Executive Chairman's Welcome 2023

Welcome to the first AGR Newsletter for 2023.

I hope everyone had a safe festive break and are refreshed ready for another fabulous year. For those clients and supporters who due to their businesses worked tirelessly through the festive period, I hope you all had a great trading period.

In my last newsletter message in December, I took an educated guess at what might happen in 2023.

In summary, it was interest rates to continue to rise in the first half of the year, inflation to be elevated and stay elevated for a prolonged period, and for businesses to start putting in place strategies for controlling costs, managing inventory levels and being on top of cashflow.

Over the last month, I have not seen or heard anything that would make me think those three issues are not still the most important issues to manage as 2023 commences. In fact recent statistics from the US may already suggest that large amounts of industries are already in recession, and it is being masked by a still strong labour market.

I am certainly not being dismissive of geopolitical uncertainty, supply chain issues or the potential downturn in consumer sentiment, it is just that these issues will magnify the forementioned ones.

With the era of "easy money" being over, having clarity on cashflow will be important. The use of budget forecasting will be compulsory for businesses, as financial institutions become weary of businesses that have a growth at all costs mindset. Once again, the boring old profit margins and positive EBITDA will become the table/BBQ conversations rather than Total Addressable Market (TAM) numbers and new subscriber numbers or how many bolt-on acquisitions a business did in a quarter. Don’t get me wrong, there will be highflyers and dynamic entrepreneurs that will be successful in this market time, but I don’t think the ripple effect will be as large this year.

So where will revenue growth come from? Hoping you can pass on higher prices to businesses/consumers will only last so long before sticker shock impacts the buying public, or the inflation goodwill excuse becomes stale.

Another trend for 2023 will be deglobalisation and re-shoring. How much of this will be undertaken by Australian companies, or will we mainly see it from larger economies/companies like the US and Europe? What will be the impact on our supply chain procedures and input costs? Hopefully, some of the value-add product from manufacturing can be re-shored to Australia – it can only assist the economy. Labour costs and energy costs are the two key inputs that could impact a re-shoring strategy.

A commentary piece on the year ahead without mentioning property is unheard of in Australia. The property market in Australia can be separated into commercial and residential. Commercial property valuations will be impacted by higher interest rates and nervousness around tenants and consumer spending. Residential prices will be impacted by higher interest rates, tighter credit provisions, ability to lift rents and the owner still having a job. The rise and fall in the property space has a big effect of the wealth psyche of the consumer. Manage a small reduction in property prices that curbs discretionary spending, and a soft landing may occur. The RBA (and the Federal Government for that matter) will wish to avoid a wholesale fall in property prices, so look for the commentary from the RBA each month on where they see interest rates going. Certainly, the February meeting should have another interest rate rise.

Other issues for 2023 will be the continued struggle to find labour. It is extremely difficult for businesses to stay open never mind trying to expand, without the necessary labour – both skilled and unskilled. It was sad to hear that farming enterprises were being forced to leave crops on trees or in the ground because of a lack of labour to assist in the harvest. It is sad that cafes and restaurants are closing or reducing hours due to the lack of hospitality workers.

The Return-to-Office v Work-from-Home discussion will continue throughout 2023. Both sides have good reasons for taking their respective stance. Keep an eye on this argument – to see which side blinks first.

The new development of Open AI is another trend to watch in 2023. Only in its infancy, it is certainly causing many people to take a closer look. With Microsoft investing billions into the parent company of ChatGPT, this looks like the start of something new.

The agricultural sector’s use of AgTech is a fantastic journey to be a part of. The development and adaption by participants of all ages can only help the sector. I am keenly following how we can assist more with the growth of the bee population and the protection and development of our soils.

The medical industry will be keenly watching the latest payroll tax developments and be trying to understand the impact of the new ruling by the Queensland Office of State Revenue. It will certainly change the way practices are managed and how much additional cost will be passed on to the patient. With a shortage of GPs and specialists in Queensland already it will be crucial to watch this space for further impacts of the health care system. We touch on the position and the ruling on payroll tax for medical practices - blog.agredshaw.com.au.

We look forward to assisting our clients and referral partners in their endeavours this year. Each year is different and has its own unique set of challenges. For 2023, it will be important to be proactive in planning for contingences and scenarios.