Business Now | 9 September

0:00This is Business Now with Edward Boyd. Hi, I'm Welkin of Business Now. Thanks for your company today. I'm Edward Boyd. Coming up on the program, American Business Lobby Groups and the Trump administration have hit back against the ATO's new Royalty's Rule Change, which opens the door to giant US tech companies paying potentially billions of dollars more in taxes, more on this in just a second. Tech Investor and former Shark Tank Judge Steve Baxter's holding Australia's first defense investment conference on the Gold Coast today. He's positive about investing in Aussie defense startups, but says the federal budget's proposed tax change as a hurting sentiment and confidence. Plus, we speak to the chief executive of the Infant Formula Company Bubs, which have been one of the top performers on the share market this week after it's secured approval from US regulators to sell three products in the United States. That's all coming up on today's show.

1:02Let's go straight to that top story. The Trump administration and American lobby groups have hit back against the ATO's new Rule Change, which will treat revenue from cloud computing and streaming services as royalties, subjecting US tech giants plus others to potentially billions of dollars in additional taxes. The Australian Taxation Office announced the change last week, and we covered this on yesterday's show. Now that the ATO has planted this flag in the ground, and it has finalised its ruling, I think the ATO will move to a new phase of audit and compliance action, and ultimately the companies affected by this will have to either go along with the ATO and pay the royalty with holding tax or they'll fight it. And the ATO has already hand in hand with issuing this ruling. The ATO has already put out there a not-too-suttle warning that foreign companies need to be careful how they react to this ruling and restructuring your way out of it is not necessarily an answer.

2:07Overnight, several American lobby groups raise concerns with the tax ruling and White House economic spokesman Kush D. Sy criticized it as well. President Trump is unequivocally worn trading partners against imposing digital services taxes, fines and other forms of extortion on America's leading technology sector. The administration remains committed to raising these issues with our trading partners. He said overnight. President Trump and Prime Minister Anthony Alpinese, you have scheduled to both attend the United Nations General Assembly in New York later this month, although they don't have a formal meeting in the calendar. The two got along very well last year when the PM visited the White House where they discussed critical minerals and reaffirmed the Orcas submarine agreement. Their next meeting might not be as friendly following this crackdown on American tech companies. Public commentary from two Reserve Bank officials yesterday has increased the likelihood of an interest rate rise later this month. Money markets now allocate roughly 75% chance to interest rates being lifted 25 basis points on 29 September.

3:09The change in position is due to sticky inflation, rising oil prices and these comments from RBA Deputy Governor Andrew Hauser, who appeared on the ABC. We have one big problem and that's inflation. Inflation is too high and that's why we raise interest rates three times at the beginning of this year. There are three risks we think that might mean inflation is going up and not down. One is the Middle East and the ongoing crisis there. One is a really unexpected global boom driven by AI and one is the weakness of the supply potential of the Australian economy. The deteriorating property markets, another concern for the RBA with many analysts saying the housing correction is occurring much faster than expected. This morning, Macquarie Bank said it expects national home prices to fall roughly 10%. With Australia's banking sector likely to suffer from poor credit growth and credit quality. HSBC believes property prices will fall 13%, and CBA expects prices to fall 9%,

4:13but with steeper declines in Sydney and Melbourne. Santos Chief Executive Kevin Gallagher addressed the National Press Club in Canberra this afternoon calling on the government to provide stable policies which will give global investors certainty and confidence in Australia as a place to do business. It matters to meet capital for welcome and safe. So the wealth of Australia's energy resources can be unlocked for Australia and the region. This means being able to count on a stable taxation and regulatory regime, timely and workable approvals that can be relied on and rules that don't change after the investments are made. All of the LNG export projects in Australia are joint ventures with investors from Japan, South Korea, Malaysia and China. They are governments count on Australia to be reliable and predictable. Mr Gallagher said the East Coast of Australia requires new gas projects to help shore up supply and reduce prices.

5:17The fact is there has not been enough investment in new gas supply sources on the East Coast for more than a decade. A direct result of moratoriums and bans in New South Wales and Victoria over the last 15 years. Despite strong support from the Mins government, Santos is still trying to get the Narabai gas project approved and developed, spending more than one and a half billion dollars since 2012. On a project that is 100% committed to the domestic market that would alleviate southern shortfalls anticipated beyond 2030. Let's get across today's market moves with the Ingrid Willidge. Ingrid looked like a pretty flat day for shares. It was a bit choppy under the surface. We started in the positive for the market, actually turned into a six week low for the benchmark where it erased early gains. But then came off that just to close ever so slightly down about one tenth of a percent. Now more sectors did finish in the red off the back of losses on Wall Street and also the price of oil.

6:17Of course close to those triple digits. Looking at the best performance though, no surprises then to see oil plays in the top spots today. The price of copper in focus higher for a fourth straight session of the back of tighter supply. Did see Capstone copper rise one of the best performance today up by five and a half percent. And Ostal also watching this stock. It was up at the end of the session by about seven percent after a US based private investment company went head to head with South Korea's Hanwara for control of its US business. For some of the worst performance now on the market supermarket retailer Metcash, it fell today by about 2.7%. As the company warned of challenging conditions ahead, releasing its sales update with a 2.8% rise in total sales for the financial year to date. The banks, including heavyweight CBA, also weaker down by about 2% for the banks or for CBA at least one of the worst performers out of the big four. This is off the back of the rate hike fears and the effect on its bottom line. And Centurio capital we've been hearing about this one this week. It's down by about 3.1% after being exposed of course as a lender to Bathler Group through its subsidiary and its subsequent collapse.

7:26So lots to watch on the markets today, but yeah, pretty flat end for that one. Thanks, Ingrid. After the break, the CEO of ASX listed in for Formula Company. Bubbs Australia Joe Kootz is going to join us to discuss their recent FDA approval in the United States. Hey there, are you enjoying your 30 minutes of daily inspo and just did through your eardrums? But what if I told you you could get a whole years worth of fintech inspiration live? Yep, at Money 2020 the place where money does business. This October in Las Vegas, search Money 2020 to find out more. It's Paul in America, make it count at the Ram Drive-in to Fall Sales event, make it powerful with our strongest Ram 1500 ever, make it move with the Ram Heavy Duty with an available Cummins Diesel and make it go the distance with a 10 year or 100,000 mile powertrain limited warranty. Hurry and now for great deals during the Ram Drive-in to Fall Sales event.

8:26It excludes fully electric vehicles applied to 2026 model year vehicles non transferable, visit MoPAR.com for complete details on a copy of the powertrain limited warranty. Cummins is a registered trademark of Cummins Inc. Ram and Hammer are registered trademarks of FCA, US LLC. Welcome back. Australian Infant Nutrition Company. Bubbs Australia has been one of the top performers on the ASX this week after its secured approval from the US Food and Drug Administration to permanently supply the American Infant Formula market. Here's the share price over the past week. You can see Bubbs is up about 51% one of the top performers. So let's bring in here the Chief Executive of Bubbs Australia, Joe Koot. Joe, thanks for your time. You were already operating in the US. What does this FDA approval mean for you now? Yeah, thanks Ed. It's a transformational milestone for our business, Ed. We have been up in the US for four years, but this now gives us the ability to have absolute confidence to invest, find out brand. Look at options to extend our business into Jason Categories and really invest and grow for the future.

9:30Yeah, how long has it taken you to achieve this approval and just how regimented is the actual assessment process to tick all the boxes with the FDA? Yeah, look, it's been over four years, Ed. It's a very robust process. The US FDA uphold some of the higher standards in the world. So, you know, we're very proud of our Australian farm to Formula Valued Chain. And it's had a lot of scrutiny over that time with the FDA folks. And we're very pleased to say that, you know, that that's now all being approved and secured. And we're looking forward to being a permanent player in the high value US Infant Formula market. Yeah, just talk to us about that farm to Formula Valued Chain. What is it involved? Do you actually own farms yourself? Is there a business or how does it work? No, we, most of our business is actually goat farms. Sorry, is goat milk. We also have bovine or cow. But we contract directly with goat farmers. So, we have goat farmers who we partner with. And they operate, you know, amazingly high quality goat farms here in Victoria.

10:32From there, the product, the liquid product travels into a drying step, the first step of manufacturing. From there, it goes into a secondary step where the powder product goes into a can. And then from there, we ship it off in shipping containers across to the US and to around the world. So, it's a very robust supply chain. Fortunately in Australia, have very high farming manufacturing standards. So, our food quality and safety is recognised by our consumers, not just in the US, but around the world as well. Yeah, just put in perspective for how large the US infant formula market is and the opportunity for you now. Yeah, look, it's a huge market. It's one of the biggest infant formula markets in the world. It's about $6 billion in total. We participate in a sub segment of the total market. We refer to that as the premium natural. So, we're a premium brand. Historically, the market has been dominated by two or three major multinationals. We've come in as a new player. The consumers love our Australianers. They love our clean label attributes.

11:35They love our fact functional benefits, particularly the goat product is gentle on baby's tummy. We often hear from mums that baby sleeps well. And so, it's a great product for the premium natural consumer in the US. They're looking for something a little bit different. They're looking for something that's functional. And our Australianers really helps us with that as well. So, it's a great product that's been received very well by our target consumers in the US. Yeah, I saw in your results recently, US sales were strong and growing. What's your current market share over there? What are the targets you want to get to? Yeah, we're growing rapidly. So, we've been in the market for five years. We've had very strong K-GAR over that period. We hold currently just over 20% of market share in the goat segment. We're about 8% of that premium natural sub-segment. We see a lot more room for growth. We're very focused on growth now. We're in all 50 states. We're in over 10,000 stores. We're available online through Amazon. So, all the consumers in the US can access our products.

12:36And now, for us, it's about activating our brand, getting really good quality, advertising out. So, people know about us and then they can use us. It's a great thing for their families, for the nutrition, future wellbeing of their baby. And, obviously, for us, now invested as we can make a nice return. Yeah, so is the big focus now to just ramp up that investment in the US and brand recognition? Yeah, so, as I said, we've got really great ranging. We're in all 50 states, we're available on Amazon. We have presents in now over 10,000 stores. Some of the great retailers that people might know of, like Walmart and Target. So, yeah, now the focus is to really grow the volume in each of those stores. We do that through providing great product, ensuring that we're on shelf and mum's need us. But also that marketing. So, a lot of our consumers consume a lot of digital. So, a lot of the platforms that we operate on, you know, meta-platforms. But also some of the more contemporary platforms, like TikTok, we actually put in a lot of our advertising through the TikTok platform at the moment.

13:38And some of our consumers are really, you know, connect into those type of digital platforms. And just talk to us about your manufacturing output. Are you at capacity or is there room for plenty of expansion? Yeah, we do have capacity in our facility here in Dandenong in Melbourne. So, yeah, we have some latent capacity. So, we're fortunate is we have this great attribute of this amazing Australian farm to a formula supply chain. But we also have capacity to grow. So, you know, we can deliver some financial leverage through the business as we grow that volume. And we're very fortunate in that regard. The particularly our facility in Dandenong in Melbourne, you know, the folks who visit the site, it's just got such high quality standards, very engaged team. And they produce great, great product that our consumers around the world love. And you mentioned this a second ago. But what is the sort of advantage or the difference with goat milk formula as opposed to regular cows milk? Yeah, like what we hear from our consumers is that they,

14:42that the goat milk is gentle and baby's tummy. So, they tell us it's easier to digest that, yeah, baby can have a better night's sleep. Sometimes babies that don't settle, you know, if they take a goat formula, they settle better than maybe on some other product. So, you know, we hear that consistently. And look, you know, the goat milk and goat formula has been around the world in different markets for many, many years, including Australia. It's a newer product in the US market. There's currently not a US source of infant goat formula. It either comes in from Europe or Australia. So, we're fortunate in that regard. We're viewed as an innovator. But our products are also clean label. It's another thing that they love in the US. Joke. Thank you for your time. I'm sorry. We have run out of time on the show, but thanks for coming on. Thank you. After the break, defense investor Seabax is going to join us from the Gold Coast, where he's been hosting Australia's first defense investment conference. It's fall in America. Make it count at the Ram Drive-In to Fall Sales event.

15:44Make it powerful with our strongest Ram 1500 ever. Make it move with the Ram Heavy Duty with an available Cummins diesel. And make it go the distance with a 10-year or 100,000-mile powertrain limited warranty. Hurry and now for great deals during the Ram Drive-In to Fall Sales event. Excludes fully electric vehicles applied to 2026 model-year vehicles non-transferable. Visit Moapart.com for complete details on a copy of the powertrain limited warranty. Cummins is a registered trademark of Cummins Inc. Ram and Hamier are registered trademarks of FCA-US LLC. Welcome back. Global defense founders have been meeting on the Gold Coast today at Australia's first defense investment conference, which is being hosted by a regular guest of ours, Steve Baxter, from Beaton's own venture partners. The events called Revaly, which is the morning wake-up call that wakes up a military encampment. I spoke to Steve during the lunch break. He says the idea is to wake up Australia's private capital investors and open their eyes to the defense sector. Revaly, it's the call that wakes the camp. We're out to highlight to Australia's defense investment sector that a fence asset class is worthy of taking a look at.

16:44And we're getting together a bunch of US-European venture operators at plus Australians. The demonstrator will be done in respect to the fence asset class. What's the vibe in the room today so far? What are some of the groups that are there that have capital that they're willing to spend? The vibe has been really good. I've been MC to be on a stage. I'm sort of in the thick of it to be quite blunt. We're getting lots of great feedback. The vibe is good. There's been some exceptionally robust conversations around all things defense and investment, as you could imagine. The groups who are here with capital is paying. People have funds. We had on stage roughly about $2 or $3 billion worth of funds under management during our Australian panel, to be honest. We have the US panel on after the break. As soon as I finish here, I go into MC, the US panel. There would be probably twice that available there. I can't speak to them wanting to invest it. I hope they do. There's plenty of firepower. What sort of things do these investors like about Australia that we can offer them here?

17:48Look, I think these investors like anything that will make their money, to be honest. We have amazing... I don't think they're like Australian companies because they're Australian. I think if that's the case, we're fooling ourselves. We think that's the case. We have great companies because they're great companies. We have an amazing environment here with respect to education, with respect to business formation, despite what federal governments are trying to do to that. So we have a pretty good environment, and they come here to find good companies. They don't come here to find Australian companies. You mentioned the federal government. Obviously, some big changes from a tax perspective were announced on federal budget night. What's that done to confidence for the investment sector broadly that you're involved in? It's shattered it, to be honest. I mean, investments are still occurring. It's made us amazingly uncompetitive. It's a terrible way to do business. But fundamentally, I'm taking the view that if it does get implemented past the Taiwan next year, it won't be very long because it'll be that destructive to the community.

18:48They'll understand that very early, and they will change it. It is possibly, if you're at a deliberately harm investors, you do what they did. Yeah, I mean, have you been talking to your peers? What is it, the similar sort of story amongst your peers within the sector and a some thinking about moving that capital elsewhere overseas? If a look at the change, you look at the way they're going to invest. So, yeah, the changes are not, they also disincentivise, or they change the incentives around, whether you actually invest individually, or you invest into a group investment, such as a fund or something similar. So, it changes that, and it gives better outcomes for certain types of investment. We generally don't lead to economy-wide innovative productive outcomes at the same time. So, people will, investors are people, they're not pieces of timber on a chestboard. They will change their behaviour based on circumstances. How that fully matures, and how that fully works itself out. I don't know this yet. Our family is looking at that to understand what we're doing. I'm optimistic that they will wake up and reverse this craziness.

19:49And have those tax changes been spoken about at all today at the conference? No, we're trying to keep a nice positive light to the honesty. And the panels with the head so far, there was probably no end for that, to be honest. So, we may see it a little bit this afternoon, but at this important time, that hasn't been raised. So, the conference is mostly panels. We've had one keynote. And then it's mostly panels. It's about getting people's opinions out there. So, and letting the discussion float. Steve, one of the themes today is the speed of war. Defense procurement can take years, but technology can change it a matter of months. I mean, how do we keep up with this changing tech? Well, we just have to keep up. I mean, how do we do it's interesting? We have to do better than we are. Things have improved. So, we've gone from taking decades to a quiet capability. We're only taking six, seven, eight years. So, you know, not quite a full decade. You are seeing in other jurisdictions, you know, you cranes the exemplar there, where they take many short months, implement changes. The US have now probably gotten down to a couple of short years, which was 10 years until recently.

20:55So, how do we do that? Look, the defense department, it's a big bureaucratic beast. So, they need to do things better. I think they need to start rewarding. So, literally, if you had a program that fails, maybe you could be fine. Maybe even should be demoted. I can't recall the last person, so the Australian Defence Force, who was demoted or fired, because they balls up a program. And you look, some of the biggest investors in Australia are obviously superannuation funds. Do you think they need to spend more money in Australia's defence sector? Yes. Why is it that a superannuation fund will think nothing about funding a data centre of Virginia, but hesitates funding deterrence at home? No, I think they... I did not want to dictate what superannuation funds invest in. However, I think any rules telling them what they can't invest and should be removed. And then if they take a good serious look at the investment landscape, they would have to add the defence asset class to their portfolios. Steve Baxter from Beaton Zone Partners. Thanks so much for coming on the show.

21:55Cheers, Ed. Canada is being ignored by the White House when it comes to trade. The Carney government has launched tariffs of its own against its neighbour, and how the strategy fares could influence how other countries deal with President Donald Trump's trade stance. The U.S. and Canada pushing each other to see who will blink first in an escalating trade war, as Canada announces a new round of tariffs on U.S. goods. We can't let American goods into Canada tear free while they charge our companies to export them. The levees affect hundreds of American products, including cheese. Steel, aluminum, appliances, clothing and farm equipment at rates of 15 to 50%. Prime Minister Bart Carney acknowledged some Canadians could get hit hard, but says the move is necessary to protect his country's future. There's always a cost to action, but it doesn't come close to the cost of standing still. President Trump responding on Truth Social Tuesday with a new threat of his own

22:55to cut off Canadian companies from bidding on U.S. government contracts. He also threatened to stop the sale of Canadian bombardier jets in the U.S. The President claims he has all the leverage. They do 95% of their business with us. So if I say we're not going to trade, that means 95% of their business gets wiped out. The terrified could have a big impact on car prices, because so many auto parts cross the border multiple times during the production. Republicans are split on their support. They have not been a good trading partner, and guess what? Their economy is going to suffer. Canada is a great trading partner. I don't think it does us any good to have a fight with them. And the administration claims they were on the cusp of a new trade deal with Canada weeks ago, but accused the Canadians of walking away from the negotiations. So that's all for today's program. Thanks for your company today. Now it's time for the Ketti Report with Chris Kenny.

24:22The Power Drain Limited Warante. Comment as a registered trade markup.com and say, Ram and Hammy are registered trademarks of FCA, U.S. LLC.