No images? Click here COVID-19 – OIL PRICES – STOCK MARKET – AUSTRALIAN ECONOMY At times like this it is important to recall that in a series of other financial shocks since World War II markets and economies have recovered often more quickly than initial reactions suggested. What Has Happened? It is apparent that China reacted to the COVID-19 virus by shutting down much of its economy. This was followed by South Korea and Italy. In term this caused demand for oil to plummet. Saudi Arabia proposed that the major oil producers restrict production to sustain the oil price. Russia refused whereupon Saudi Arabia announced that it too would not cut production lowering the price instead. Instantly all oil producers have cut prices and shares in oil producers plunged around the world. At some point Russia and Saudi Arabia will come to a realisation that they have wounded themselves most of all and it is probable that even now emissaries of Russian President Vladimir Putin and the Saudi Arabian Crown Prince are having urgent discussions on how they can mutually pull back. It is timely to recall that the trigger for the Global Financial Crisis which hit its bottom in 2009 was the weak lending policies of US banks with what was termed Ninja loans (no income, no jobs, no assets) to buy property coupled with the poor structure of the loans which meant that borrowers unable to make to make repayments simply walked into US banks and tossed the house keys on the counter and walked away. American investment banks then packaged up weak loans with some strong loans, persuaded the ratings agency to give a tick to the securities created and then on sold them to global investments including various Australian local governments as being safe securities. When this mess was blown apart the Global Financial Crisis resulted. The structure of lending in Australia is quite different. If a bank takes possession of a property and sell it as Mortgagee in Possession they then pursue the borrower for any balance not covered by the sale price. Capitalisation of Major Companies In 2009 at the bottom of the Global Financial Crisis seven (7) major Australian companies raised billions of dollars each of new equity being the four major banks, Rio Tinto, Wesfarmers and Macquarie Group. Today each of those seven major businesses have much stronger balance sheets than in 2009. In the case of the four major banks and Macquarie Group more stringent capital adequacy requirements were imposed by the regulator, Australian Prudential Regulatory Authority (APRA) almost certainly with encouragement from the Reserve Bank of Australia and this has them in a much stronger position than prior to the GFC. Right at the moment when things look gloomy it is important to keep our heads. The press and social media feed on doom and gloom but mostly it is a lot of people writing the same stuff. We are not invested in airlines, nor shipping cruise lines, nor international tourist resorts. On the brighter side the drought has broken in Eastern Australia and hopefully government money and charity funds are flowing back to bushfire affected areas which will result in a much needed boost to those local communities. The best thing many Australians can do for our economy is to take their holidays inside Australia rather than travelling internationally. A special word of praise needs to go to Blaze Aid which was really quick off the mark in setting up additional teams rebuilding farmers’ fire destroyed fences enabling them to hold stock. Blaze Aid and its teams of volunteers are a really practical way of assisting recovery. Interest Rates Australian 10 year government bonds are selling at the lowest yield in my memory, 90 day bank bills are similarly at record lows and banks are paying close to zero interest on deposits. Sooner or later there will be a move to invest spare cash in the share market where many stocks will pay dividends well in excess of interest on deposits. At this point every superannuation fund ranging from major commercial and industry funds to individual superannuation funds are affected so in all probability will our home values be in due course, but we only know the true value of our house the day we sell it. Finally, like everyone else my own superannuation fund is affected. This advice is general in nature. Action should not be taken without specific professional advice. SMILES INCLUSIVE LIMITED – UPDATE Smiles Inclusive Limited has announced a placement of 11,315,789 new shares to a sophisticated investor in Australia to raise $430,000 – Smiles also indicated that the professional investor has indicated that it would like to invest an additional $570,000 at the same price per share at a time before 30 June 2020. Obviously, the equity of the original founding shareholders is being watered down by these continuing placements. The placements in turn suggest an element of desperation within the company trying to manage its cashflow in a difficult situation. There was also a significant placement of shares to sophisticated investors during 2019 plus a one for one rights issue at five cents per share to existing shareholders. Yesterday we heard from a dentist who works in a Smiles Inclusive clinic operating under its banner “Totally Smiles” who just had his dental assistant retrenched and was told to work with the one person as receptionist and chair side assistant. It suggests on the one hand that particular part of the enterprise may not have been profitable, but on the other it may be indicative of a desperate attempt to cut staffing costs across the whole enterprise which will surely impact on patient treatment and further reduce fees. Smiles Inclusive Limited indicated to the ASX on the 10th March 2020 that it continues to work with its auditors to finalise a review of its half year financial statements as soon as possible. This reminds us of a similar previous delayed audit. A major difficulty in raising capital is that the share price has fallen so far that it frightens existing investors and in the absence of any announcements to the contrary it appears that legal actions against the company are still in progress. It remains suspended from trading on the ASX. DENTISTS WELL PLACED TO COMBAT COVID-19 Dentists are much better placed to operate through the COVID-19 period of alarm as dental practices have long had rigorous infection control standards. However, when I visit the group practice in which my medical GP is located I cannot help wondering how many patients have spread their germs over the piles of aging magazines in the waiting room. STRATEGIC FINANCIAL ADVICE TO DENTISTS If you are buying or contemplating selling a practice or practice associateship, wanting to know whether premises purchased are viable, are unsure of the advice you are getting from an accountant or other advisor or contemplating the wisdom of adding additional operatories, and are worried about your overall business and financial strategy, then Synstrat can help. Contact Graham Middleton or his PA Jenny O’Brien to make an appointment. Fees apply after an introductory discussion. VALUATION OF DENTAL PRACTICES Synstrat Accounting Pty Ltd has long valued dental practices for a variety of purposes including changes to associateship and partnership equity, for bank lending purposes and for family law settlements or simply to give an older dentist an idea as to what their practice might be worth before they contemplate putting it on the market. The initial contact should be made with Jenny O’Brien who will arrange a short telephone appointment for Graham Middleton or other staff member to gain some initial information about your practice and you will then be sent a comprehensive list of the information required for valuation and an indicative valuation quotation. OVER REACTION? The Melbourne Grand Prix has just been cancelled – hoards of fans waiting to get into today’s practice session were turned away. Lots of them then got onto crowded trams! On the weekend my wife and I went to the theatre which was packed. Nobody suggested cancelling live theatre, nor have they suggested shutting movie theatres. Our Prime Minister said that he was going to attend his rugby league team, Cronulla Sharks, match this weekend and it’s likely that opposition leader Mr Albanese will be watching his beloved South Sydney Rabitohs. PEOPLE DON’T CHANGE OTHER THAN TEMPORARILY Long ago as a regular Army Officer I spend two years in an office in Canberra in charge of career planning for the Signals Corp Other Ranks, about 2,200 personnel of which the top 600 were in the ranks of Sergeant, Staff Sergeant, Warrant Officer Class 2 and Warrant Officer Class 1. Basically, they had been in the Army ranging from about nine years for a recently promoted Sergeant to over 20 years in respect of some of the Warrant Officers. All of them had regular annual appraisals. The reports that should have been carefully designed by Army Psychologists had two aspects. One involved ticking boxes with a range of descriptions of various attributes in which the Reporting Officer had to choose one to tick. A template could be placed over this part of the form to arrive at a mathematical score. The second part of the report required the Commanding Officer of the individual to write a word picture. Due to the Army having very mobile career patterns in most years the report on an individual was completed by different a Commanding Officer. However, it was uncanny how the same or similar meaning adjectives and adverbs kept recurring in respect of each individual. The Psychologist who had designed the system pointed out that this was evidence that individuals didn’t really change, they simply became older and more senior versions of what they had been. If an individual’s behaviour or weaknesses had been pointed out, while they might have modified their behaviour for a short time, they invariably reverted to their long term behavioural pattern. The lesson for dentists is if an assistant dentist is habitually rude to staff or too abrupt in engaging with patients, they might be influenced to modify their behaviour but in all probability the change will be temporary. Best Wishes to all dentists, Graham Middleton The Synstrat Group are Australia's most experienced Dental practice business advisers, accountants, practice valuers and licensed financial advisers. The information contained herein is of a general nature and no specific action should be taken without individual advice. Synstrat Management Pty Ltd P. 03 9843 7777 ABN 57 006 295 325 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except wh ere the sender specifically states them to be the views of Synstrat. If you do not wish to receive this email in future, please reply to the sender requesting termination of service. |