Navigating the new normal

Bankers’ Boot Camp 2018

Matt Byrnes Partner, Financial Advisory Grant Thornton Australia

Over the past two weeks we hosted over 500 bankers around the country at our 18th annual Bankers’ Boot Camp series, held in Brisbane, Melbourne, Sydney and Perth.

It was a fast-paced afternoon comprising customer stories, technical and industry updates, thought leadership and carefully curated content, brought to life through the engagement and ideas of our attendees. From regulatory reform, right through to AI and the future of work, we covered significant ground, and I am pleased to share this overview with you.

Regulation, risk and compliance remain key issues that are front of mind for our banking attendees, reflecting in part the changing customer and community expectations arising in the wake of the banking Royal Commission, as well as numerous other reviews, investigations and inquiries.

Our insights shared from almost 800 client 6 Box conversations in 2018 revealed that our clients are also concerned about the increased regulatory and compliance burden in their own businesses and the markets they operate in, with many suggesting this was stifling creativity and innovation at a time when growth is critical. Attracting and retaining key talent was also identified as a significant challenge for both banks and our clients.

From our live surveys conducted on the day, you also generated some interesting ideas for a more innovative, productive banking environment, including suggestions for better training and development of banking staff.

Our technical, legal and advisory experts examined some of the pressure points for directors in our clients’ businesses, in particular the increased ATO powers relating to reporting, collection and enforcement, which are impacting the way directors manage their businesses and prioritise working capital funding.

Property specialists CBRE provided insights regarding the local property market, noting the trends in relation to foreign investment, and the role of alternate funding in supporting inner city apartment developments. The impact of online retail on underlying property prices, and increased investment opportunities in the Perth market after a recent downward trend were also discussed.

Below we bring together our insights and takeaways from the series – feel free to share these with your teams. Please get in touch with your local Grant Thornton partner or me directly if you would like to discuss any of these issues or opportunities further, to access any of our thought leadership or training materials, or to speak with one of our industry specialists.

We look forward to working with you in the year ahead.

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What you said

35%Greatest lending potential: Health & aged care

We took a pulse across all the major cities to hear from the banking sector where the opportunities and risks are.

Q Which industry has the best prospects for lending growth?

Health & aged care continues to be seen as having the best prospects for lending growth. While sentiment was slightly lower than the 45% priority high recorded in 2017 – every major city agrees that health & aged care is the sector to watch.

With approximately 1 in 7 Australians aged over 65 and an imminent Royal Commission into the sector aiming to ultimately boost the quality of our aged care services – we expect there to be an injection of investment across many facets of the sector from facilities and associated services, through to board and culture development.

Food & agri-business also rated strongly with 20% of attendees stating that this sector has the greatest prospects for lending growth. Our industry leaders have noted continued international demand and related investment in Australian produce. Despite the sector’s exposure to environmental factors such as cyclical weather events (like the current drought), our farmers and food producers are considered amongst the most productive in the world.

City breakdown:Brisbane43% Health & aged care20% Food & agri-business12% Advanced manufacturing

Melbourne31% Health & aged care27% Food & agri-business17% Professional services

Sydney29% Health & aged care18% Professional services15% Food & agri-business

Perth22% Health & aged care19% Energy & resources

(including renewables)17% Food & agri-business

The options:

Health & aged care

Property & construction

Professional services

Food & agri-business

Education

Advanced manufacturing

Energy & resources (including renewables)

Hospitality & tourism

Retail & consumer

Other

We asked our attendees to highlight the sectors that pose the most risk to their organisations. Two sectors dominated, being retail & consumer products with 46% of the vote, and property & construction, which came in at 36.5%.

That is a whopping 82.5% of perceived risk carried by two industries.

“Retailers who focus on all aspects of their retail value chain are not only able to engage and delight their consumers, they also positively impact the bottom line and create a sustainable business. A consistently high in-store and online experience, ease of delivery and return, as well as reasonable pricing continues to capture the loyalty of customers.”Simon Trivett, National Head of Retail and Consumer Products.

“While the property market is undeniably seeing a slowdown in some of the previously overheated markets, this correction is not unexpected and opportunities still exist for good projects. The level of foreign investment from China has been impacted by a significant increase in regulation both locally and in their own market, but foreign investor interest is still there, though more likely coming from alternate countries such as Singapore and Macau.”Sian Sinclair, Global Head of Real Estate & Construction.

Q Which industry do you think presents the greatest risk?

46%Greatest potential risk: Retail & Consumer

City breakdown:Brisbane59% Retail & consumer22% Property & construction5% Health & aged care

Melbourne47% Retail & consumer36% Property & construction5% Health & aged care

Sydney46% Retail & consumer39% Property & construction5% Health & aged care

Perth50% Retail & consumer31% Property & construction5% Health & aged care

The options:

Health & aged care

Property & construction

Professional services

Food & agri-business

Education

Advanced manufacturing

Energy & resources (including renewables)

Hospitality & tourism

Retail & consumer

Other

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45%Greatest risk: Regulatory & compliance pressures

Q What poses the greatest risk of disruption to your organisation?

Regulatory and compliance pressures remain the greatest risk of disruption by a significant margin. However, there was a drop from last year’s high of 56.5% to 45% suggesting that the issues relating to regulatory and compliance are already being embedded into bank systems and processes.

City breakdown:Brisbane48% Regulatory & compliance pressures18% Managing customer expectations and related impact on brand18% Drive to increase margins and profits

Melbourne54% Regulatory & compliance pressures18% Managing customer expectations and related impact on brand18% Drive to increase margins and profits

Sydney34% Regulatory & compliance pressures21% Managing customer expectations and related impact on brand21% Drive to increase margins and profits

Perth44% Regulatory & compliance pressures18% Managing customer expectations and related impact on brand16% Drive to increase margins and profits

The options:

Increasing competition from fintech companies

Regulatory & compliance pressures

Ability to achieve internal efficiencies

Managing customer expectations and related impact on brand

Drive to increase margins and profits

1Reducing ‘red tape’ by finding a better balance between the increasing burden of compliance and regulation, and the space needed to innovate in order to grow.

2Banks investing in better education and awareness of their own people to ensure improved quality of lending.

3Building relationships with advisors and partners who can support bankers in presenting a future bank-customer relationship built on insights and a deeper understanding of the customers’ business.

How does this compare to last year?

1Using digitisation/AI to automate credit decisions and drive efficiencies in compliance.

2Better collaboration between regulators to reduce unnecessary costs.

3Moving further towards Chapter 11-style legislation to better promote entrepreneurial activity and value preservation in the Australian market.

The focus is back on the customerThe Royal Commission has put the spotlight on internal efficiencies and the upskilling of staff, managers and boards around ethics, customer service and financial acumen. As one attendee said ‘it’s not laws that are lacking, it’s a lack of ethical thinking’. This is complemented by a desire to provide better products for clients that are easy to understand and fit for purpose. Another notable theme was around empowering bankers by providing additional authority to support their clients through streamlined, fast tracked credit decisioning, and more scope for lending based on relationship confidence.

Ideas to improve the banking environmentWe asked our attendees to suggest different ways they could improve the banking sector. While there were a wide range of ideas – some clear themes emerged.

Q If you had the power to change or introduce one law

that would have the biggest positive impact on banking, what would it be?

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Customer tales

We heard directly from a number of bank customers as they shared their first-hand experiences around the complexities of growing their businesses, and how lenders and advisors can provide value to support their customers’ growth ambitions.

In our Brisbane session we were fortunate to hear from two customers, Group Executive Director and CFO Craig Mortensen, from BMD Construction and Terry Dodd, Non Executive Director of Sealink Travel Group and Managing Director of Pacific Marine Group.

Craig spoke to us about their integrated and flexible business model focused on construction, consulting and urban development and the key role that financing has played in their business, while Terry shared his experiences in relation to the contrasting considerations for a banker in dealing with a listed company, compared to those encountered by a privately owned mid-sized enterprise that has grown to become a leader in the marine contracting and commercial diving industry.

In Melbourne we heard from Tony McKenna, CEO of Ruyi Australia. A fascinating growth journey over the last eight years to become one of the premier wool and cotton producers and processors in Australia, part of a global group now with an international footprint in fashion and retail.

In Sydney, Anna Carrabs, CEO of King Living shared the company’s journey from selling foam cube seats at Paddy’s Markets in the 1970’s, to becoming a global brand leader built on strong design, quality and efficient manufacturing. An Australian family enterprise where innovation has been key to their success.

In Perth we heard from Leigh Travers, CEO of DigitalX as he talked about how blockchain is transforming industries all over the world. Founded in 2013 as a bitcoin mining and trading company, DigitalX is now one of the leading publicly-listed blockchain and cryptocurrency advisory firms globally.

Partner Philip Campbell-Wilson speaks with Anna Carrabs, CEO of King Living

Tony McKenna, CEO Ruyi Australia

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Issues facing directors - key takeaways

With obligations on directors increasing in number and complexity, this session explored the key issues facing directors in our clients’ businesses, including the impact of the new ATO agenda and the increasing ATO powers in relation to reporting, collection and enforcement activity. We also considered how the safe harbour laws, introduced in late 2017 as part of the Federal Government’s Innovation agenda, were playing out one year on.

Data sharing and tax collection methods are improvingThe ATO are now much better informed as a result of improving technologies and increased reporting requirements (i.e. TPRS, Single Touch Payroll) and are now sharing information with other regulatory and statutory bodies.

There has been a recent increase in ATO activity driven by a regulatory focus on discouraging phoenix activity and improving tax collections.

Our panel noted the increased use of Director Penalty Notices (DPNs) and garnishees to drive better compliance, reporting and collections. DPNs currently only extend to superannuation and PAYG, however under an Exposure Draft Bill are proposed to extend to GST and other taxes from 1 July 2019. This increased personal liability risk is likely to drive different behaviours in directors, as they look to re-direct available working capital to protect their personal position. The ATO may no longer be the lender of last resort.

There are also important risks relating to reporting and lodgement obligations, particularly in relation to BAS returns, that are not well understood by directors and their advisors. Directors must ensure that lodgements are up to date, as for any amounts owing to the ATO that remain unreported for longer than 3 months, personal liability can only be avoided through payment of the outstanding amounts (refer to the lockdown DPN process).

In relation to garnishees, we noted that in many cases the bank’s priority position is protected in relation to the potential garnishee of bank accounts, assuming the control protections are in place, however there was a risk to the business and the bank’s security position in relation to debtors in particular, and other assets such as proceeds of sale.

Our legal partners at Norton Rose can assist you further in relation to your risks and rights in navigating ATO garnishee notices.

The ATO are generally willing to work with customersFactors that may impact negotiation with the ATO include historical repeated defaults on payment plans, lack of capacity to pay the debt, unwillingness to take the necessary steps to resolve the issue impacting payment, or instances where any deliberate phoenix type activity is present.

Our panel discussed recent case studies and trends where the ATO has given consideration the following; the length of an agreed repayment plan (usually no longer than six months but up to two years, dependent on circumstances); ATO preference for a larger upfront payment; and superannuation to be paid in full as part of the plan.

If you would like to know more about the ATO’s increased activity and how it is impacting your customers, please reach out to one of the Grant Thornton team.

Safe harbour reforms – one year onWhilst there have been some examples of successful safe harbour engagements since the new law came into effect in late 2017, our panels in each state felt that it was difficult to assess whether the reforms were working as intended.

On the whole, we noted a trend of earlier engagement between directors and advisors in situations where they needed to contemplate a restructure of the company, thereby increasing the opportunity to find workable solutions in a more timely manner. This more proactive engagement was welcomed by the bankers, lawyers and advisors and seen as a positive step towards better outcomes for all stakeholders.

However, there was also caution relating to the quality of advice being provided in some cases, noting the emergence of unqualified or shadow advisors now working with companies, and the fact that the protection available to directors and the steps that need to be taken had not been tested yet. There was acknowledgment that in many cases bankers could do more in supporting customers to seek better advice.

The reforms are due for review in 2019 and it will be interesting to see what improvements are contemplated to make the laws more effective.

The state of aged care

The implications of an impending Royal Commission into the aged care sector are yet to be fully assessed, however we know that they will be widespread. To prepare our clients for the challenges in managing risk and accessing funding for growth within this sector, our aged care experts shared their insights on the environmental forces at play, the Royal Commission’s Terms of Reference, and how you can help your customers to respond. Click here for an overview of how we are working alongside our clients in preparation.

For more information Darrell Price, Health & Aged Care Industry Leader.

Bankers Boot Camp 2018 6

A new banking universe

We saw fantastic interaction during the New Banking Universe workshop session, where the discussion was themed around the ‘new normal’ in banking in Australia. The financial services sector is impacted by new technologies, AI, automation and digitisation, rigorous regulation and compliance requirements, a more competitive lending landscape including the emergence of alternate lenders, limitations on traditional lending in key sectors such as property, and an across the board credit tightening.

We noted that the new banker must possess empathy in dealings with customers and stakeholders, and be able to build relationships with key advisors and partners who can support the bank-customer relationship.

In each state, we discussed what bankers can proactively be doing to assist their customers in preparing for a credit tightening.

What you said

Our attendees were well advanced in planning for how to position for future growth. The key observations from our workshop session for improving the customer relationship were:

Assess the client’s capability and discipline regarding financial reporting and forecasting, and be prepared to discuss how the client can access better advice to reduce the associated risk of poor reporting and systems

Providing more transparency and assisting clients in better understanding how they are assessed and rated by credit

Using data analytics to develop and share sector insights with clients

Sharing learnings and tips on how other customers or similar industry players are navigating challenges and solving problems

Educating the bank’s own people on technical and non-technical topics so they can provide greater service and develop deeper client relationships

Being upfront with clients early about the ability to fund the client and any funding gaps that need to be addressed

Actively collaborate with clients and their advisers

Test client preparedness by running credit tightening scenarios and assessing the impact

Utilising our global 6-Box client conversation framework, over the past year we have conducted almost 800 client conversations with C-suite, Directors and company owners of Australian mid-sized businesses across various industries, aimed at understanding their greatest opportunities and challenges to growth. We analysed these results by geography and by industry, in order to share our learnings with attendees.

Top 10 areas of focus (% of clients)

Risk & regulation 34%Talent management 32%

Operations 24%Financing 23%

Growth strategy 20%Stakeholder management 20%

M&A 11%Financial management 11%

Market 10%Technology 9%

A high proportion of clients we spoke with during 2018 singled out risk and regulation as the number one issue facing their business. In the same way banks are exploring ways to manage this, clients are dealing with a significant increase in reporting and compliance obligations including through increased ATO activity, which is in turn bringing about a renewed focus on governance, an area where many of the bank’s clients are not strong.

Not far behind in importance was talent management. Attracting the right people in the right roles and locations is increasingly challenging for our clients, as is retaining and developing talent in a competitive job market. Generational issues, flexible working options, and a changing workplace increasingly reliant on digital solutions, were all highlighted as factors. While our clients recognise this as an issue, many are also too busy with the day-to-day operations of their business and struggle to invest sufficient time in identifying, sourcing, and upskilling the best people.

Collective client insighta focus on growth

Bankers Boot Camp 2018 7

Access our program materials

For full access to program materials and insights, you can download our material here.

Please also take a minute to let us know your feedback and topics of further interest here.

Contact us for further insight into our industry findings.

Consumer products & retailDistribution channels, supply chain management and operating systems remain key issues for clients. Contact Simon Trivett for more info.

Financial services Recruiting and retaining the right talent – particularly in senior leadership roles – is an ongoing challenge. Contact Madeleine Mattera for more information.

Food & beverage Compliance obligations, for instance around free trade agreements and transfer pricing were standout concerns for clients. Contact Tony Pititto for more information.

Health & aged care A shortage of skilled workers is impacting the ability to service people in care as well as overall growth strategies. Contact Darrell Price for more information.

Manufacturing Clients are looking to accelerate growth through new products, M&A, and domestic and international expansion. Contact Michael Climpson for more information.

Professional services The sector is looking at employee retention strategies to ensure they keep their most valuable asset – their people. Contact Ben Matthews for more information.

Real estate & construction A number of clients are considering equity partnerships and incentive schemes with employees to help fund growth. Contact Sian Sinclair for more information.

Technology & media Clients are seeking to raise funds to grow through IPO, equity funding, debt financing and crowdsourcing. Contact Simon Coulton for more information.

Bankers Boot Camp 2018 8

Ashley Fell (Brisbane & Perth)Ashley talked about the identification of trends and developments impacting us now and in the future covering the changing demographic profile of Australia, communications and the technology landscape.

Ashley Fell is a social researcher, TEDx speaker and Head of Communications at the internationally recognised McCrindle. As a trends analyst and media commentator she understands how to effectively communicate across diverse audiences. From her experience in managing media relations, social media platforms and content creation, Ashley advises on how to achieve cut through in message-saturated times. She is an expert in how to communicate across generational barriers.

Keynote speakersWe were fortunate to have two great keynote speakers who shared their insights and observations.

Our sponsors

Norton Rose Fulbright is a global law firm. We provide the world’s preeminent corporations and financial institutions with a full business law service.

With more than 600 lawyers in five offices – Brisbane, Canberra, Melbourne, Perth and Sydney – we are one of the largest Australian law firms operating on an international level. Our international reach and, in particular, our significant presence in the Asia Pacific region, sets us apart from our competitors. Our recent combination with leading Australian law firm Henry Davis York in 2017 strengthened our presence in key industry sectors, particularly financial institutions and government and infrastructure, as well as giving us depth in the risk advisory and regulatory space. Our other key industry strengths include mining, agriculture, healthcare, energy, utilities and services.

CBRE is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #214 in 2017. It also has been voted the industry’s top brand by the Lipsey Company for 17 consecutive years, and has been named one of Fortune’s “Most Admired Companies” in the real estate sector for six years in a row.

CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

Dominion Group is one of the largest providers of plant and equipment valuation and auction services in Australia, with clients spanning major banks, finance companies, the insolvency industry, government departments and the health and insurance sectors. The company offers a wide range of services pertaining to, asset valuations, asset management, asset auctions and sales.

The company mission is to deliver the most effective asset valuation, management and realisation solutions for each of the clients by developing a competent and professional team of independent valuers and auctioneers who will work diligently to deliver the best financial outcome for clients.

Michael Priddis (Melbourne & Sydney)Michael challenged our thinking regarding the future business environment. Michael talked about the future of work, drawing on his thought leadership and presentations on topics including ‘Navigating the Fourth Industrial Revolution’, and the impact of ‘AI and Automation’ on our businesses and lives.

At Boston Consulting Group, Michael led and built the BCG Digital Ventures business across Asia as part of BCG’s global leadership team. He is currently the CEO and founder of Faethm, an AI platform that is the world’s data source for the Future of Work, and the first company in Australia to join the World Economic Forum’s Centre for the Fourth Industrial Revolution.

Get in touch with the team

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