Every year The Australian’s John Durie asks some of the biggest names in Australian business five key questions about what’s coming in the year ahead.
Here, in his own words, is what Dulux’s Patrick Houlihan sees ahead in 2020.
Read more from the CEO Survey.
How is your company affected by low-interest rates and what is needed to boost the economy
The signs are mixed. Following a period of rapid increases and then an inevitable re-correction in the prices of Australia’s 10 million existing homes (DuluxGroup’s primary renovation market) we are now seeing the recent upturn in house prices, clearance rates and listings as a positive. Interest rates alone are not a primary driver of this but are combined with other factors which underpin GDP and ultimately consumer confidence and spending. We are seeing consistent growth in smaller, lower value renovation tasks such as painting and repairing. However, more structural and costly renovation activity remains more subdued. The terrible effects of the early hot weather, drought, water restrictions and fires in New South Wales and Queensland are adversely overlayed on this.
Interest rates have a more direct impact on the construction of new home dwellings, which is a far lesser market exposure for us. This sector has been extremely volatile, with extremely high levels of multi-residential construction now undergoing a significant correction.
Monetary and fiscal stimulus remains important levers, but we also need structural reform that addresses productivity and unnecessary regulation, to stimulate business investment and maintain our global competitiveness.
What is the impact of government regulations on your company, including those applying to the financial sector?
Government regulation remains essential to ensuring ethical, safety, quality and competition outcomes while continuing efficient and globally competitive. The challenge for Australia is how to achieve this in the context of 25 million people being governed both federally and by the states and territories, where duplication remains a key issue. The challenge is for these representative bodies to increasingly come together as “one” (e.g. COAG) in the interests of standards and competitiveness.
What percentage of company revenues are spent on research and development, and how is your company using technology to improve performance?
Consistent with the global operating model for paint marketing and manufacturing, 1-2 per cent of revenue is spent on R&D. Ultimately this is a proven model which is creating jobs and flowing through to new investment here in Australia – for example, science and marketing innovation ultimately led to us investing $165m in our new multi-decade world-class decorative paint factory in Melbourne. The federal government has persisted with a Bill that introduces an R&D tax intensity threshold (R&D as a percentage of total operating costs), which unfairly disadvantages Australian companies that manufacture and employ here (given the materiality of the cost of raw materials, factories, energy). This is despite the Senate Economics Committee led by Liberal Senator Jane Hume recommending against this.
What are the three major policy issues facing the country and what should be done about them?
1. Maintaining a fair society - with a reasonable safety net for those people in need, where we support and care for our elderly and disadvantaged and focus on equality of opportunity
2. Global competitiveness and investing for the future – particularly in education and training to ensure we have the skills to compete.
3. Continuing to reduce the cost of doing business – balancing appropriate regulation, reducing overlapping federal and state government duplication, addressing excessive energy costs, etc.
What are the major impediments to long-term growth facing your company and what can or is being done about them?
DuluxGroup was recently acquired by Nippon Paint, the largest paint company in Asia Pacific and fourth-largest globally. Despite DuluxGroup having a multi-decade track record of market outperformance in Australia’s low growth environment, we can now complement this with longer-term thinking, significantly increased scale, access to lower cost of funds and entry to the Asia geographic footprint. This is the reality of an increasingly global marketplace and competition. Australia should continue to reflect on the implications of this globalisation and consolidation alongside a traditionally local market lens.
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