Coles ramps up food price cuts

Coles has ramped up how much money it pours into lowering food and grocery prices as it sacrifices profits in a bid to lure customers from Woolworths and Aldi.

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Wesfarmers shares were a drag on the ASX on Wednesday after the owner of Coles supermarkets flagged an increase in its investment in lower prices – a move expected to hit its profit margins.

The company also warned that its hardware business in the UK and Ireland was likely to make a loss in the second half of 2017 and into the first half of 2018.

Shares in Wesfarmers closed 2.9 per cent lower at $40.23.

Coles managing director John Durkan told investors that the majority of Coles’ $64 million decline in earnings during the first-half of 2017 was due to investment in lowering prices.

And the rate of investment has increased notably in the third and fourth quarters, he said.

“It’s a high level of investment but cost savings will come out over time,” Mr Durkan said.

Coles’s focus on lower prices comes after a significant slowdown its third-quarter sales growth – 0.3 per cent compared to 4.9 per cent growth in the same period a year ago – in a sign it has lost customers and market share to Woolworths and Aldi.

Woolworths has spent more than $1 billion over 12 months on lowering prices while Aldi has been aggressively expanding beyond the east coast.

Mr Durkan said supermarket prices in Australia were high compared to overseas and Coles had room to go lower by expanding its private label range.

“It’s already an overpriced grocery market in my view and I’ve been saying that for nine years,” he said.

“I still look at products here that are made overseas and they are crazy prices.”

Mr Durkan’s comments come in the wake of consumer magazine CHOICE’s latest supermarket price survey which found consumers can save nearly $80 a shop by switching from leading brands to a basket of Aldi budget products.

Mr Durkan unveiled plans to expand Coles’s fresh bread offering, with moves underway to convert an additional 180 stores to include in-house bakeries.

The ultimate plan is for all of Coles’s 780-plus stores to have freshly baked bread.

Mr Durkan said Coles was focused on increasing its fresh produce and reducing the range of some products to make shopping simpler for customers.

Sales had risen after Coles recently shrank some product ranges, he said.

“We have moved eight lines out of our garbage bag category, which was 20 per cent of the items in that category, and in response, sales have increased by five per cent,” he said.

There was a similar lift in pasta sauce sales after Coles narrowed its range by about 17 per cent, Mr Durkan said.

Hurdles ahead for Vocus takeover

Tough questions remain for Vocus Group following the conditional $3.

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3 billion takeover proposal from a US private equity firm, as analysts consider the sprawling telco’s potential to be broken up.

Kohlberg Kravis Roberts’ $3.50 cash per share proposal for the telecommunications provider on Wednesday is preliminary and non-binding, with KKR assuming Vocus’ $1.1 billion debt.

According to Citi, the offer remains subject to shareholder and regulatory approval, including a visit to the Foreign Investment Review Board; due diligence and a unanimous Board recommendation.

Vocus, meanwhile, must also meet its full-year guidance for earnings to be above $365 million.

While the junior telco’s share price gained almost 22 per cent on Wednesday as the market digested the offer, Vocus has taken a pummelling since August 2016, shedding almost 70 per cent of its value.

Management has grappled with a rush to expand that began in December, 2014 with the $1.2 billion Amcom merger, a $3.8 billion merger with M2 Group and October’s $807 million acquisition of Nextgen.

Through its Commander, Dodo and iPrimus brands, Vocus provides telco, data, cloud and energy services to consumers and businesses in Australia.

According to Citi analyst David Kaynes, hard questions remain for both parties considering current valuations and the conditional nature of the preliminary offer.

“In our view the key risk to this bid is the assumption around the earnings performance and debt levels,” Mr Kaynes said in a note to clients.

Mr Kaynes said the current numbers were drawn from Vocus’s latest guidance.

Given the magnitude of its last downgrade and the uncertainty caused by falling revenue, rising costs and limited financial data, Citi considers current these estimates not to be without some risk.

“Given the highly conditional nature of the preliminary offer, we think this is unlikely to be sufficient for Vocus to grant due diligence,” Mr Kaynes said.

Mr Kaynes said a bidder could see potential to break up the company, separating out the New Zealand and Australian consumer businesses, which account for 20 per cent and 47 per cent of revenue respectively.

Vocus has an investor day on the 14th of June.

UAE bans sympathy for Qatar

The UAE, along with several other powerful Arab states, severed diplomatic ties with fellow Gulf state Qatar on Monday over its alleged support for Islamist groups and Iran.

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Qatar denies the accusations.

US President Donald Trump took sides in the deep rift in the Arab world on Tuesday, praising Middle East countries’ actions against Qatar, but later spoke by phone with Saudi King Salman and stressed the need for Gulf unity.

So good to see the Saudi Arabia visit with the King and 50 countries already paying off. They said they would take a hard line on funding…

— Donald J. Trump (@realDonaldTrump) 6 June,2017…extremism, and all reference was pointing to Qatar. Perhaps this will be the beginning of the end to the horror of terrorism!

— Donald J. Trump (@realDonaldTrump) 6June,2017

“Strict and firm action will be taken against anyone who shows sympathy or any form of bias towards Qatar, or against anyone who objects to the position of the United Arab Emirates, whether it be through the means of social media, or any type of written, visual or verbal form,” Gulf News quoted UAE Attorney-General Hamad Saif al-Shamsi as saying.

On top of a possible jail term, offenders would also be hit with a fine of at least 500,000 dirhams ($AU180,000), the newspaper said, citing a statement to Arabic-language media.

Since the diplomatic row erupted, slogans against and in support of Qatar have been among the top topics discussed on Twitter in Arabic, which is a hugely popular medium of expression in the Arab world, particularly in Saudi Arabia.

Newspapers and television channels in the region have also been engaged in a war of words over Qatar’s role.

Watch: UAE, Egypt, Saudi cut ties with Qatar

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Report seeks bridge over gender pay gap

A new report has called for a national target to close the gender pay gap and for gender pay equity to be enshrined in workplace laws.

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A Senate inquiry report, tabled in parliament on Wednesday, made nine recommendations – most of which were rejected by government members of the committee.

Committee chair, Labor senator Jenny McAllister, said it was time to do more than just measure the gender pay gap.

“It is time to take action,” she said.

The report found a woman working in a female-dominated industry would, on average, earn almost $40,000 less at total remuneration than the average full-time total remuneration of a man in a male-dominated industry.

“The problem is particularly acute in occupations involving caring, such as childcare, in-home disability, aged care and education, where the nature of the work demands ’emotional labour’,” the report said.

“Whilst these are essential skills for workers in the care economy, they are undervalued in the labour market.”

The report called for the Department of Prime Minister and Cabinet’s office of women to start work on a national policy to achieve gender pay equity.

It should set a target date and roadmap to achieve equity.

As well, the Fair Work Act should be amended to include gender pay equity as an overall object of the Act and the Fair Work Commission provided with guidance on making and applying orders of equal remuneration.

Government senators on the committee gave in-principle support to the idea of reviewing science, technology, engineering and maths programs in schools to improve the number of girls studying in these fields.

They also backed improvements to career guidance for girls.

However they said changing workplace laws were “not only unnecessary, but they are likely to impose additional constraints and burdens on employers, particularly larger employers who already have effective strategies and initiatives in place to promote gender neutral employment practices and greater diversity in their workplaces”.

‘No miscarriage of justice in Obeid trial’

Disgraced former NSW minister Eddie Obeid wasn’t the victim of a miscarriage of justice at his trial for misconduct in public office, says the barrister who prosecuted the case.

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Peter Neil SC told five Appeal Court judges that the experienced defence legal team made tactical decisions, including “not to put Mr Obeid’s neck in a noose” by bringing up the parliamentary code of conduct at his 2016 trial.

Obeid, 73, was jailed for at least three years in December after being found guilty of lobbying a senior public servant in 2007 over lucrative Circular Quay leases without revealing his family’s stake in the outlets.

The former ALP powerbroker has challenged his conviction and sentence in the NSW Court of Criminal Appeal, which reserved its decision on Wednesday after a three-day hearing.

Obeid’s new barrister, Guy Reynolds SC, put forward 13 appeal grounds including that the trial judge made legal errors in his directions to the jury.

He described as “dumbfounding” a failure to have the MPs’ code of conduct put before the jury, saying the code did not outlaw Obeid’s behaviour.

But Mr Neil said the code “was such a danger” to Obeid that “it would come very close on its own to guaranteeing a conviction”.

“If you are going to do that, the Crown submits, you may as well plead guilty,” he said.

“There was no conceivable miscarriage of justice arising out of the fact the code was not introduced.”

Complaints about the trial judge’s directions were “matters of semantics”, he added.

Mr Neil also rejected a claim the issues in Obeid’s case were within the “exclusive cognisance” of the NSW parliament and should not have been determined in the Supreme Court.