsshowedastrongimprovementwithmargingrowthandanincreaseddividend.

InApril,Bank of QueenslandacquiredVirginMoneyAustraliafor$40m.Theacquisitionwillallowthecompanytoexpanditsdistributionfootprintextendingitsreachtocurrentlyuntapped,complementarycustomerandmarketsegments.

Goingforward,Bank of Queensland’sperformancewilldependonthefundingmarketanditsBBB+creditrating.

Bank of QueenslandendedFY13atnumbersixonthe Index.

Tatts Group Limited

Figure 3.7: Tatts Group’s share price performance (FY13)

Source:CapitalIQ

Tatts Group Limitedrecordedan$876million,or24.5%,increaseinmarketcapitalisationduringFY13.Tatts Group hasaportfolioofgamblingbusinessesprovidingleisureandentertainmentproductsinlotteries,wageringandgamingin AustraliaandtheUnitedKingdom.

InNovember,Tatts GroupwontherighttomanagetheSouthAustralianLotteriesbusiness.UndertheagreementwiththeSouthAustraliangovernmentTatts GroupwasexclusivelyappointedtomanagethestateownedLotteriesCommissionofSouthAustraliaforaperiodof40years.

DuringFY13,Tatts Groupannouncedtheappointmentof RobbieCookeasChiefExecutiveandManagingDirector,takingeffectinJanuary2013.MrCookesucceededDick McIlwain.

Tatts GrouphasbeenexcludedfromtheQueenslandIndexonthebasisthatthecompanyrelocatedtoQueenslandlateinthefinancialyear.ThecompanywillbeincludedintheindexinFY14.Atitscurrentmarketcapitalisationof$4.4bit willenteratnumberthreeontheIndex.

Article 3 - Bank of Qld Group

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For more information on the Deloitte Queensland Index, please contact:


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4. Deloitte Queensland Index League Table – FY13

Ranking

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1 1 SuncorpGroupLimited 15,336.3 10,408.6 4,928 47.3% 11.92 12.98 7.88 0.71 20.13

2 2 AurizonHoldingsLimited 8,891.1 8,296.0 595 7.2% 4.16 4.57 3.07 0.17 31.87

3 8 FlightCentreLimited 3,949.6 1,893.9 2,056 108.5% 39.33 41.88 18.67 2.10 21.28

4 4 ALSLimited 3,291.3 3,662.1 (371) (10.1%) 9.58 12.45 7.23 0.66 16.27

5 5 NewHopeCorporationLimited 2,965.1 3,330.0 (365) (11.0%) 3.57 4.82 3.30 0.16 24.17

6 7 BankOfQueenslandLimited 2,767.8 2,036.9 731 35.9% 8.71 10.08 6.47 0.53 15.88

7 6 EchoEntertainmentGroupLimited 2,526.6 2,944.7 (418) (14.2%) 3.06 4.35 2.75 0.05 63.20

8 3 WhitehavenCoalLimited 2,359.0 4,204.7 (1,846) (43.9%) 2.30 4.34 1.78 (0.01) –

9 10 SuperRetailGroupLimited 2,351.8 1,410.3 941 66.8% 11.97 13.85 7.08 0.54 25.56

10 15 CromwellGroupLimited 1,670.9 801.2 870 108.5% 0.98 1.12 0.68 0.05 26.88

11 11 TranspacificIndustriesGroupLimited 1,262.9 1,144.2 119 10.4% 0.80 1.10 0.66 0.02 44.77

12 9 PanAustLimited 1,106.9 1,636.1 (529) (32.3%) 1.83 3.53 1.77 0.24 9.69

13 14 VirginAustraliaLimited 1,088.4 854.1 234 27.4% 0.43 0.52 0.37 (0.00) 36.90

14 13 Wotif.comHoldingsLimited 959.2 891.4 68 7.6% 4.53 6.04 3.84 0.27 19.45

15 17 Domino'sPizzaEnterprisesLimited 784.1 702.5 82 11.6% 11.17 13.99 8.43 0.41 33.25

16 27 EnergyDevelopmentsLimited 748.3 403.8 345 85.3% 4.57 4.45 2.22 0.16 17.19

17 12 CardnoLimited 744.5 1,044.5 (300) (28.7%) 5.18 8.64 4.79 0.58 10.62

18 18 GWAInternationalLimited 735.7 634.2 101 16.0% 2.40 2.71 1.58 0.14 22.24

19 21 APEagersLimited 718.3 534.0 184 34.5% 4.07 5.65 3.24 0.34 13.89

20 16 SenexEnergyLimited 673.1 705.5 (32) (4.6%) 0.59 0.85 0.48 0.03 31.75

21 43 G8EducationLimited 669.5 197.7 472 238.7% 2.46 2.59 0.92 0.09 32.65

22 29 TechnologyOneLimited 549.1 355.2 194 54.6% 1.79 1.92 1.14 0.08 27.62

23 38 RetailFoodGroupLimited 514.6 287.3 227 79.1% 3.95 4.26 2.52 0.25 17.55

24 32 ERMPowerLimited 501.7 333.7 168 50.4% 2.50 2.80 1.70 0.06 48.81

25 40 NEXTDCLimited 462.2 269.6 193 71.4% 2.67 2.79 1.60 (0.02) –

26 31 LincEnergyLimited 427.0 348.9 78 22.4% 0.82 3.05 0.46 (0.12) –

27 20 CudecoLimited 409.8 599.9 (190) (31.7%) 2.00 4.94 2.21 (0.02) –

28 24 FKPPropertyGroup 408.4 460.6 (52) (11.3%) 1.27 3.01 1.05 (1.22) 9.71

29 34 CarindalePropertyTrust 383.6 318.5 65 20.4% 5.48 6.05 4.50 1.19 45.11

30 30 AustralianAgriculturalCompanyLimited 364.8 350.5 14 4.1% 1.17 1.42 1.06 (0.17)

31 51 CorporateTravelManagementLimited 320.1 144.9 175 120.9% 4.10 5.07 1.94 0.17 27.78

32 47 SunlandGroupLimited 263.0 180.4 83 45.8% 1.42 1.74 0.76 0.12 22.50

33 25 AusencoLimited 247.0 442.1 (195) (44.1%) 2.00 4.08 1.76 0.33 7.25

34 35 AustinEngineeringLimited 230.5 311.0 (80) (25.9%) 3.15 5.96 3.20 0.49 7.55

35 – ShineCorporateLimited 228.6 -– NA NA 1.48 1.54 1.35 – –

36 36 PrimeagAustraliaLimited 222.4 306.4 (84) (27.4%) 0.84 1.34 0.81 0.03 33.39

37 62 SilverChefLimited 212.3 89.4 123 137.4% 7.38 8.42 3.32 0.41 13.80

38 41 WideBayAustraliaLimited 190.3 210.0 (20) (9.4%) 5.25 7.25 5.15 0.44 13.34

39 44 AllianceAirlinesLimited 190.0 195.3 (5) (2.7%) 1.80 2.33 1.51 0.26 10.61

40 64 CollectionHouseLimited 189.9 86.5 103 119.5% 1.65 1.75 0.78 0.13 14.42


Ranking

Company Mkt

cap

30 Ju

n 13

$

mill

ion

Mkt

cap

30 Ju

n 12

$

mill

ion

Chan

ge$

mill

ion

Chan

ge% La

st

$ pr

ice

year

Hig

h$

pric

e ye

ar

Low

$ pr

ice

year

EPS

P/E

ratio

FY13 FY12

41 74 GreencrossLimited 177.1 72.8 104 143.3% 4.75 5.55 2.22 0.10 42.31

42 49 Data#3Limited 165.5 170.9 (5) (3.2%) 1.08 1.42 1.02 0.09 13.93

43 45 OrocobreLimited 163.7 190.4 (27) (14.0%) 1.39 2.42 1.00 0.93 –

44 22 MaverickDrilling&ExplorationLimited 163.0 490.5 (328) (66.8%) 0.36 1.49 0.30 0.01 44.58

45 59 CollinsFoodsLimited 156.2 101.8 54 53.4% 1.68 1.92 1.03 0.18 10.55

46 28 Brisconnections-UnitTrusts 156.1 359.0 (203) (56.5%) 0.40 1.06 0.40 0.32 –

47 – IvanhoeAustraliaLimited 143.2 – NA NA 0.20 0.93 0.10 (0.13) –

48 52 1300SmilesLimited 140.4 141.8 (1) (1.0%) 5.93 6.54 5.00 0.29 22.80

49 57 ReefCasinoTrust 129.5 110.1 19 17.6% 2.60 2.79 2.06 0.22 19.04

50 39 IntrepidMinesLimited 125.1 270.8 (146) (53.8%) 0.23 0.63 0.19 (0.12) –

51 – AsiaPacificDataCentreGroupLimited 123.1 – NA NA 1.07 1.20 1.08 – –

52 37 SedgmanLimited 116.8 297.9 (181) (60.8%) 0.53 1.65 0.43 0.14 3.84

53 85 GBSTHoldingsLimited 113.2 53.9 59 109.9% 1.70 1.80 0.73 0.05 37.33

54 42 NortonGoldFieldsLimited 112.0 199.7 (88) (43.9%) 0.13 0.27 0.13 0.01 8.68

55 60 DevineLimited 106.3 92.1 14 15.5% 0.67 1.00 0.51 (0.10) –

56 54 AlchemiaLimited 103.7 126.3 (23) (17.9%) 0.32 0.62 0.29 (0.05) –

57 58 WatpacLimited 101.4 106.0 (5) (4.3%) 0.55 0.85 0.50 (0.29) –

58 109 CometRidgeLimited 89.4 32.3 57 177.1% 0.22 0.33 0.11 (0.01) –

59 106 VitaGroupLimited 89.1 35.6 53 150.0% 0.63 0.70 0.24 (0.07) 21.29

60 81 VillaWorldLimited 83.5 59.4 24 40.4% 1.14 1.23 0.71 (0.24) –

61 70 SeymourWhyteLimited 81.7 77.4 4 5.5% 1.05 1.26 0.68 0.05 23.34

62 65 IconEnergyLimited 77.3 84.5 (7) (8.4%) 0.15 0.30 0.13 (0.02) –

63 90 CapralAluminiumLimited 77.0 50.4 27 52.7% 0.20 0.26 0.13 (0.03) –

64 53 DartEnergyLimited 72.9 138.5 (66) (47.3%) 0.08 0.22 0.03 (0.17) –

65 26 BillabongInternationalLimited 71.4 439.2 (368) (83.7%) 0.15 1.47 0.12 (2.11) –

66 66 ArmourEnergyLimited 67.5 82.5 (15) (18.2%) 0.23 0.42 0.17 (0.01) –

67 99 RungePincockMinarcoLimited 66.4 43.4 23 53.0% 0.47 0.68 0.34 (0.02) 39.71

68 126 TitanEnergyServicesLimited 66.0 19.4 47 241.3% 1.39 2.03 0.42 0.17 8.71

69 63 CokalLimited 65.8 88.4 (23) (25.6%) 0.16 0.27 0.11 (0.02) –

70 19 DiscoveryMetalsLimited 65.7 621.2 (555) (89.4%) 0.14 1.76 0.12 (0.06) –

71 69 WorldTitaniumResourcesLimited 65.6 79.1 (13) (17.0%) 0.22 0.28 0.15 (0.03) –

72 97 JumboInterativeLimited 65.3 44.5 21 46.7% 1.50 3.28 1.01 0.14 12.71

73 93 TamawoodLimited 62.6 49.2 13 27.3% 2.45 2.92 1.91 0.32 9.30

74 139 SumatraCopper&GoldPlc 60.7 13.3 47 354.7% 0.17 0.25 0.06 (0.01) –

75 72 CitigoldCorporationLimited 59.5 74.3 (15) (19.9%) 0.04 0.08 0.04 (0.00) –

76 75 AriadneAustraliaLimited 57.2 70.5 (13) (18.8%) 0.28 0.37 0.25 0.02 31.39

77 48 BandannaEnergyLimited 52.8 179.7 (127) (70.6%) 0.10 0.47 0.10 (0.01) 77.52

78 50 MastermyneGroupLimited 52.8 158.3 (106) (66.7%) 0.70 2.24 0.62 0.20 3.50

79 55 WestsideCorporationLimited 50.2 119.2 (69) (57.9%) 0.14 0.45 0.12 (0.04) –

80 110 ZicomGroupLimited 49.4 31.9 18 55.0% 0.23 0.29 0.15 0.04 11.17

12|2013GalaEdition

Ranking

Company Mkt

cap

30 Ju

n 13

$

mill

ion

Mkt

cap

30 Ju

n 12

$

mill

ion

Chan

ge$

mill

ion

Chan

ge% La

st

$ pr

ice

year

Hig

h$

pric

e ye

ar

Low

$ pr

ice

year

EPS

P/E

ratio

FY13 FY12

81 78 CMILimited 48.5 64.5 (16) (24.7%) 1.43 2.76 1.42 0.37 4.41

82 77 BlueEnergyLimited 47.9 64.8 (17) (26.1%) 0.04 0.06 0.03 (0.01) –

83 83 AnteoDiagnosticsLimited 46.2 56.6 (10) (18.4%) 0.06 0.08 0.05 (0.00) –

84 79 InvestigatorResourcesLimited 43.6 63.8 (20) (31.6%) 0.13 0.26 0.09 (0.01) –

85 68 AlturaMiningLimited 40.9 79.5 (39) (48.6%) 0.09 0.22 0.08 (0.01) –

86 114 BlueSkyAlternativeInvestmentsLimited 40.7 27.3 13 48.8% 1.25 1.25 0.75 0.10 32.22

87 108 HughesDrillingLimited 40.0 34.1 6 17.3% 0.22 0.52 0.20 0.10 3.85

88 107 SiteGroupInternationalLimited 39.6 34.4 5 14.9% 0.12 0.19 0.10 (0.03) –

89 104 LindsayAustraliaLimited 38.5 37.0 2 4.1% 0.18 0.22 0.14 0.01 24.17

90 91 TrinityGroup 37.4 50.3 (13) (25.6%) 0.25 0.31 0.25 0.07 –

91 146 AeonMetalsLimited 36.6 10.4 26 251.7% 0.21 0.34 0.06 (0.00) –

92 96 GeodynamicsLimited 35.0 44.7 (10) (21.8%) 0.09 0.20 0.07 (0.03) –

93 102 OnTheHouseHoldingsLimited 31.6 37.5 (6) (15.7%) 0.39 0.88 0.33 0.03 16.21

94 125 UCLResourcesLimited 31.1 19.5 12 59.3% 0.30 0.32 0.10 (0.03) –

95 179 MacroCorporationLimited 30.9 4.1 27 644.4% 0.34 – – – –

96 80 OrbisGoldLimited 30.4 60.1 (30) (49.5%) 0.14 0.48 0.11 (0.02) –

97 61 CarrabellaResourcesLimited 28.9 91.4 (62) (68.3%) 0.19 0.65 0.18 (0.05) –

98 117 BrisbaneBroncosLimited 28.4 24.5 4 16.0% 0.29 0.31 0.22 0.02 14.35

99 129 VestureLimited 26.0 18.7 7 39.0% 0.10 0.13 0.09 0.01 22.23

100 – TlouEnergyLimited 25.8 – NA NA 0.25 0.58 0.25 (0.09) –

101 82 PacificNiuginiLimited 25.1 59.1 (34) (57.4%) 0.10 0.25 0.10 (0.01) –

102 67 TissueTherapiesLimited 24.6 80.4 (56) (69.4%) 0.12 0.55 0.11 (0.04) –

103 71 StanmoreCoalLimited 24.0 76.2 (52) (68.6%) 0.12 0.53 0.12 (0.04) –

104 89 CarbonEnergyLimited 22.8 51.9 (29) (56.0%) 0.03 0.08 0.02 (0.05) –

105 – CapilanoHoneyLimited 20.9 – NA NA 2.45 2.90 2.00 0.24 9.75

106 103 CarpentariaExplorationLimited 20.4 37.3 (17) (45.5%) 0.21 0.45 0.17 (0.02) –

107 111 GlobalPetroleumLimited 19.9 29.9 (10) (33.3%) 0.10 0.18 0.09 (0.00) –

108 123 GalileeEnergyCorporation 19.8 20.5 (1) (3.7%) 0.13 0.15 0.10 (0.04) –

109 118 VientoGroupLimited 19.2 23.2 (4) (17.5%) 0.24 0.48 0.22 (0.02) –

110 124 WilsonHTMInvestmentGroupLimited 19.0 20.2 (1) (6.2%) 0.19 0.40 0.13 (0.06) –

111 92 AlcyoneResourcesLimited 18.9 49.8 (31) (62.0%) 0.01 0.06 0.01 (0.00) –

112 140 QueenslandMiningCorpLimited 17.4 13.3 4 30.5% 0.02 0.09 0.02 (0.03) –

113 95 ImpedimedLimited 16.3 47.1 (31) (65.4%) 0.09 0.29 0.05 (0.07) –

114 94 ChesserResourcesLimited 16.1 48.2 (32) (66.7%) 0.11 0.49 0.10 (0.03) –

115 130 CuestaCoalLimited 15.4 18.4 (3) (16.4%) 0.07 0.17 0.07 (0.02) –

116 135 InvionLimited 14.7 14.3 0 2.5% 0.03 0.09 0.03 (0.01) –

117 112 MetallicaMineralsLimited 14.4 29.1 (15) (50.6%) 0.09 0.35 0.11 (0.12) –

118 133 MagontecLimited 14.4 14.5 (0) (0.7%) 0.02 0.04 0.02 (0.01) –

119 105 InternationalCoalLimited 13.7 35.8 (22) (61.7%) 0.10 0.28 0.08 (0.01) –

120 147 BuderimGingerLimited 13.4 9.9 4 35.4% 0.65 0.76 0.45 0.09 8.60


Ranking

Company Mkt

cap

30 Ju

n 13

$

mill

ion

Mkt

cap

30 Ju

n 12

$

mill

ion

Chan

ge$

mill

ion

Chan

ge% La

st

$ pr

ice

year

Hig

h$

pric

e ye

ar

Low

$ pr

ice

year

EPS

P/E

ratio

FY13 FY12

121 161 PTBGroupLimited 12.9 7.4 5 73.9% 0.40 0.50 0.20 0.01 58.27

122 186 ProgenPharmaceuticals 12.4 3.5 9 259.6% 0.23 0.30 0.14 (0.12) –

123 143 AHCLimited 11.8 12.4 (1) (4.5%) 2.10 2.20 2.00 (0.06) –

124 145 CapeAluminaLimited 11.7 11.3 0 3.5% 0.06 0.15 0.06 (0.02) –

125 150 AnalyticaLimited 11.2 9.5 2 17.7% 0.02 0.03 0.02 (0.00) –

126 87 MetrocoalLimited 10.9 52.2 (41) (79.2%) 0.05 0.30 0.06 0.00 –

127 88 MunganaGoldminesLimited 10.4 52.2 (42) (80.0%) 0.07 0.45 0.06 (0.62) –

128 160 RedflowLimited 9.2 7.4 2 23.1% 0.05 0.17 0.04 (0.16) –

129 156 ConsolidatedTinMinesLimited 9.1 8.2 1 11.2% 0.05 0.12 0.04 (0.00) –

130 128 ChinalcoYunnanCopperResourcesLimited 8.9 19.1 (10) (53.2%) 0.04 0.14 0.04 (0.04) –

131 151 CellnetGroupLimited 8.9 9.2 (0) (2.9%) 0.16 0.20 0.11 (0.01) 15.37

132 113 ChinaMagnesiumCorporationLimited 8.7 28.6 (20) (69.7%) 0.06 0.23 0.05 (0.02) –

133 157 LandmarkWhiteLimited 8.3 8.0 0 3.4% 0.30 0.41 0.29 0.02 18.73

134 148 AskFundingLimited 8.2 9.9 (2) (16.7%) 0.13 0.16 0.13 (0.00) –

135 121 DGRGlobalLimited 7.9 20.7 (13) (61.7%) 0.02 0.10 0.02 0.03

136 154 TechnicheLimited 7.4 8.3 (1) (10.8%) 0.03 0.04 0.03 0.00 26.70

137 158 EumundiGroupLimited 7.1 7.8 (1) (9.1%) 0.05 0.06 0.05 0.00 4.65

138 138 AustralianPacificCoalLimited 6.6 13.5 (7) (50.9%) 0.01 0.03 0.01 (0.00) –

139 142 MontoMineralsLimited 6.6 13.1 (6) (49.7%) 0.01 0.02 0.01 (0.00) –

140 131 RiftValleyResourcesLimited 6.3 18.2 (12) (65.3%) 0.02 0.11 0.01 (0.01) –

141 141 DiatremeResourcesLimited 6.1 13.1 (7) (53.6%) 0.01 0.05 0.01 (0.01) –

142 178 CoppermolyLimited 6.0 4.3 2 38.2% 0.03 0.06 0.02 (0.01) –

143 101 CoalbankLimited 5.9 40.6 (35) (85.4%) 0.01 0.06 0.01 (0.00) –

144 182 AlliedConsolidatedLimited 5.9 3.6 2 62.8% 0.02 0.03 0.01 (0.00) –

145 167 MetalStormLimited 5.7 5.6 0 2.5% 0.00 – – – –

146 176 ElectrometalsTechnologiesLimited 5.7 4.4 1 27.9% 0.01 0.01 0.01 (0.00) –

147 153 CharterPacificCorporationLimited 5.6 8.7 (3) (35.2%) 0.05 0.09 0.04 (0.03) –

148 183 DiversaLimited 5.6 3.6 2 54.6% 0.03 0.05 0.01 (0.08) –

149 144 HillEndGoldLimited 5.5 11.7 (6) (52.9%) 0.01 0.02 0.01 (0.00) –

150 100 ExomaEnergyLimited 5.4 41.7 (36) (87.0%) 0.01 0.12 0.01 (0.00) –

151 119 PolymetalsMiningLimited 5.4 22.2 (17) (75.8%) 0.14 0.70 0.14 0.03 7.11

152 189 ActivEXLimited 5.4 3.2 2 65.7% 0.02 0.03 0.01 (0.00) –

153 171 BytePowerGroupLimited 5.2 5.2 0 0.8% 0.00 0.01 0.00 (0.00) –

154 – TalonPetroleumLimited 5.1 – NA NA 0.05 0.13 0.04 (0.43) –

155 162 EurekaGroupHoldingsLimited 4.9 7.3 (2) (32.7%) 0.07 0.12 0.03 0.01 14.35

156 192 PacificEnvironmentLimited 4.7 2.9 2 61.0% 0.05 0.07 0.03 (0.00) 130.08

157 137 OrionMetalsLimited 4.6 13.5 (9) (65.8%) 0.05 0.16 0.05 (0.02) –

158 172 KrucibleMetalsLimited 4.6 5.1 (1) (10.5%) 0.06 0.18 0.06 (0.04) –

159 163 AstivitaRenewablesLimited 4.4 7.1 (3) (38.4%) 0.14 0.44 0.12 (0.08) –

160 168 PrymeEnergyLimited 4.1 5.4 (1) (25.5%) 0.01 0.14 0.01 (0.01) –

14|2013GalaEdition

Ranking

Company Mkt

cap

30 Ju

n 13

$

mill

ion

Mkt

cap

30 Ju

n 12

$

mill

ion

Chan

ge$

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ion

Chan

ge% La

st

$ pr

ice

year

Hig

h$

pric

e ye

ar

Low

$ pr

ice

year

EPS

P/E

ratio

FY13 FY12

161 132 AlligatorEnergyLimited 4.0 16.3 (12) (75.2%) 0.03 0.13 0.03 (0.01) –

162 166 RenaissanceUraniumLimited 4.0 5.9 (2) (32.2%) 0.04 0.09 0.03 (0.00) –

163 149 GoldAnomalyLimited 3.9 9.8 (6) (60.3%) 0.00 0.01 0.00 (0.00) –

164 207 NavahoGoldLimited 3.5 1.4 2 151.7% 0.02 0.06 0.01 (0.02) –

165 193 ReverseCorpLimited 3.4 2.9 1 19.4% 0.04 0.05 0.01 (0.01) –

166 185 TrusteesAustraliaLimited 3.3 3.5 (0) (4.8%) 0.10 0.11 0.08 (0.05) –

167 184 AusNiCoLimited 3.1 3.5 (0) (12.1%) 0.01 0.02 0.01 (0.01) –

168 190 BioProspectLimited 2.9 3.2 (0) (10.9%) 0.00 0.00 0.00 0.00 –

169 159 HotRockLimited 2.8 7.7 (5) (63.9%) 0.01 0.04 0.01 (0.01) –

170 120 FrontierResourcesLimited 2.7 21.4 (19) (87.2%) 0.01 0.09 0.01 (0.02) –

171 208 MedigardLimited 2.7 1.4 1 100.0% 0.03 0.04 0.01 (0.00) –

172 206 LeafEnergyLimited 2.7 1.4 1 92.2% 0.06 0.07 0.03 (0.06) –

173 169 PlatinaResourcesLimited 2.7 5.4 (3) (51.2%) 0.02 0.08 0.02 0.01 –

174 170 SuperiorResourcesLimited 2.5 5.4 (3) (53.7%) 0.03 0.08 0.03 (0.02) –

175 165 ElementosLimited 2.3 6.5 (4) (64.4%) 0.02 0.09 0.01 (0.07) –

176 197 GulfMinesLimited 2.3 2.4 (0) (4.3%) 0.01 0.01 0.00 (0.00) –

177 191 AgenixLimited 2.1 3.1 (1) (34.1%) 0.02 0.13 0.01 (0.08) –

178 199 MonterayMiningGroupLimited 1.8 1.9 (0) (4.7%) 0.03 0.13 0.03 (0.01) –

179 174 PlanetMetalsLimited 1.6 4.7 (3) (66.1%) 0.02 0.09 0.02 (0.01) –

180 188 RepublicGoldLimited 1.5 3.3 (2) (54.0%) 0.01 0.04 0.00 (0.09) –

181 122 LanewayResourcesLimited 1.5 20.6 (19) (92.7%) 0.02 0.30 0.01 (0.07) –

182 202 ExcelaLimited 1.3 1.7 (0) (23.9%) 0.04 0.10 0.01 (0.24) –

183 187 GlobalResourcesCorporationLimited 1.1 3.4 (2) (67.8%) 0.03 0.09 0.03 (0.09) –

184 204 LakeResoucesNL 1.1 1.6 (1) (34.8%) 0.02 0.03 0.02 (0.00) –

185 196 MetalsFinanceCorporation 0.7 2.6 (2) (71.4%) 0.01 0.05 0.01 (0.03) –

186 200 DrummondGoldLimited 0.7 1.9 (1) (62.5%) 0.00 0.01 0.00 0.00 –

187 195 MnetGroupLimited 0.4 2.7 (2) (84.6%) 0.00 0.03 0.00 (0.00) –

188 134 IntelligentSolarLimited 0.1 14.4 (14) (99.1%) 0.01 – – 0.01 –

Source:AustralianSecuritiesExchangeandCapitalIQ

CompanieslistedintheDeloitteQueenslandIndexaredeterminedonthebasisofvariousselectioncriteria,includingtheirprincipalplaceofbusinessfortherelevant period.

EarningsperShare(EPS)–Theportionofacompany’sprofitallocatedtoeachoutstandingshareofcommonstock.EPSisanindicatoroftheprofitabilityofa company.Calculated as:NetIncome–DividendsonPreferredStock/AverageOutstandingShares

Price-Earnings(PE)Ratio–Avaluationratioofacompany’scurrentsharepricecomparedtoitsper-shareearnings.Ingeneral,ahighP/Emeanshighprojectedearningsinthefuture.ItismainlyusedtocomparetheP/Eratiosofcompaniesinthesameindustry,ortothemarketingeneral,oragainstthecompany’sownhistoricalP/E.Calculatedas:MarketValueperShare/EarningsperShare(EPS).


5. Australian Coal, where to now?

AccordingtoanApril2013BureauofResourceandEnergyEconomics(BREE)report,inAustralia,therehas beenaslowingintherateofprogressionofprojectsto theCommittedStage.Thereisalsoanemergingtrendfor‘mega’andlargeprojectsattheFeasibilityStagetobeeithercancelledorrevertbacktothePubliclyAnnouncedStage.BREEestimatesthataround$150bofprojectsattheFeasibilityStagehavebeendelayed,cancelledorhavehadre-assesseddevelopmentplansin thepasttwelvemonths.Furthermore,therehavebeenanumberofminingcompanies,includingthemajors,thathaveannouncedplanstoreducetheircapitalexpenditureprogramsand/orsellassets.

Lookingatcoal,thechangestoprojects‘inthepipeline’stackupasfollows:

• Publiclyannounceddeferrals:includeXstrata’sWandoanmine, RioTinto’sMountPleasantprojectandPeabodyEnergy’sWilkieCreekexpansion;allthermalcoalandsubjecttothekeenestpricepressureandinternationalcompetition.Twoprojects,BHPBilliton’sSarajiEastandtheMontocoalmine,wereremovedfromthemajorprojectslist

• Feasibilitystage:Thereare57projectsworthacombinedtotalof$57b,backfrom63projectsworth$76bin2012.ThelargecoalprojectslocatedinQueensland’sGalileeBasinremainthelargestcontributors(59percent)tothevalueofcoal projectsattheFeasibilityStage:includingAdani’sCarmichaelCoalProject($6.8b),GVK-Hancock’sAlphaandKevin’sCornercoalmines($10band$4.2b,respectively),WaratahCoal’sChinaFirstCoalProject($8b)andAMCI/BandannaEnergy’sSouthGalileeCoalProject($4.2b)

• Committedstage:The16coalprojectsremainingattheCommittedStagehaveacombinedvalueof $14.2b,ofthese,12projectswortharound$12barescheduledtobecompletedbytheendof2014.TheseincludeBHPBilliton’sCavalRidge($1.9b)andDaunia($1.6b)metallurgicalcoalminesinQueenslandandAngloAmerican’sGrosvenorUndergroundhardcokingcoalproject($1.6b).CavalRidgewillbebuiltwithunutilisedcoalprocessingcapacity.

Improving productivity essential to defending market share

16|2013GalaEdition

Clearly,theintensedevelopmentphasewehaveexperiencedhaspulledback.

InQueensland,constrainedinfrastructure,inparticularbelowrailandterminalcapacity,hashadmuchofthecoalindustryheadlinesoverthepastdecade.This drivehasresultedinanincreaseinterminalcapacityof25%withtheexpansionofAbbotPointthroughT1andGAPrailandthecommitmenttoWICETStage1.Materialadditionalexpansioncapacityremainsatthethreecurrentmajorexporthubs.CurrentactivitylevelismixedwiththerecentshortlistingofAngloAmericanandNorthHub(AurizonandLendLease)aspotentialdevelopersatAPCT(AP-X)offsetbyageneralslowingof activityonotherportprojects.

Afeatureofnew‘greenfield’railandportcapacityistheriskandcostofdevelopment.WICETStage1isunderstoodtocost$90pertonneofcommittedcapacityresultinginaTakeorPaychargewellinexcessof$10pertonne.TherisktocoalminersanddevelopersisalsomaterialwithcapacitysecuredthroughbindingTakeorPaycontractsandthecostoffeasibilityandassociatedstudieslikelytobeintheorderof$200Mto$300Mbeforeadecisionismadeoratonneisloaded.Withtheshiftintheoutlookforcommodities,wehaveobservedthescrambletosecurecapacitydisappearandbereplacedbyanactivesecondarymarketforcapacity.

Australianlabourandcapitalefficiencyhavemateriallydeclinedinthelastdecade,creatingcostandcompetitivepressuresforminedevelopersandoperators(seeFigure5.2).Thelastdecadehasseenlabourproductivitylevelshalvedrivenby thepursuitofthe incrementaltonne,thescrambleforassetsandthedilutionof capability.However,stepsarebeingtakentoaddresscostpressures,increaseproductivitylevelsandrecoveroperatingmargins.Producershavereducedoutput,retrenchedworkers,cut contractorsandreducedovertimeshifts.

ThisshiftinagendaisclearlydemonstratedintheBHPBillitonMay2013InvestorCoalBriefingwheretheydemonstrateda30pluspercentagedropinunitcashcostsindexfromQ1FY13toQ3FY13achievedthrough‘temporaryclosureofhighcostmetallurgicalminesand$0.8b(annualised)controllablecashcostsavings.’

Figure 5.1: Queensland Coal Terminals

Source:Enabledatabaseandvariousindustrysources

ItisinterestingtonotethattheNewSouthWalesbasedIllawarracoalbusinesshasnotseenthesameleveloffluctuationbothupanddownasseenbytheQueenslandbasedBillitonMitsubishiAlliance(BMA)andBHPBillitonMetallurgicalCoal.BMAseesubstantialopportunitytofurtherreducethecostofinputsviacontractorsandsuppliers,reductionofbusinessdevelopmentandexplorationandtheimplementationof theirproductivityagenda.

Achallengefortheindustrymovingbackintothiscostfocussedworldisfindingpeoplewhowerearoundlasttime.Thedurationoftherecentupphaseandtheassociateddilutionofresourcesmeansthatmanyofthecurrentminemanagementteamshavenotlivedthrough‘squeezingthelemon’.


Figure 5.2: Labour productivity in the Queensland coal industry

Source:DepartmentofNaturalResourceandMines,CoalIndustryReview2011-2012statisticaltables,Queenslandcoalindustry5yearsummary

Inadditiontotheshorttermimpactofputtingthebrakesonoutgoings,webelievecontinualmaterialcostimprovementcanberealisedthrough:

• Focussingonsystematicproductivityimprovementovercostcuttingwhichincorporatesinitiativeslike:bettermineplanning,budgetaryandriskmanagement,strategicworkforceplanningandsystemenabledtransformation.Simply,there-concentrationofcapabilitytoensuretrucksareavailableandutilisedatpreviouslyachievedlevels,equipmentandlabourdelivertheirfullpotential

• Expandinglowcostproductionwheretheopportunitypresents

• Closinglossmakingoperations.BHPBillitonhasalreadyclosedthe1MtpaGregoryopencutmineand the4MtpaNorwichParkopencutmine

• Re-settingportfoliosofassetstoownersbestsuitedtooptimisingtheproductivityofcoalmeasuresthroughopportunitiesfromoperationalexperience,efficienciesofscale,logisticalrationalisation.

ThiscanalsobeaidedbyamoremoderateAUD/USDexchangeratewhichisunfoldingatthemomentandsome‘fairwind’onthelabourrelationsandweatherfront.ThestrongAustraliandollar,wetweatherandindustrialactionweresignificantplayersinthelossof competitiveadvantageoverrecentyears.

ThecompetitionmostrelevantforQueensland,andtheoptimisationofourresources,isultimatelytheAustralianversusIndonesian,Mongolian,Africanetc.coalstoryratherthanthecompetitionbetweenlocalownersandproducers.

ThispictureofslowingnewdevelopmentandthenecessarydrivetoimprovedproductivityinQueenslanddoesnotmeanthatourcoalstoryisover.ANovember2012WorldResourcesInstitutereportestimates1,199newcoalfiredpowergenerationplants(1,401Gigawatts)arebeingproposedglobally,spreadacross59countries.ChinaandIndiatogetheraccountfor76percentofthiscapacity,twomajornewinvestorsinAustralianandQueenslandcoal.Therearealsoafurther10developingcountrieswithlimitedifanydomesticcoalproductionproposingnewcoalfiredplants;suggestingfurtherfuturedemandfor exportthermalcoal.

Wemaybeinachallengingperiodatthemoment,but itisclearlyallstilltoplayfor;providedwecanplanfor,achieveandembedabetterlevelofproductivityand staycostcompetitive.

Article 6 - Labour productivity in Qld Coal

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Andrew Wells Partner, Enable Advisory Tel:+61732294000 [email protected]

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AconsistentlyhighrateofgrowthinIndia’sGDPsincetheintroductionoftheeconomicreformsinthe1990shas madeIndiaoneofthefastestgrowingeconomiesoftheworld.

Figure 6.1: Share of population living in urban areas

Source:UnitedNationsDepartmentofEconomicandSocialAffairs

Indiaisthelargestdemocracyintheworldandhasaburgeoningmiddleclassandlargeworkingagepopulation,which hasresultedinunprecedentedurbanisationandfuelledaspurtofgrowthindomesticconsumption, makingitastrongeconomicandpoliticalforceintheglobalarena.

Figure 6.2: Projected average annual GDP growth 2014 – 2018

Source:InternationalMonetaryFund

6. India and Australia: Driving growth with the Asian Tiger

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DespitetherecentslowdowninIndia’sgrowthrateto5.0%,from9.3%acoupleofyearsback,theInternationalMonetaryFundstillpredictsthatIndia’sgrowthrateswillremaincomparabletoChina’soverthenextfiveyears.DeloitteAccessEconomicspredictsthatthereisstillplentyofgrowthleftinthetankandovertimeIndia’sgrowthratewilloutperformtherestoftheworld,includingChina.Indianeedstocontinuetodriveitsfiscalpoliciestokeepfeedingtheevergrowingdemandforenergy,goodqualityinfrastructure,agedcare,educationandtourismfromtheevergrowingmiddleclassofIndia.

Basicelementsrequiredtosupportthisgrowthare‘Energy’and‘Infrastructure’.

EnergyisoneofthemostimportantcatalystsforthedevelopmentandgrowthoftheIndianeconomy.AccordingtoInternationalEnergyAgency,thepercapitaconsumptionofpowerincountriesliketheUnitedStatesandChinastandsat11,919KwHand2,559KwH.However,inIndiawithapopulationof1.2bpeople,300marewithoutpower.Ofthe900mpeoplewithpower,thepercapitaconsumptionstandsat778.71KwH,withamajorityofthispowergeneratedthroughcoalfiredpowerstations.AsoutlinedinIndia’sCentralElectricityAuthority’sestimatesforCoalDemandforthepowersectorinIndia,whileIndiais increasinglyexploringmoreinnovativeways,in additiontoconventionalmethods,to meetthegrowingenergydemandandenergysecurityneedsofIndia,coalisexpectedtocontinueits dominantpositionastheprimarysourceofenergyforIndiainthenearfuture.

Intermsofinfrastructure,Indiaisstrugglingtokeeppaceandneedsthesupportofdevelopednationstoachievetheambitiousgoalsithassetforitself.

Table 6.1: Coal demand for power sector

Source:CentralElectricityAuthority

Australia,andinparticularQueensland,isbeginningtoseetheimpactastheAsianTigerstartslookingtowardsourgreatcontinenttohelpachieveitsambitiousgrowthtargets.RecentyearshaveseenIndianbusinessesinvestingsignificantlyinAustraliatosecurethesupplyofthermalandcokingcoalfortheirpowerandsteelplants.ForeigninvestmentinAustraliabyIndiancompaniesgrewfromNILin2001to$11bin2011.In addition,AustralianexportstoIndiawereapproximately$13bin2011.

Indiaisalreadythe third largest export destination for Queensland,whichnotonlyunderlinesthegrowingimportanceofIndiabutspeaksvolumesforthepotentialofpartneringwiththeAsianTiger.This has receiveda significantboostwithmulti-billiondollarinvestmentscommittedbyIndia’sAdaniGroupandGVK(inpartnershipwithHancockCoal)overthelastcoupleofyears,whichwillalsohaveasignificantimpactonQueenslandcommunities,astheconglomerateslookto setupsomeofthelargestprojectsintheworld,right hereinourState.

TheopportunitiesforQueenslandexportersincludeabroadrangeofproductsandservices,includinggas,bio-fuels,miningequipment,technologyandservices,buildingandconstruction,healthandmedical,cleantechnologiesincludingwaterandwastewatermanagement,transportinfrastructure(road,railandports),sustainabletourism,tropicalrainforestmanagement,andnichefoodandbeverages.

Inaddition,whileIndiahaslargecoaldepositsoftheirown,ithasfacedsignificantissuesintryingtodevelopthesereserves.Thesechallengesincludelackofpoliticalwillpowerandlackofadequateinfrastructure.However,asIndialookstostep-updevelopmentofthesedeposits,theremaybesignificantopportunitiesforAustraliancompaniesinandaroundthecoalindustry.

Year In Mt

2012–13 637.21

2013–14 729.38

2014–15 829.73

2015–16 877.44

2016–17 913.22

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Further, India is now the largest source of permanent migrants to Australia, overtaking Chinese arrivals. OurconnectionstoIndiaaregrowingandthiswillhaveanincreasingimpactontheAustralian,andmoreparticularly,theQueenslandbusinessenvironment.

WhileAustraliahasstartedtotakenoticeoftheAsianTiger,capitalisingontheopportunitiesitpresentsisnotpre-ordained.WeneedtosetthecompetitivenessofourassetsandoureconomyagainstanumberofothereconomieswhichcancompeteintheareasofIndia’sgrowingdemandandwealsoneedtobepersistentindrivingtounderstandtheIndianmarketbetter.

TheinitialforaysbytheAsianTigerintoAustraliahavenotbeenwithoutchallenges.Whiletheproceduresforenvironmentalandotherapprovalsiswelllaidoutandtransparent,itisstillveryslow,resultinginsignificantdelaysinfederalandstateapprovalforprojects.Besides, highcostsoflabourandlowproductivityofAustralianmines,thehighAustraliandollaranda changinglabourrelationsenvironmentaresomeoftheotherfactorsthatmakeitmoredifficultforAustraliatocompetewithotherdestinationslikeIndonesiaandMozambique.And whiletheAustralianbusinesscasestandsoutwhenthecomparisonismadeintermsofthe qualityofitsreserves,thetechnologicaladvancement,a stablepoliticalclimate,availabilityofskilledlabourandmaturedindustrypractices;itisquestionablewhetherthisissufficientinandofitself.

Thetigeriscrouching,readytopounce–wherewillAustraliabewhenitcounts?

Reuben Saayman Partner, Assurance & Advisory Mining & Resources Tel:+6133087147 [email protected]

Harsh Shah Director, Assurance & Advisory Mining & Resources Tel:+61733087374 [email protected]

Hitesh Mehta Manager, Financial Advisory Services Mining & Resources Tel:+61733087107 [email protected]


7. The reality of ‘hacking’: What is your response?

It’snotamatterof‘if’you’llbehacked,but‘when’ orfor‘howlong’youhavebeenhackedand‘what’ youhavealreadylost:

• Iran: Nuclearprogramhackedandcriticalinfrastructuredamaged

• Japan:Yahoowashacked;usernamesandpasswordsofemailaccountsstolen

• South Africa:Policewhistle-blowerhotlinehacked;names,emailaddressesandphonenumbersofwhistle-blowersstolen

• USA:Recentsurveyshowsenergyandresourcescompaniesareunderdailyattack.In2012,theUSDepartmentofHomelandSecurityreportedthataUSpowerplantwasimpactedforthreeweeksfollowinga malwareintroduction

• Saudi Arabia:SaudiAramcowasimpactedbya malwarein2012thataffected30,000computers

• Australia: ThereareclaimsthatCodan(Australianproviderofmilitarycommunicationsequipmenttechnology),BluescopeSteelandASIOareamongstAustralianorganisationstobetherecentvictimsof cyber-espionage,supposedlyfromChina

• Thelistgoesonandincreaseseveryday.

Therearenobordersincyberspace.AninvestigationbyABC’sFourCornersprogramrevealedthatoneofASIO’scontractorshadbeenhacked,leakingtheblueprintstothebuildingthathostssomeofAustralia’smostsensitiveinformation.Thenatureofcyber-espionageissuchthatifanattackercan’tgetintoyournetwork,theywilltryto obtainaccessthroughsomethingclosetoyou:your ownpersonalcomputer/s,yoursuppliersthatyousharecommerciallysensitiveinformationwith,thelawfirmyou outsourceyourlegalworkto,etc.

It’snotjustgovernmentagenciesunderattack;corporationsareincreasinglybeingtargeted.Datarelatingtoyourcustomers,intellectualproperty,futureexpansionplans,supplieragreements,andmergerandacquisitionproposalsareallhighlysoughtafter‘commodities’in the globalmarket.

Queenslandcompaniesoperatingoffshoreareatanincreasedriskofbeingtargetedbycybercrime.Deloitte consultstoorganisationsonthesubjectinmanysectors,includingenergyandresources,constructionandlawfirms.BrisbanewillbehostingtheG20summitattheendof2014whichcouldseeanincreaseincyberprobingbyhacktivistsfromaroundtheworld.

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• Howpreparedareyoutowithstandanattack?

• Howsecureisyourdatathatiscurrentlykeptbyyour suppliers?

• Areyoucurrentlycollectingtherighttypeofinformationtoallowyoutorespondtoandinvestigateanattack?

• Areyouonlystoppingpeoplegettingintoyournetwork,orareyoualsopreventinginformationfrom gettingout?

ThereislegislationcurrentlybeingdebatedinParliamentthatwillrequirecompaniestopublicallydisclosedatabreacheseachtimetheyoccurtothePrivacyCommissioner,anycustomersimpactedandthemedia.Now,morethanever,it’simportanttobeabletoanswerquestionssuchastheabove,withconfidence.

Deloittehasateamofcybersecurityandcyberforensicspecialistsavailablearoundtheclockandadoptsafullycollaborativemethodologysupportingclientsimpactedbycybercrime:

• Prepare: Anticipate,assessandplanfor acyber-attack

• Aware: Interpretandmonitorreal-time, tailoredcyberthreatintelligence

• Defend: Executeastep-changeinthestructure,governanceandapproachtocybersecurity

• Respond: Prevent,investigateandlimitdamagefrom acyber-attack.

Withtheabilitytodrawuponaninternationalteamofspecialistsacrossindustries,Deloitteisconsistentlyrecognisedasaworldleaderinrelationtoinformationsecurity,privacyandriskcontrols.

DELOITTECYBER

SECURITY

PREPARE

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Chris Noble National Forensic Lead Tel:+61733087065 [email protected]

Craig Mitchell Partner, Risk Services Tel:+6133087400 [email protected]


Some$65bisbeingspentbetweentheSuratBasinandCurtisIslandacrossthethreeapprovedcoalseamgas(CSG)toliquefiednaturalgas(LNG)projectsinQueensland,withbillionsalsospentorearmarkedonadditionalinfrastructurerequiredtosupporttheseprojects.ResidentialandcommercialpropertiesinregionalandurbanareasofQueenslandhavebeengreatbeneficiariesinrecentyears;but,withpredictionsofapeakincapitalinvestmentastheprojectsmoveintotheiroperationalphases,howwilltheseassetsbeimpactedgoingforward?Howwillmetropolitanareasrespondintheofficesector?Ifwedoseegrowthininfrastructureinvestmentoverthenextfewyears,predictedpotentiallyinthesupportofproductionpredominantlyinthegasandcoalspace,howwillQueensland’spropertymarketbeimpacted?

In the country

ThesheerscaleoftheCSGtoLNGprojectsrequiresan enormousconstructionworkforceandtheprojects,aswellasallrelatedcontractorsandsubcontractors,havehadtosupplementtheirdomesticpersonnelwiththousandsofinterstateandinternationalworkerstocaterfortheconstructionrequirements.From2009,residentialandcommercialrentsinregionaltownsimpactedbytheseprojectshavebeendrivenupasatsunamiofinboundworkershavescrambledforhousingandofficeaccommodationfromtheSuratBasintoGladstone.

Gladstone

Overthelastfewyears,availableresidential,officeandretailspaceinGladstonehasbeenabsorbedassoonasaccessible.AsprojectteamsandcontractorsmovedintoGladstone,residentialaccommodationwaspredominantlyprovidedviaexistinghousingandhotels/motels– localretailers,cafesandrestaurantsboomedasaresult.Speculativeinvestmentsurgedwithnewsthatthousandsof workerswouldbecomingtotheseareas,andhouseandlandpricesrespondedaccordinglyascompetingdollarschasedlimitedsupply.

Biddingwarsbetweenoccupiersandspeculativeinvestors meantoffice,retailandindustrialrentsforexistingpropertiesincreaseddramatically.Asavailablespacebecameincreasinglyscarce,pricesofferedforvacantlandrosetoaccommodateanexpandingeconomy.Many tenantsundertooksignificantcapitalexpenditureprojectswithinleasedpropertiestoensurethepower,coolingandelectricalserviceswerecapableofhandlingadvancedITandcommunicationrequirementtoreportbacktoheadofficeinBrisbaneandbeyond.

Astheprojectshaveadvanced,massive,temporaryaccommodationcampshavebeencompletedfurtheroutoftownoronCurtisIsland,andtheresultantdemandforhousing,foodandservicesintownhasreduceddramatically.Inaddition,officeandindustrialrequirementsarenowbeingmetbynewpurpose-builtfacilitiesownedbytheCSGcompaniesandassociatedcontractorsinbothGladstoneandCurtisIsland. Although aretailpresencewillberequiredforpublicinteraction,largerofficerequirementswillberelocatedfromthespineofdowntownGladstone,beingGoondoon,TankandToolooaStreets.Itisexpectedthateffectiverentsforofficeandretailwillremainstagnantorreduceinthemediumtermasdemandintownsoftensandvacanciesrise.Inaddition,newcommercialdevelopmentsintownmaystallasdevelopersfailtoattractpre-commitmentsdue tothetimeframewithinwhichconstructionworksneedtobecompleted.

Theimpacttotheresidentialmarkethasalreadybeenfelt, withadditionalsupplycontinuingtoenterthemarket,whilstdemandretracts.Recentstockreleaseswithinactivelandestatesdemonstrateevidenceofpricediscountingacrossallproductofferings,asdevelopersseektomeetfallingbuyerdemandintheregionandmaintainmoderatevolumesofsale.

8. Property and the gas boom: Challenges and opportunities

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Philip Windus Director, Deloitte Capland Real Estate Advisory Tel:+61733087345 [email protected]

Damian Winterburn Partner, Deloitte Capland Real Estate Advisory Tel:+6130340401 [email protected]

Thesalesvolumeforresidentiallandhasdecreasedbyapproximately51%fromthethirdtothefourthquarterof2012.Thisappearstohavecontinuedfromthequarterpreviouswheresalevolumeshavefallenbyapproximately59%.Agentsarealsoreportingincreasinginstancesofcontractfall-oversfornewresidentialstock(house/land/units)asaresultofalackofvaluationsupportforcurrentcontractpricinglevels.Althoughmedianpricinghasyettoreflectthedramaticfalldemonstratedinsalesvolumes,weanticipatethereductioninsalesvolumeswillplacefurtherdownwardpressureonmedianpricing.Inaddition,newhousingestatesareexperiencingminimallocalbuyerdemand,withmostenquiriesviainvestorsfromsouthernstatesthatarelatetotheparty.Aspricesreduce,localbuyersmayre-enterthemarketandcreateafloorinpricingagainastheydidafterthelastminingpullback.

Surat Basin

Over500kilometreswestofGladstone,theSuratBasincovers27,000squarekilometresandextendsfromnorthernNewSouthWalestocentralQueensland.The majorityofresource-relatedactivitylieswithinWesternDownsRegionalCouncil,whichencompassesthetownsofDalby,Chinchilla,Roma,Miles,Jandowae,WandoanandTara.Whilemanyofthesetownshadgrowninearlytomid–2000duetoresourceexplorationandenergygeneration,mostarenowseeingunprecedentedfiscaland populationgrowthoverthelastfewyearswhichbucksthetrendofruralAustraliaasawhole.

TheresidentialhousingmarketintheSuratBasiniscontinuingtoremainfairlystrong,underpinnedbylimitednewsupplyversustheincreaseddemandfromtheregion.Althoughsalevolumesandmedianpricingforvacantlandandhousingcontractedfromtheendof2012,localagentsaregenerallyreportingsolidenquiryfor residentialaccommodationunderpinnedbytheminingandenergyactivityintheregion.AlthoughsalevolumesandmedianpricingforexistinghousinghavecontractedfromtheSeptembertotheDecemberquarter,vacantlandtransactionscontinuetogrowinbothnumberandmedianprice.DuetotheconstrictednatureofdevelopableresidentiallandinbothMilesandWandoan,thereisinsufficientdatatoreportanyshiftsinthoseparticularpropertymarkets.Despitecontractionsinhousingmarketindicators,medianweeklyrentalrecordsforthreeandfourbedhousingcontinuetodemonstratestrongquarterlygrowthasmining-basedbusinessescontinuetoseekadditionalaccommodationtohousetheirworkforce.

Whileweexpectthistostabilise,wedon’texpectthesamelevelofresidentialdownturninpricingcomparedtoGladstone,duetothelowerlevelofspeculativedevelopmentofnewaccommodationintheSurat.

FormanyoftheCSGcompaniesandtheircontractors,the logisticsrequiredtoimmediatelyaccommodateworkersinofficespacehadnotbeenfullyconsidered. As aresult,agingofficeandretailspaceinChinchilla,Dalby,Miles,andWandoanwassweptup,withlittleconcernfortherentaltermsagreedto.Ouroutlookforofficeandretailspaceintownsoccupiedbythethreeprojectsisgenerallypositiveintheshorttomediumterm,particularlygiventhatoperatorsoftheprojectswillrequireanofficetoaccommodatepublicreceptionaswellasbackofficesupport,althoughcarefulmonitoringisrequired.

In the city

ClosertotheBrisbaneCBD,theoptimisticleasingactivityexperiencedoverthelastfouryearshasslowlybeguntounravel.Subleasingspacehasenteredthemarketascontractorsthatexpandedrapidlytomeetimmediatecontractingrequirementsarereducingstaffasprojectswinddownoroutlooksforextensionsbecomeuncertain.

Asofficespaceisreleasedtothemarket,prospectivesublessorsandlandlordsarereducingeffectiverentsto enticeincomingtenantsandtoreduceholdingcosts.The majorityofsubleasedspacebeingofferedisfittedouttoahighstandard,reducingtheamountoftotaloccupancycostsrequiredforanincomingsublesseeandofferingsomeattractiveopportunities.Thiswillbemagnifiedasrefurbishedstockisreleasedtothemarketfrom2014,and vacantspacewithin1WilliamStreet,480 QueenStreet,and180Brisbanecomprisingover150,000squaremetresreachescompletionin2016.

Nowmorethanever,activeparticipantsintheofficemarketrequireobjectiveduediligencetounderstandhow theirbusinesscanidentifytrendsandtheirassociatedopportunities,whilstreducingcostsandexposureto uncertaintimes.Forcompanieswithleasesexpiringwithinthenext24months,itisanopportunetimeto startexploringfutureofficeneedsandpotentiallyreduce occupancycostsduetothecounter-cyclicaltiming.


9. Tax structuring: Will you be in the firing line?

Wefindourselveslivinginaworldwheremultinationalcorporationsareregularlybeinglambastedfornotpayingtheir‘fairshare’oftaxandbeingaccusedofdeliberatelystructuringtoshiftprofitstolowertaxingjurisdictionswiththeobjectofminimisingtheirtaxliability.Thisissueisreceivingeverincreasingpublicscrutiny,withrecentgovernmentstatementsaroundtheworldand theglobalmediaconsistentlyplacingmultinationalcorporations,and theirtaxaffairs,inthespotlight.

TheOrganisationforEconomicCooperationandDevelopment(OECD)releaseditsfirstreportonBaseErosionandProfitShifting(BEPS)on12February2013,inresponsetoagrowingperceptionthatgovernmentsofOECDcountrieslosesubstantialcorporatetaxrevenuebecauseprofitsareshiftedtofavourabletaxlocations.The reportconcludesthatBEPSisasignificantglobalproblemasinternationalruleshavenotkeptpacewiththe changingbusinessenvironmentandtheevolutionof thedigitaleconomy.TheBEPSreportwaspresentedtothe G20inFebruary2013.Followingarequestbythe G20,theOECDisdevelopingaglobaltaxactionplantotargettransferpricingaimedattaxavoidance.This planwasduetobecompletedbyJuly2013.

InthecurrenteconomicenvironmentitisnotsurprisingthattheAustralianGovernmenthassimilarlyturneditsattentiontotheglobaldebatearoundprofitshiftingand thethreattotheAustraliantaxbase,withtheFederalTreasury(Treasury)releasinganissuespaper,‘ImplicationsoftheModernGlobalEconomyfortheTaxationofMultinationalEnterprises’on3May2013.

ThepaperdiscussesthebroadissueofBEPSinthecontextoftheAustralianeconomyandconsidersthetaxchallengesposedbyachangingandveryrapidlyevolvingglobaleconomy.Subsequenttothereleaseofthispaper,Treasurycalledforcommentsfromstakeholders,includingthewiderbusinesscommunitytoensurethatthekeyissuesconcerningBEPSareaddressed.The outcomesoftheconsultationprocessformedthe basisofaScopingPaper,releasedmid–2013,which examinestheriskstothesustainabilityofAustralia’scorporatetaxbasefromthewaycurrentinternationaltaxrulesarecapableofbeinglegitimatelyappliedto minimiseorescapetheimpostoftaxation.

Inrelationtothepracticalmanagementofthetaxbase,Australiahasrecentlyreformeditstransferpricinglegislationtomodernisethetransferpricingregime,aligningthedomesticlawwithinternationalbestpractice(includingtheOECDTransferPricingGuidelines).CombinedwiththenewextendedInternationalDealingsSchedule,andtheadditionaldisclosuresrequiredbytaxpayers,theAustralianGovernmentexpectsthatthesemeasureswillimprovetheintegrityand efficiencyofthetaxsystemandassistinprotectingthe Australiantaxbase.

AdditionalcontrolmeasuresarealsobeingintroducedtolimitthefarreachingeffectofBEPS.Forexample,on24April2013,theAustralianTaxationOffice(ATO)releasedacontroversialdrafttaxdeterminationwhichexpressestheATO’spreliminaryviewthatsupportpaymentsmadebyaparenttoitssubsidiaryarecapitalinnatureandnotdeductible.Further,inthe2013–14FederalBudget,theTreasurerannouncedthattheGovernmentwillprovide$109.1moverfouryearstotheATOtoincreasecomplianceactivitytargetedatbusinessrestructuringthatfacilitatesinternationalprofitshifting.Inaddition,MrSwan(thenTreasurer)announcedinJunethattheGovernmentwoulduseits leadershipoftheG20nextyeartodriveacrackdownon taxloopholesandevasionby multinationalcompanies.

ItisclearthatboththeAustralianGovernmentandforeigngovernmentshaverecognisedBEPStobeanincreasingconcernwhichrequiresurgentandglobalattention.Governmentdiscussions,throughplatformssuchastheOECDandG20,concludethataglobalplanis necessarytodealwithBEPSgoingforward.

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TheOECDregardstheapplicationofControlledForeignCompany(CFC)rulesasanintegralpartoftacklingglobalBEPS.Broadly,suchrulesseektotaxprofitsshelteredinoffshoreholdingstructuresonanattributionratherthanrealisationbasis.Australiacurrentlyhasacomprehensiveandmanywouldsay,highlycomplex,CFCregime.Inthe2009–2010FederalBudget,theTreasurerannouncedalongawaitedandwelcomereviewoftheAustralianCFCregime.Thereasonsbehindthisreview,onmodernisingtheexistingprovisions,arebasedontheBoardofTaxation’sSeptember2008‘Reviewoftheforeignsourceincomeanti-tax-deferralregimes’report,whichconcludedtheexistingruleswereunabletoeffectivelytargetmodernbusinesstransactions.

Fouryearsonandwenowhaveadeferralofthosereformsbeingannouncedinthe2013–14FederalBudget.Specifically,theTreasurerannouncedthattheCFCreformswouldbeputonholdbytheGovernmentpendingthecompletionoftheOECD’sreviewofBEPSbymultinationals.ItisworthrememberingthattheproposedCFCreformswereendorsedbytheBoardofTaxationandwereexpectedtoenhancetheglobalcompetitivenessofAustralianmultinationalsoperatinginforeignmarkets.ThesubsequentBEPSdebatehasclearlyshiftedthefocusanditisnowunclearwhetherthereformswillproceedintheircurrent(proposed)formorwhetheranyaspectswillbechangedinlightoftheOECDBEPSproject.ThiscreatessignificantuncertaintyforQueenslandlistedcompaniescurrentlyoperatingin or planningtooperateinforeignjurisdictions.

Inadditiontothesemeasures,the2013–14FederalBudgetcontainedothermeasuresdescribedas‘protect(ing)thecorporatetaxbasefromerosionand loopholes’.Thesemeasuresinclude:

• Thereductionofthethincapitalisationsafeharbourdebtamountfrom75%to60%debtfundingforgeneralentities(nonbankfinancialentitiesreducedfrom95.24%to93.75%andthesafeharbourcapitallimitforbanksbeingincreasedfrom4%to6%ofriskweightedAustralianassets)

• Theremovalofsection25–90oftheIncomeTaxAssessmentAct1997whichallowsdeductionsforinterestexpenseondebtusedtofundinvestmentsinforeignsubsidiariesandothernon-portfolioequity investments

• Theamendmentoftheforeignnon-portfoliodividendexemptiontoalignwiththedebt-equityruleswiththeobjectiveofcounteractingtheuseofcertainhybridinstrumentsthataretreatedasinsubstancedebtforthincapitalisationandinterestdeductibilitypurposes,butqualifyforthedividendexemptionastheyareequityinlegalform.

Aninterestingobservationisthatthepolicyintentofthe abovemeasureswhenintroducedwastoencourageforeigninvestmentintoAustraliaandtopositionAustraliaasafavourableinvestmentholdingjurisdiction.Followingthis,itisworthaskingthequestion–DothesechangessignifyagenuineattemptbytheAustralianGovernmenttoplayitspartintheglobalfightbygovernmentstotackleBEPSoraretheymoreaccuratelydescribedasshorttermrevenueraisingmeasures?Inanyevent,doestheincreasedshorttermcorporatetaxrevenuefromthesechangesreallyoutweightheforegonelongertermeconomicbenefitsofencouragingforeigninvestmentandtheassociatedtaxrevenues(andotherbenefits)thataregeneratedfortheAustralianeconomy.

TheBEPSagendawillnodoubthaveaverysignificantimpactonQueenslandlistedcompanies,astheyincreasetheirinvolvementininternationaltradeandinvestment.Duetothenatureofitseconomyanditsgeographiclocation,QueenslandhasbeenabletoderivesubstantialbenefitsfromtheincreasingwealthofAsia.Queenslandis alsoincreasingtradewithdevelopedcountries,includingtheUSandtheUK.AstheQueenslandeconomyreliessoheavilyonexportsandoverseasinvestmenttosustaingrowthinitsmajorsectors,therisksassociatedwiththeBEPSagendaareemergingasmorerelevantthaneverfor oureconomy.

AccordingtotheQueenslandGovernment’s‘StrengtheningtheQueenslandeconomythroughglobalmarkets–Queenslandtradeandinvestmentstrategy2011–2016’report,IndiaandChinahaveemergedas Queensland’smaintradingpartners.TheIndianandChinese Governmentshavealsoturnedtheirattentionto BEPSbysupportingtheOECD’sworkonaddressingthe issueofBEPSbymultinationalcorporations.


Steve Healey Brisbane Lead Tax Partner Tel:+61733087226 [email protected]

John Bland Global Transfer Pricing Partner Tel:+61733087275 [email protected]

Evan Last Tax Partner – Energy & Resources Tel:+61733087161 [email protected]

Indiahasundertakensignificantamendmentstoits transferpricinglegislationwithrespecttostrictertransferpricingstandardsandoveralltaxcompliance.Likewise,Chinaiscommittedtodevelopingitstransferpricingregime.Interestingly,theOECD’s‘AddressingBaseErosionandProfitShifting’reportrevealedthattheBritishVirginIslandswasthesecondlargestinvestorintoChina(14%)afterHongKong(45%)in2010.

Queenslandcompaniesneedtoweighuptheconsequencesoftheirinternationaltaxstructures. A‘tug-of-war’hasemergedbetweenlegitimatelyachievingalowerglobaltaxrateandprovidingshareholderswithfrankeddividends.ForeignprofitsmaybesubjecttolowertaxrateswiththeresultthatprofitsmaybehigherthanhadthoseprofitsbeenderivedinAustralia.However,earningAustralianincomewillallowcompaniestoprovidetheirshareholderswithdesiredfrankeddividends.

Queenslandmultinationalcorporationsshouldhaveinternationaltaxstructuresthatbestreflecttheirglobaloperations.Theallocationofprofitshouldbeinlinewiththefunctions,assetsandrisksofeachentityoftheglobalgroup.ConsiderationshouldbegiventothecurrentmediaattentiongiventoBEPSandthepotentialimpactontheirbrand.Thetaxaffairsofmultinationalcorporationscontinuetobeexposedandscrutinisedin themediaandwiththecurrentglobaldebateragingaroundBEPSthislevelofscrutinyisexpectedtoincreaseevenfurther.Publicperceptionofacorporate’staxaffairscanpotentiallydecreasethecredibilityofthebusinessin thecommunityandforshareholders.

Arecentexample,whichclearlydemonstratestheeffectofpublicopiniononBEPS,isStarbucksintheUK.IthasbeenreportedwidelyintheUKpressthatStarbuckshasdecidedtovoluntarilypay£20mintaxesinanattempttowinbackcustomersfollowingrevelationsthatnocorporationstaxhasbeenpaidintheUKinthepastthreeyearseventhoughitappearsthatStarbuckswascompliantwiththeUKtaxlaws.

Theperceivedissuearoundtransparencyhasalsobeen afocusoftheAustraliangovernment.Legislationhas recentlybeenintroducedthatwillrequiretheATOto publishthereportedtotalincome,taxableincomeand incometaxpaidbycorporateAustraliawheretotalincomeexceeds$100morthecompanypaysMRRT/PRRT.

Deloitteunderstandsthatbusinessesneedtomaximiseprofitsinordertofulfiltheresponsibilitytheyhavetowardstheirshareholders.Giventhecurrenteconomicclimate,theabilitytoderiveprofithasbecomeharder.Businessesarerequiredtotakeadditionalmeasurestoreducecostsin anefforttoincreaseprofitability.Thishas beenachieved,inpart,throughlegitimatelyreducingthetaxesbusinessesarerequiredtopayonaglobalscale.Multinationalcorporationshavenotbreachedthelawinordertoreducecostsinthisway.Areductionintaxesispossiblebecauseinconsistenttaxrulesexistbetweendifferentjurisdictionsandbecausethetraditionalinternationaltaxframeworkwasdesignedaroundtheold‘bricksandmortar’economyanddoesnoteasilyaccommodatethenewdigitaleconomy.Byreducingtheimpostofglobaltaxrates,or providingtaxholidays,countriesareseekingtoincreaseforeigninvestment.

HoweverthiscompetitionforinvestmentalsoleadstotaxarbitrageopportunitiesthatproduceBEPSparticularlywheretheapplicationof‘source’and‘residency’rulesarenoteasytoapplyina‘digitalglobaleconomy’whereabusinessdoesn’talwaysrequirea physicalpresenceinacountrytooperate.Unilateralactionbyanycountrytostopthisis doomedtofailureandtheG20andothergovernmentsmustacttogetheriftheyhopetoreduceopportunitiesforBEPS.Tosaytheveryleast,thenextfewyearsaregoingtobeaninterestingtimeforallmultinationalcorporationsasthis issueevolvesacrosstheworld.

Forfurtherinformation,to receiveanyofthementioneddocuments,or ourmediareleasesplease contactthebelow:

28|2013GalaEdition

10. The dichotomy of Australian Agribusiness

Alothasbeensaidandwrittenabouttheprospectsfor QueenslandAgribusinessinlightofagrowingglobalpopulationandchangingdietaryhabitsoftheemergingAsianmiddleclass,bothofwhichareonourdoorstep.We havewhattheworldneedsnowandwillneedmoreofinthefuture,soitisnowonderitisseenasanattractiveproposition.Thisisalreadybeingplayedoutinthemarketwith$7.7bnofthetotal$10.2bninAgribusinesstransactionsintheperiodsince1Jul2010beingacquiredby foreignparties.1

However,thisbringstolightaninterestingdichotomyinoneofQueensland’smostimportantindustries.Why,whentheglobalcommunityseessomuchopportunityinthesectortheyseefittoinvest$7.7bnnationally,istheresomuchfinancialdistressinthesector?Arecentsurveyofthenation’stopsevenmajorinsolvencyspecialistsundertakenbytheAustralianFinancialReviewshowedmorethan80farmingoperationsworthmorethan$1meachacrossthenationareeitherinreceivershiporsomekindoffinancialdistress.2Agricultureaccountedfor23%of allreceiver/mortgageepropertylistingsacrossAustraliaintheMarchquarter.3

Thereareanumberofforcesatworkhere,mostsignificantlyincluding:

• Internationalgroupsrecognisetheimportanceofsecuringfoodsupplyononehand,butalsoasafinancialhedgeontheother.Forexample,asthepriceofproteincommoditiessuchasbeefincreases,investorswillbeabletousethereturnonAustralianacquisitionstofundthepurchaseofthesecommoditieselsewhere

• Existinglocalfarmersareunderpressurethroughdecreasingprofitmargins,volatilecommodityprices,seasonalconditions,politicalintervention(e.g.thebanonIndonesianliveexport),astrongAustraliandollarand,mostcritically,unsustainabledebtlevels.

Thesearelinked.Asidefromtheunsustainabledebtlevels, anyinternationalentrantwillbesubjecttothesamepressuresasthelocalfarmer.However,internationalgroupsbringwiththemadvantagessuchasdifferentinvestmentreturnrequirements,accesstomarketsandcapacitytoinvesttoincreaseefficienciesandimproveproductivityto makethesectormorecostcompetitive.

Foreign interest

Thedriversofforeigninterestinouragriculturallandarewelldocumented.Foodsupplyisprojectedtobeoneofthemostsignificantissuesfacingtheglobaleconomyinthecomingdecades.First,there’sthequestionofsimplyproducingenoughfoodtosatisfydemand.TheUnitedNationsforecaststhattheworld’spopulationwillincreasebyathirdby2050.4Tomeetdemandfoodproductionwillneedtoincreaseby70%.FooddemandinAsiaaloneisforecasttodoubleby2050duetopopulationgrowth,changingdietsandincreasingaffluence.Australiaisideallyplacedto supplythefoodrequiredbyachangingAsianpopulation.

Despitetherebeingsignificantpublicsentimentagainstforeigninvestment,thereisnotagreatdealofappetitefromAustralianinvestorstoofferanalternative.Agribusiness isgenerallycapitalintensive,susceptibleto seasonalconditionsandhasnotrecentlygeneratedthereturnsofotherinvestmentclassesintheshortterm.Further,itdoesnotfavourtheshorttermreturnexpectationsofmanylocalinvestorsandrequiresalongertermoutlookthatforeignpartiesseemmorenaturallycomfortablewithmatchingtheirinvestmenthorizons.

1 Source:MergerMarket,CapitalIQand AustralianFinancialReview.

2 Source:AustralianFinancialReview,Farmersnationwideinserioustrouble,29April2013.

3 Source:LandmarkWhiteresearch.

4 Source:UnitedNations,WorldPopulationProspects:the2012Revision.


With demand increasing, why the distress?

Landpriceshavebeenincreasingsince2002andhaveonlycomeoffthepeakinrecentyears.Muchofthiscapitalinvestedhasbeendebt.Incontrast,farmreceiptshaveremainedflatasinputcostshavecontinuedtoincreaseasfarmershavehadtocompetewiththeburgeoningresourcesectorforlogisticsandlabourresources,aswellasmeetrisingfuelandothercosts.Profitmarginshavecontinuedtobeerodedtothepointwhere,inmanycases,thefarmingenterprisesarenotviable.

Figure 10.1: Land prices and receipts – broadacre farms and total Australian rural debt

Source:ABARES,Australianfarmsurveyresults,2010–11to2012–13,AustralianBureauofStatisticsTableD9

Asaresultofthesepressures,alargenumberofQueenslandfarmsdidnotgeneratepositivecashincomeduringtheperiodfromFY10toFY12,andanevenlargernumberfailedtogenerateapositivebusinessprofit.Thestresson farmersisincreasingaslandvaluesfallandleveragecovenantswithbanksarebeingtested.

Figure 10.2: Queensland – Share of farms generating positive business profit/cash flow

Source:ABARES,Australianfarmsurveyresults,2010–11to2012–13,Deloitteanalysis

Article 5 - Land Prices

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Thenewsdoesnotimproveinthelongertermoutlookeither.WiththeprospectsofescalatingfooddemandoutofAsia,youwouldexpectpricestoincreaseaccordingly.Notso,accordingtoABARESforecasting.

ABARESprojectworldfooddemandtoincreasebyover75%between2007and2050andworldfoodpricesare,onaverage,projectedtobearound11.5%higherby 2050inrealtermscomparedwith2007.10.8%ofthisincreasehadalreadyoccurredby2012,whichusedasaguideindicatesworldfoodpricesareprojectedtobejustslightlyhigherthantheiraveragein2012.5Whilethismayseemconservative,therearegoodreasonsforthis.

Ifwetakebeefasanexample,overthepastdecadetherehasbeenstrongexportgrowthfromnationssuchasBrazil.Whiletheydonotpresentlycompetein manyofourkeymarkets,inthefuturethiscanchangeandproductionisexpectedtoincreasetomeetthisdemand,keepingpricesstable.Thisisadampeneron hopesthatescalatingdemandwillimprovethetoplineperformanceofQueenslandfarms,offsettingtheescalatingcostpressures.

However,itshouldbenotedthatothereconomicmodellingpaintsamuchrosierpictureonthefuturepricefront.ThekeyforAustralianproducers,however,isnottotakethisforgrantedwiththecostsideoftheequation,asalways,criticalinthemixwithtoplineconsiderations.

Therearesomegoodsigns,withrecentdatasuggestingdebtlevelsarebeginningtodeclineasfarmersrecognisetheneedtodeleveragetheirbusinesses,althoughthereisalongwaytogo.

Where to next?

Farmersgenerallyneedtodeleveragetheirbusinessesinordertosurvive.Thismaymeanmorepainasrefinancingisoftensimplyshiftingthedebtburdenfromonebanktotheother,andcashflowdoesnotappearasthoughitwillimproveenoughintheshorttermtoenablerapiddebtreduction.Mostfarmsarenotofascaletoattracttheattentionofforeigninvestors,thereforeexpectmoredistressedsalesinthemarketoverthecoming12 months.Thisisnotanappetisingprospect;howeverthisdoesenableareturntoamoreappropriatecapitalstructurequickly.

TheneedtoimproveproductivityandmanageanincreasingcostbaseisparamountforQueenslandfarmerstoremaingloballycompetitiveandtakeadvantageofthecomingfoodboom.Ifwefailtodothis,lowercostinternationalcompetitorswillpassusby.Ourfarmershave,however,proveninthepastanabilitytoincreaseproductivitythroughinnovationandinvestment.

However,helpisrequiredandGovernmenthasaparttoplay.Innovativesolutionstoimproveproductivityrequireinvestment,andasidefromaspikeinin2001,AustraliahashadlittlegrowthinrealR&Dinvestmentsincethemid–1970s6andittakessometimeforinvestmenttoimproveproductivity.This, togetherwithimprovinginternationaltraderelations,industrialrelationsregulation,balancingenvironmentalandbusinessviabilityconcernsandmeaningfulincentivestoattractpeopletothesectorare allareaswhereGovernmenthasacriticalroletoplay.Failingthis,AustralianAgribusinessmayfallbehindintheraceto reaptherewardsoftheAsianCentury.

Rob McConnel National Industry Leader, Agribusiness Tel:+61733087300 [email protected]

Tim Heenan Partner, Restructuring Services Tel:+61733087281 [email protected]

Jackie White Manager, Agribusiness Advisory Tel:+61733087151 [email protected]

5 Source:JammiePenm,ABARES,Outlook2013Conference. 6 Source:Sheng,Mullen&Zhao,2011.

“I think agriculture has been appallingly treated by governments over a period of time. There is a presumption that there is always going to be someone out there willing and able to grow the food, without looking to see whether government policies can assist or hinder that.” Don Taylor, Chairman, Graincorp, Australian Financial Review, 6 May 2013


11. Life sciences in Queensland: An attractive proposition

ThegrowthofthelifesciencesindustryinAustraliacontinuestogainmomentumwithAustraliabecominganincreasinglyattractivelocationforconductingclinicaltrials.ThecomparativeregulatoryeaseofundertakingclinicaltrialswithinAustralia,coupledwithitsdiversepopulationgroup,educatedworkforceandproximityto Asia,hascreatedanappealingenvironmentinwhichtoundertakeR&D.

QueenslandhasthethirdlargestlifesciencesbusinesscommunityinAustralia,followingNewSouthWalesand Victoria,withnumerousresearchcentresandindustryassociationssupportingitsgrowth.ThelifesciencesindustryinQueenslandemploysover14,000people,invests$650minresearchanddevelopment,and hasan estimatedcombinedincomeof $4.4b.

Queensland’scapabilitiesinthelifesciencesarefurtherevidencedbytheopeningofAustralia’slargestmammalianbiopharmaceuticalcontractmanufacturingfacilitylocatedinBrisbanelaterthisyear,whichwillbeoperatedbyDSMBiologics.ThiswillcoincidewiththestartoftheAusBiotechNationalConferencealsolocatedinBrisbane,tobeheldfrom29Octoberto1November2013.DSMBiologics’facilitiesalsocomplementPharmaSynth’sexistingcapabilitiesinBrisbaneprovidingbacterialbiopharmaceuticalcontractmanufacturing.ThesetwofacilitiesaretheonlydedicatedcontractmanufacturingfacilitieslocatedinAustraliawhichcanproducelargescaleGMPbiopharmaceuticalsforclinicaltrialsandothermarketdemands.

Thereareanumberofimportantconsiderationsinestablishinganylifesciencesbusiness,including:

• Theindustrysectorlandscape,beitagribiotech,animalhealth,environmentalbiotechnology,human health(includingbiotechnology,pharmaceutical,medicaldevicesanddiagnostics),industrialormarinebiotechnology,andtheneedtoconsiderboththeproductlifecyclefrompre-clinicaldevelopmentandclinicaltrialstoproductdesign,manufacturinganddistribution.Inthehumanhealthsector,thisextendstoconsiderationofthediseaselifecycle,andthecurrentrequirementfora continuityoftreatmentencompassingprevention,identification,andtreatment

• Emergingtrendswithinthemarketplace,suchastheneedtoconsidertargetedpatientpopulations,differentiatingproducts,streamliningoperationsto targetinefficiencies,andtheneedtorespondto theeverincreasingdemandsofthemoreinformedconsumer

• TheregulatoryframeworkandeaseofdoingbusinessinQueensland

• Fundingmechanismstosupporttheundertakingof R&Dactivities.

QueenslanddoeswellinrespectoftheregulatoryframeworkwithincreasingStateGovernmentandindustryassociationsupport(includingAusBiotechand LifeSciencesQueenslandLtd),therearemanyfacilitiesavailabletoaidthedevelopmentofalifesciencebusiness.Inaddition,thereareadvantageousfundingmechanismstosupportR&Dwhichwediscussbrieflybelow.

Funding R&D

Thishastheabilitytoswaytheestablishmentorcontinuanceofalifesciencesorganisation.Accesstocapitaltobuildthesebusinesseshasbeenchallenging.Withlimitedventurecapitalfundingavailable,lifesciencesorganisationshavecontinuedtosearchforalternativesourcesoffundingtosupporttheirresearchanddevelopmentprograms.

The R&D Tax Incentive, introduced in 2011 is a key program which is providing significant financial support for life sciences companies.

Theprogramprovidessupportforlocallyestablishedcorporationsandinaddition,opportunitiesforforeigncompaniestoundertakegovernmentassistedR&DactivitieswithinAustralia.Thenewprovisionsrepresentareshapingoftax-basedsupportforeligibleR&Dactivitiesandhavespecificallybroadenedthedefinitionofeligibleentitiestoincludeforeigncompaniesincertaincircumstances.

Eligibilityfora45%refundabletaxcreditforcorporationswithanaggregateannualturnoverof<$20m, or a40%non-refundabletaxcreditforlargerbusinesses,canbuildcashflowandallowforgreatercumulativeinvestmentinabusiness,stimulatingthepotentialforfurtherR&Dexpenditureandgrowth.

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Toillustratethis,whereanAustralianincorporatedlifesciencescompanywithanaggregateturnoverof<$20mundertakeseligibleR&DactivitieswithinAustraliatothevalueof$1m,the45%refundabletaxcreditwillprovideacashrefundof$450,000inthosecircumstanceswherethecompanyisnotinataxpayingposition.This refundcanbefurtherinvestedinR&Dinasubsequentyearcreatingadditionalrefundsonthissubsequentinvestment.Overathreeyearperiodbyreinvestingthe refundfromyeartoyear,theoriginal$1mmayleadtoaggregaterefundsofover$700,000whichcanbeappliedtotheR&Dactivitiesofthebusiness,aidingwithcashflowandfurther investment.

Althoughalargerlifesciencecorporationisunabletoaccesscashrefunds,itstillhasthebenefitofobtainingtaxcreditsattherateof40%ofeligibleR&Dspend.This canhaveadramaticimpactoncashflow,allowingforthereleaseofimmediatecashflowresourceswhichcanbedirectedbackintoR&Dorotheractivities.Where thecompanyisinataxlossposition,itpresentsa deferredcashflowbenefitthroughthecarryingforwardofthetaxcredittotheyear/sahead.

ThereisnocapontheamountofeligibleR&DexpenditurewhichcanbeincurredandclaimedundertheR&DTaxIncentiveprogram,whichmeansthatthevalueoftherelatedtaxoffsetorcreditcanbesignificantandcanprovidefurtherfundingtosponsoryourongoingR&DactivitieswithinAustralia.

Who can make a claim?

Thekeycorporatestructureseligiblefortheprogramin theirownrightincludeabodycorporate:

• IncorporatedunderanAustralianlaw

• Incorporatedunderforeignlaw,butanAustralianresidentforincometaxpurpose

• Incorporatedunderforeignlaw:

–AtaxresidentofacountrywithwhichAustraliahasadoubletaxagreement(DTA)includingadefinitionof‘permanentestablishment’(PE)

–CarryingonbusinessinAustraliathroughaPEas definedintheDTA.

Inaddition,aforeign-ownedsubsidiarycompanyoranAustralianPEcanundertakeR&DactivitiesinAustraliaon behalfoftheforeignparentorforeignbodycorporatewherecertainconditionsaresatisfied.

It is also possible for the foreign entity to own the resulting IP as well as reimburse the R&D entity for its expenditure subject to the R&D Tax Incentive, making this an attractive proposition for foreign companies.

Overall,thisprogramprovidesgreateraccessibilitytotheAustralianR&DTaxIncentivebyforeign-ownedR&Dentities,whichfacedgreaterlegislativerestrictionsundertheformerR&Dprovisions.

Inpursuingtheseopportunities,claimantsneedtobe mindfulofthecompliancerequirements,includingthecompletionofawrittenevidenceora bindingagreementbetweentheR&Dentityandtheforeignresident(wheredoneonbehalfofaforeignentity)in relationtotheR&Dactivities,aswellastheregistrationofanR&Dclaimeachyear.

What can be claimed?

AllactivitiesundertakenbyeligibleR&DentitieswillneedtobeassessedforeligibilityaseithercoreorsupportingR&Dactivities.EligibleprojectsmusthaveatleastonecoreR&Dactivity.

AcoreR&Dactivityisdefinedasanexperimentalactivitywhoseoutcomecannotbeknownordeterminedinadvancebasedoncurrentknowledge,informationandexperienceandisconductedforthepurposeofgeneratingnewknowledge.Theoutcomecanonlybedeterminedby:applyingasystematicprogressionofworkthatisbasedonestablishedprinciplesofscience;proceedsfromhypothesistoexperiment,observationandevaluation;andleadstologicalconclusions.

Thenewknowledgegeneratedcanbeintheformofneworimprovedproducts,processes,devices,materialsorservice.

Typicallyalifesciencesclaimantmaybeabletoincludeitscostsassociatedwithcontractmanufacturing,clinicaltrialsandaspectsofregulatoryaffairswithinitsR&Dclaims.

Tony Belfield R&D and Government Incentives Tax Director Tel:+61733087037 [email protected]

Ryan Parlett R&D and Government Incentives Tax Manager Tel:+61733087358 [email protected]

Detailsofthecategoriesof activitiesandexpenditurethatcanbeclaimed,as wellasfurtherprograminformationcanbeobtainedviathefollowingDeloitteR&Dcontacts:


Whatisthelong-termoutlookforAustralia?Howcanbusinessandgovernmentshapethatfutureandensureweretainoureconomicprosperity,politicalstabilityandsocialcohesion?ThesequestionslieattheheartofDeloitte’sBuildingtheLuckyCountrythoughtleadershipprogram–aseriesofseminalreportsfocusingonthebigissuesconfrontingAustralia.

TheBuilding the Lucky Country seriescommencedin 2011with‘Whereisyournextworker?’Asthetitlesuggests,thisfocusedonjobsandthepredictionthatourbiggestchallengewillnotbeincreatingjobsbutin findingworkerstofillthem.Thereportrecommended12potentialalternativesourcesoftalentwhichincluded:enhancingeducation;creatingopportunitiesforwomen,olderworkersandpeoplewithdisabilities;reformingthevisasystem;automatingandstreamliningbusinessprocesses;improvingstaffengagement;offshoringtasks;andusingtheInternettocrowdsourcetalent.

In2012,thefocuswasonthebiggestforcereshapingtheAustralianeconomy–digitaltechnology.The‘Digitaldisruption–Shortfuse,bigbang?’reportanalysedhowquicklyandtowhatextentdigitaltechnologiessuchasonlinecommerce,mobiledevicesandcloudcomputingareimpactingthesectorsthatmakeupourGDP.Itfoundthat32%oftheeconomy–includingICT,media,financeandretail–wasalreadyheavilyaffectedbydigitalandthatallsectorswouldfollowtovaryingextents.The reportalsoinvitedbusinessandgovernmentleaderstofocusonwaystheirorganisationscanrecalibratecosts,replenishrevenuestreamsandreshapetheirstrategies.

We’renowworkingonthenextinstalmentandaskingwhereAustraliawillfinditsfuturesourcesofincomegrowth,whetherexport-ledorinternallygenerated.Ifwegotluckyinthepastwithgold,naturalresourcesandsomeareasofservices,what’snext?Toanswerthatquestion,we’reinvestigatingwhereglobalgrowthtrendsandAustralia’sadvantageswillcoincideinthenext20years–andwhatwecandocapitaliseonthosenexuses. Theseresultsarescheduledtobereleasedinearly2014.

Building the Lucky Country

David Redhill Deloitte Chief Marketing Officer Tel:+61293227891 [email protected]

34|2013GalaEdition

Ten facts you didn’t know about Deloitte Australia

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2. WasawardedtheprestigiousAccountingFirmoftheYearintheFinancialReviewCapitalCFOAwards2012aswellas‘InclusiveWorkplaceoftheYear’byAHRIDiversityAwards2012

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5. Inafirstforprofessionalservices,Deloittewasrecognisedin2013withanAustralianInternationalDesignAwardTMfortheredesignofitsauditservices

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7. Australian-basedIndirectTaxPartnersGaryFunston,JonGrahamandJohnKoutsogianniswererecentlyrecognisedbytheirclientsintheprestigiousInternationalTaxReview’sIndirectTaxLeadersguide

8. AnalystfirmKennedynamedDeloitteagloballeaderandfastestgrowinginInformationManagementand Analytics2010–2013

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10.In2013wasrecognisedasthegloballeaderforHumanCapitalStrategyConsultingbyanalystfirmKennedy,highlightingitshumancapitalanalyticsand aheavyinvestmentinpredictiveanalyticstoolsforscenariomodelling,strategicworkforceplanningandtalentmanagement.

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As the growth impetus of the mining boom declines, the Queensland economy faces a transition period

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