John Linton ....in Australia because of the GFC but, each morning, I get to read things like this:
http://online.wsj.com/article/SB122573166905093595.html
and this:
http://business.smh.com.au/business/markets/commodities-plunge-points-to-end-of-supercycle-20081104-5h5s.html
which, in Australia, begin to show the impact as this:
http://business.smh.com.au/business/iron-ore-goes-from-boom-to-bust-20081103-5h22.html
and this:
http://smallbusiness.smh.com.au/starting/finance/fall-in-ads-as-employers-hold-off-910810785.html
Not the best way to start a day and, no matter what 'internal optimism' I attempt to generate I can't help but remember the two previous times the then incumbent prime minister mouthed platitudes about "Australia won't be affected" - everyone in Australia was - and more than a few people were affected very severely. With export prices falling sharply and total exports also falling in 2009 together with employment falling and both the EU and the USA already in recessions that are now predicted to be deep and long lasting there is absolutely NO way that Australian business is not going to be negatively affected - no matter what politicians or 'knowledgeable commentators' say - its all about the, verifiable, statistics - stupid.
We processed our monthly recurrent billing run yesterday and it showed a record level, by a long way, of defaulted payments - almost 50% greater than two months ago. It's yet another sign that times are getting tougher financially for an increasing number of people. Doubtless the RBA will reduce the cash rate today, at least they will according to all of the 'financial commentators' but who knows what, if anything that will do - certainly not me (but I'm pretty sure that the RBA wouldn't be reducing its rate if it didn't think things were looking worse than they did last month - 0.25% = worse, 0.5 = much worse, 0.75% = very much worse, 1.0% = buy a gun and head for the hills). Much as I would like to continue to believe that nothing is really wrong and there will just be a few 'bumps' over the coming months before everything recovers to 'normal' - I just can't convince myself that will be the case (despite our personal superannuation shareholdings returning to a 'profit' yesterday).
As every 'managing a commercial enterprise for beginners' book or kindergarten topic teaches - "when business looks bad prepare for the worst before it happens; if it turns out it doesn't happen all you've lost is a little momentum but you haven't lost your company". Very hard to ignore that advice when every indicator, and as far as I can see that really means EVERY indicator, is 'insisting' that the financial aspects of business are going to get much tougher than they are today and, today, they are tougher than they have been for quite a while for many people and businesses. In such circumstances the most common recommendations for sensible businesses are always the same:
1) Freeze hiring and don't replace people who leave - consider retrenchment of a given number/percentage of current personnel
2) Freeze all travel
3) Cancel all 'events', conventions and outside training
4) Freeze all capital expenditure
5) Increase prices
In my, now quite lengthy, working experience those are the actions implemented by every commercial organization with which I have been associated or had any knowledge of. Most of my business acquaintances have already put many of those actions in to place and at least two of them, who run very large companies, did so more than a few months ago.
No-one that I know, including me, likes taking tough decisions which is probably why so many decisions are taken later than they should have been. I will put off any tough recommendations today, because of course no-one really does any work on Melbourne Cup day even if you don't live in Victoria, but I doubt there's too many more days I can find to ignore what is obviously happening to Australia's economy and therefore to the ability of an increasing number people to pay for Exetel's services. No matter how much it goes against every aspect of my nature/fibre of my being etc, etc - it seems inevitable to me that Exetel needs to change its current business plan from the accelerating growth we had planned (and have achieved for the first four months of FY2009) to one of little or no growth in customer numbers or even a reduction in the number of customers we currently have.
The extremely tough (brave/foolish?) thing to do when faced with tough times is to increase your prices because not only does it sound counter-intuitive it's always assumed that it will not only slow, halt or reverse the acquisition of new customers but it undoubtedly leads to losing some percentage of current customers. Just how much growth is slowed and/or what percentage of customers is lost is never predictable even within fairly wide limits. Not a nice scenario to contemplate, but it is something that's going to have to be done.
Anyway, enough of tough and depressing observations - the real decision that needs to be taken is what to back in the trifecta in the cup?
Having checked the track reports, and the weather forecast and consulted with my 'expert' friends it looks as though its time to sell off the super fund's bank shares as soon as the market opens and put all the money on a four horse trifecta of:
Septimus, Mad Rush, Supreme Beauty and Barbaricus.
Those four horses seem to offer a much better prospect of an excellent financial return than buying more ESRs and core routers.