This is Business Weekend with Edward Boyd.

Hello and welcome to Business Weekend.

I'm Edward Boyd.

Coming up.

On Thursday, the Liberal Party formally abandoned their commitment to net zero carbon emissions by twenty fifty.

Now, this decision came after months of infighting and a mammoth party room meeting.

So what does it mean for energy policy in Australia and the outlook for power prices?

Energy experts Saw Cabinich will explain the details to.

Be very clear, net zero twenty fifty is impossible, but we have lots of political targets and ambitions which are impossible.

That there's still nice things to say and the world moves on.

One of Australia's biggest users of gas is the explosives and chemicals maker Ourica.

This week it reported its best earnings results since twenty twelve thanks to strong demand from the gold mining sector.

But CEO Sanjeev Gandhi says Australia should reconsider its commitment to net zero by twenty fifty.

He thinks twenty sixty or even twenty.

Seventy is a more realistic target, So having a hard target of twenty to fifty I don't think that's ready sensible, but continuing on the journey of dicarbonization is exactly that they thing to do.

Plus, two of the market's hottest stocks, the defense business Drone Shields and critical minerals developer iperian X, have both been smashed by investors this month.

We do a dink dive into why these two companies have both been savaged by the market with one of Australia's top fund managers, Steve Johnson from Forager.

It's a much much bigger issue for the retail investors that have followed this.

Bubble and piled lots of money into it.

And later in the program, we'll speak to the CEO of accounting software company zero to cover off its recent profit results and discuss the outlook for Australia's iron ore sector with a credit analyst from S.

And P Global.

But first, billions of dollars were wiped off Australian and US share markets this week after rates trader pushback.

Expectations for interest rate cuts.

The US Federal Reserve was expected to cut next month, but now with an uncertain economic outlook and higher than expected inflation, the chance of a rate cut has fallen below fifty percent.

In Australia, there's only a five percent chance of a rate cut next month, and that's due to the stronger than expected unemployment numbers which were released on Thursday.

Forty two thousand, two hundred jobs were created during October.

That was more than double what the market was expecting.

It pushed the unemployment rate down to four point three percent.

I don't think there's any real serious chance of a rate cut in December.

I still think though, that next year, if inflation after Q three, if inflation comes back towards the middle of the target band, there is a chance for further policy easing next year.

But the RBA is not going to be any rush.

They're going to wait and see.

They were pretty nervous about inflation in Q three.

They're going to wait and see where we go in the end of twenty twenty five early next year before any policy using next year.

The key global event that happened this week was the end the forty three day US government shutdown, the longest in history.

America's debt recently exceeded thirty eight trillion US dollars.

The government now has a line.

Of credit until January thirty after President Trump signed the bill.

It's an honor and out to sign this incredible bill and get our country work in again.

Thanks.

The Liberal Party have officially dubbed their commitment to net zero carbon emissions by twenty fifty.

Former Prime Minister Scott Morrison agreed to it back in twenty twenty one at the kop Climate Conference in Glasgow, but now after the Nationals abandoned net zero earlier this month, the Liberal Party have followed suit.

Leader Susan Lee says her party will focus on cheaper power prices for Australian consumers.

Australians deserve affordable energy and responsible emissions reduction, and the Liberal Party believes we can do both.

So what does this policy shift mean for the energy sector, oil and gas producers and investor confidence.

Let's bring in here Saul Cabinage, the head of Energy research at MST Marquee.

Saul, thanks for your time.

I mean investors want certainty when it comes to energy policy.

Does this just muddy the waters even more.

Well?

The investment certainty and policy certainty that investors have craved has been elusive for over a decade now.

The truth is the ditching of the net zero target is actually the easy part for the Coalition and it opens the door now for development of winning energy policy which would be unencumbered by climate policy concerns.

But the part would actually be what comes next.

Energy is critical not just for our power bills, but for our manufacturing jobs, our critical supply chains, and also having an energy advantage to enable Australia to win in the global AI race, and the policy details to actually deliver that is still something that the Coalition are going to have to formulate and put forward.

It's worth keeping in mind that last decade the Coalition, also unincumbered by net zero target, failed to do many of these things, and so they really are going to have to make the case for why it's going to be different this time and actually provide a little bit more detail around some of their headline announcements.

There you can see, for example, I think Minister Dante has made a good effort to try and get some critical policy into what is ultimately a political announcement here, particularly regarding and having a technology agnostic capacity investment scheme and plan, having greater planning and timelines around call phase out and what's there to replace.

It when that does happen.

Those are some positives, but without the details energy, I'm afraid it is a very detail orientated business.

If you don't get the details right, doesn't matter what your target is in twenty fifty or at any other point for that matter.

Yeah, the Liberals are meant to be meeting with the Nationals today to figure out a new energy policy going forward.

But what should they focus on?

I know, nuclear, with something that was really the focus of the election earlier this year, do they need to get back to that?

I think what would be wise for the coalitions to get back to what the coalition was originally supposed to stand for, which is focus on markets, choosing winners and losers rather than governments, and putting it together frameworks to allow the market investment to work in a private setting rather than the government constantly coming in and intervening every political cycle, which just makes the overall investment climate work.

So to that extent, having a capacity regime, which has been recommended by pretty much every review going back a decade, actually putting something like that in place could be positive, provided as technology agnostic and a market based mechanism, Unlike for example, Labour's capacity investment scheme which has ideologically excluded the lowest cost capacity in many instances, which is gas.

But I think we also need to look up there's some concerning sides of what could come out of coalition policy here, particularly regarding direct action and government support for ccs, where they're replacing what's a market based mechanism in the safeguard policy with more higher cost government directed action which is still a carbon cost it posed directly on tax payers.

And so there's a mixed bag in what they've suggested is going to come out already, but we do need to see more details before we can judge it more fully.

Yeah.

Later on in this program, I'm going to speak to the Chief Executive of Ourica.

They've been awarded more than four hundred million dollars from the government to build a hydrogen hub near Newcastle in New South Wales, but the CEO is yet to make an investment decision on that.

He says it's not economic yet.

Is this kind of one of the policy failures you're hinting at, And.

There's been so many policy failures.

We've lost count our Green Hydrogen Initiative, which is throwing hundreds of millions, actually billions in some cases to waste on things that were impossible from the get gos.

Just one of them a capacity investment scheme announced by Bowen's office, which didn't have the details for a year and now has been picking losers and crowding out winners and excluding things like Ideologically scluding things like gas from the mechanism have been a failure.

The multiple interventions in the East Coast gas market, which the government's own regulatory departments now acknowledge, has resulted in less investment and less gas coming into the market.

These are just a small sample of some of the failings we've seen over the last few years.

I mean, the.

Challenge for the coalition is to actually come up with something better.

And again, when we focus on a Net's zero target twenty fifty, which on our estimates could cost the Australian economy upwards of one trillion dollars, it's all very well and good to say, well, we're going to remove that target, but the truth is no one who's currently in political office is going to be held account for what happens in twenty fifty.

What Australians need to know is what's the policy you're put in place for the next five years, which is going to bring our energy advantage back, bring our jobs back, make us win in reindustrialization, critical supply chains and the AI race.

And that's something that we need to see tangible, concrete policy on now and not so much of a focus on what a political target is in twenty fifty, which is probably impossible to achieve anyway.

Yeah, I was going to ask you as a side note, is it actually realistic or is it achievable?

Net zero by twenty fifty.

To be very clear, net zero twenty fifty is impossible, But we have lots of political targets and ambitions which are impossible.

There's still nice things to say, and the world moves on, and I really think there's been you know, see the Coalition tear themselves apart over this issue when what most is most important to Australia's economic advantage, national security and people at home is what's going to happen in the next few years, right, So we need to have a plan for what is going to re energize Australia's industrial base, bring down power prices and create a situation of energy abundance again.

And a target in twenty fifty has no bearing on that if it's not accompanied by clear, concrete policy which is going to have an impact now.

And really quickly.

Does that include projects that are stored like Narrabrian New South Wales.

Well, I think one of the most critically important elements of any policy is going to be our approval's landscape, where we have to become a nation of go instead of no.

It's that we've seen our regulatory departments.

Things that used to take two months to be proved are now taking years.

There's too much inertia and hostility within government to get things going again, and we need to see approvals, not just like projects like Narra Bright, but across the board gas, call power and wires, renewables, you name it.

We need to be able to actually build and do things again and stop just saying no to things.

That regulatory balance between facilitating investment and regulating it needs to come back to a sensible center.

We're too focused on regulation and stopping things these days.

Saul Kabinich, great to have you on the show.

Thank you.

One company which aspires to reach net zero emissions by twenty fifty is the explosives and chemical manufacturer Urica, but its CEO Sanji Gandhi is realistic about the target.

He thinks it's a great aspiration, but says it's based on technologies which do not exist yet.

Ourica is attempting to find an economic partner for its hydrogen project located at kurr Gang Island in New South Wales.

Despite being granted more four hundred million dollars in funding for the project, Ourica is yet to make a final investment decision.

I spoke to mister Gandhi earlier this week about net zero Hydrogen and Ourica's record profit results, which were partly due to strong demand from gold miners for the chemical sodium cyanide.

It's been a positive macro as you can imagine, more the demand, higher the prizing.

They need more services from Urica and we are happy to serve the gold industry.

So it's been good times.

Your results mentioned strong demand for premium products.

Just talk us through what those premium products are and who's buying them out there.

So you see the macros in the resource industry are such that there's a good demand, there's not enough supply and the reason is clear because this industry is underinvested in developing new resources.

And investing in exploration in getting new products into the market.

Supply on the other hand, Demand, on the other hand, is consistent, it's growing.

It's driven by macros like dicarbanization, like the demand for data centers, copper power transmission.

Gold obviously as a as a safe.

Haven, and there's just not enough supply, so prices are going up and customers are looking for three things.

They're looking for productivity, so they want to produce more with what they have.

They're looking for cost efficiency because obviously everybody suffers.

From inflation today.

And then they're looking for a license to operate ESG, safety, value propositions and the other stuff around that.

And that's what Urica does.

That's where we play.

So we've got these special products and services, customize for a commodity, customized for a type of mind, customized for the nature of mining, which can help them to improve all three productivity costs and ESG and obviously these products come at a premium and we've seen a very strong uptake of those products and services from US.

Yeah, earnings from your Australian and Asia specific division up twenty three percent during the year.

I mean, how tough has it been for you.

Keeping costs down over the past twelve.

Months extremely challenging.

And this is not just a twelve months store.

It's been a story over the last five years.

We are struggling with inflation.

We're struggling with higher energy costs, higher gas costs, higher labor costs.

We've got inflation through every component that we consume and we offer to our customers.

And you have to manage to mitigate that inflation, manage those increasing costs, and then still grow your earnings and provide the best services you can to your customers.

And that's not an easy game.

So it's been a real challenge for us, as it is for every industry in this country.

All right.

You've also got divisions in other parts of the world, particularly you know, North America.

I think we spoke previously about Trump as the new president last year, the drill Baby, drill mantra.

I mean, how have business conditions been in the United States compared to Australia.

Well, my sentiment is the same.

I'm very optimistic and bullish in the United States.

Now.

Obviously, this government shut down has put us back a little bit because a lot of these federal policies, the funding has not yet flown through, so waiting for it to come through so that it translates into better business for us.

But the signs are great, right, There's a lot of support for the oil and gas industry in the US.

The US has got one of the lowest energy prices in the world, which is extremely attractive for heavy manufacturers like Aurica.

They've got a lot of resources, They've got a lot of copp.

And gold, and you know, we made investments in the US.

We've made the acquisition for sodium cyanide in the US, so we're playing in.

The sweet spot here.

We are a market leader there, so we're just looking forward to that demand taking off so that we could benefit and continue to serve our customers in the United States.

But would you say business conditions in America have improved over the past couple of years.

Sentiment has improved, permitting processes have improved.

We still struggle with a few things.

We struggled with labor availability.

For example, it's quite expensive to hire people and mining is a very labor intensive industry.

So you know, even getting basic facilities like good drivers, you know, to ferry your products to and fro from mind sights is not easy and it's expensive to get so labor productivity is a bit of a challenge there, and labor availability now.

The crackdown on immigration obviously is not helping because even the US as a destination now to bring in people is not that attractive anymore given the new policies there.

So that's the challenge that we have to manage.

But overall sentiment is positive and it continues to improve there.

Okay.

In Australia, the big political issue this week's been the Liberal Party abandoning their commitment to net zero by twenty fifty.

I mean, what's your reaction to that?

Knowing the Albanesi government is still committed to net zero by twenty fifty.

I look into the nuances of this decision and I think it's all about supporting Australia in the end.

It's about supporting manufacturing in Australia.

It's about managing a transition which is difficult, which especially in industries like Urica's a hard to abate industry.

It's expensive to a bit and it's not a linear a journey there.

So I think the intention there is to defend and protect manufacturing in the country.

The intention is good.

But Ourica will do what Orica does, which is good for the environment, which is good for our shareholders and our customers.

We've started on the decarbonization journey much before regulations came into Australia, so in twenty sixteen, seventeen eighteen, and then we had the safeguard mechanism that basically hard lines for the top two hundred and fifteen emeters in Australia, one of them being Aurica that we have to reduce our carbon emissions by five percent from twenty twenty nine.

Now we are an early starter.

We've invested more than one hundred million in decarbonizing our assets in New South Wales as well as in Queensland.

We are generating a lot of carbon credits which was part of the business case, and we are banking them at the moment because as the safeguard mechanism.

Hits, we would be below the threshold.

And we will avoid penalties and we will keep those carbon credits basically in future to protect us from any penalties.

So we are a front mover.

What industry does not really like is policy changing.

We don't like the goalpost moving and shifting all the time.

Because my investments have a lifetime of twenty thirty, forty, even fifty years, so we are aiming for decarbonization.

I don't think having twenty fifty as a heart target is a very sensible thing to do because it's a long long way away, and industries like ours who are hard to decarbonize, we are depending on technologies that are not yet commercial on the outer edge of this journey.

So those technologies have.

To become commercial, they have to become viable, they have to become feasible, and then we have to deploy them so that we can end with net zero.

That may not necessarily happen in twenty fifty.

If I look at major economies like China and India, they've taken a more pragmatic approach, so for example, they're talking about twenty sixty even twenty seventy.

I think that's a bit more realistic now.

So having a hard target of twenty fifty, I don't think that's very sensible.

But continuing on the journey of decarbonization is exactly the right thing to do, and Orica will not stop there.

Yeah, you talk about decarbonization.

Several months ago, you rewarded more than four hundred and thirty million dollars in funding to support the Hunter Valley hydrogen projects.

I mean, what have you been spending that money on.

How's it been going.

We haven't spent a single cent there so far.

What we have told the market and our commitment to the government is that in the first half of twenty twenty six we would like to get final investment decision from my board and then we'd like to start building this asset.

At the moment, we are looking to find a partner, a joint venture partner who will bring in obviously the capital that we need, share in the risks and the opportunities with us, but will also bring in renewable energy because one of the major factors to make a green hydrogen manufacturing facility successful is cost competitive renewable energy.

So we've been talking to global renewable energy supplies, big names in the world, also in Australia, and we've asked whether any of them would be.

Interested to join us.

There's been a lot of interest because we've got funding.

Ours is the most feasible project to be realized in this country and our partners realize that.

So we are in the process of shortlisting and negotiating with partners.

As soon as we finalize a joint venture partner, the next step would we go to our respective boards, get the final approvals and then start construction.

My expectation is in twenty twenty eight we should have the first green molecules of hydrogen produce in the Hunter Valley.

That's our plan, and you mentioned boards.

Next month the annual general meeting.

Vic ban Cell's going to become sham and what's it going to be like having him as the new chair of Oorica?

Exciting.

Look, I'm going to miss Malcolm because Malcolm brought me into Urica.

Malcolm brought me into the country.

Malcolm rummed and after a wonderful successful tenure tenure, he will retire and Vic comes on board.

It's quite interesting because we know Vi Vi Borrel has been a big good customer of Orica and Vic is a.

P and L guy.

He's run big businesses.

He's got global experience and that's what Orica is.

We have a global company.

We operate in more than one hundred countries.

We are very international.

We've got sophisticated and manufacturing a lot of technology.

And Vic is absolutely the right successor.

But to qualify that he has big boots to fill.

Sanji gandhis chief executive Oorica.

Great to have you on.

The show, pleasure ed, thank you for having me.

Coming up after the break, will you do a dick dive into what has gone wrong at the market Darling's, drone Shield and ipurian X with leading fund manager Steve Johnson from Forager Plus.

We'll speak to the CEO of New Zealand's biggest company by market cap, the accounting software firm Zero, about its growth, aspirations and its takeover of the payroll business Miglio.

Welcome back.

Drone Shield has been one of the hottest meme stocks on the market this year, rising about seven hundred percent from January until its peak in early October.

The small cap stock became so big it cracked the ASX two hundred, attracting passive investors, which pushed the price up even more.

But then fundies began to sell out, questioning its high valuation.

The CEO, chairman, and a board member all dumped almost seventy million dollars of stock just this week, triggering a huge sell off.

So what's happened at drone Shield and other growth stocks like iperian X.

I spoke to Steve Johnson, the chief investment officer at Forager Funds Management, a little earlier.

Yeah, I think the most recent rationale is some very very significant insider selling.

They'd only just been given these shares for meeting some targets and sold more than sixty million dollars worth of shares over the course of the past week.

So that's the immediate course concern for concern.

Look, I'd say more broadly, Drone shield is one of quite a few stocks that I would call being in a meme bubble where they were very, very overinflated in terms of their prices, and it had started unraveling even before this latest meltdown over the past week.

Yeah.

And when a company is in a meme bubble and they for example with Drone Shields case it got into the ASX two hundred, then there's all this additional passive money that goes in and the cycle kind of continues and it seems to just push prices up higher and higher.

Yeah, it's been a huge factor over the past few years.

And it's not just index funds anymore.

You've Australia's big super funds who behave just like the index funds.

They're all trying to hug the index as well.

So they can't afford not to own one of these companies once it goes into the ASX two hundred, I think in terms of the performance of those index funds and the super funds, though, these companies go in at a very very small waiting So it's not great for those funds that these companies come in.

They have to buy them and then they blow up and go back out, but it's fairly fairly minuscule in terms of the portfolio waitings that they go in at.

It's a much much bigger issue for the retail investors that have followed this bubble and piled lots of money into it.

Drone Shield was the second most traded stock on the ASX yesterday, behind the CBA.

It's an extraordinary amount of volume that's going through in a company that has a fairly small amount of revenue and I would say is a small business with a huge.

Amount of retail interest in it.

Yeah, it is a small business, and it's one of those interesting companies on the market where the founder is the chief executive.

It's sort of surprising to me at least seeing the CEO sell all of the shares that he owns in the business and just now has performance rights and options, it sort of seems like he doesn't maybe have confidence in his own company.

Well, there's the company and the share price there, and I can tell you that if I was here, W'd be selling every single share in it as well.

That this company has just the share price is up so much, and I think everyone you know, I'm a bit more skeptical I guess about the world than a lot of other people.

I just look at it.

This guy's gone.

There's fifty million dollars on the table here.

This is a life changing amount of money.

They've done a really, really good job of putting out all of these pretty promotional announcements and getting the share price up.

And the fact that people are surprised that they want to cash in on that's that's the one thing that surprised me about it all.

I think with most of these really promotional stocks, the people that are behind it are looking to take money out of the situation at some point in time.

That's why they want to push the share price up as high as they possibly can.

So sorry, I'm a very skeptical person.

I've seen this so many times.

I'm not the slightest bit surprised about them taking all the money off the table.

Yeah, I mean, if you do it analysis.

Looking at Drone Shields ASEX releases going back the past twelve months or so, virtually every time they put out a release announcing a new contract or a new deal with a customer overseas, the share price would spike five, sometimes ten percent, but actually slipped up a few days ago.

They put out a release announcing a contract, but they'd actually already announced it back in September, so they had to withdraw an AX announcement.

That's something that I haven't seen on the market very often at all.

No, I haven't seen that particular case either, But I wrote this in an article recently for people on LiveWire dot com that we used to have an ASX listed vehicle, and we can literally sit there and write an AX announcement and you release it to the ASX and it goes up.

People need to understand how easy it is for someone to actually just type those words into a computer, print to PDF, send it to the AX and it goes up on the AX.

So those words are a lot easier to write than it is to actually generate revenue and profitability for a company.

And the one thing I'll say about Droneshield, I'd say it's actually better than some of the other meme stocks out there, like iperid X, because it does at least have revenue, and these contracts seem to be contracts that actually turn up as cash in the bank at some point down the track.

There are other companies that are even better at making announcements and not having any revenue to back it up.

Yeah, you mentioned iperiod X, obviously a critical mineral stock looking at developing projects overseas.

Clearly there's been a lot of invest to focus this year as well on that critical mineral sector, as we've seen the trade war basically between China and the United States and Donald Trump talking about it and having out then they Alberonisi in the Oval Office a few weeks ago.

What's that done with IPI in x's share price?

Yeah.

I think whether it's defense or whether it's critical mineral we are in a very momentum theme driven market and have been for the past eighteen months really so, especially on the AX.

I think there's a limited number of ways that people can play the theme that they want to play.

And now we've also got these thematic specific ETFs that will own on the ASX at least a very limited number of stocks.

So it's not just people buying a particular company, it's people buying a thematic ETF that then goes and buys the shares in the individual company.

So in this particular case, again like Drone Shield, the defense theme is real, the critical minerals theme is real.

My personal opinion, Trump's playing us a bit as a patsy.

We're being used as a negotiating tactic with the Chinese to try and get the Chinese to not limit their own exporter of critical minerals, and that is probably going to happen.

But the theme is real.

The world is going to need more of these things, and companies that do a good job of capitalizing on that probably deserves to trade at a higher price given the demand environment than you would have said five or six years go.

As soon as there is one of these themes though that is popular, you are going to get these companies that are just trying to capitalize on the momentum and the somatic, and you need to perform an analysis of whether there's something real behind the business and my personal opinion and this is just an opinion.

In hyperian Ex's case, there's been a lot of announcements.

Its last quarterly update was zero dollars of revenue, and if you look back three years ago, the announcements were saying we're going to have revenue in twenty twenty four, We're gonna have revenue in twenty twenty five.

We still haven't seen a dollar pretty much of revenue.

So that is one where I think you really need to start demanding evidence from this company that the promotional announcements that they've made can be backed up with some real ordered to financial accounts, which is a bit old school, but that's the thing that I look for.

Well, that's good because there's been a couple other sell offs this week between Life three sixty and Catapult, but those are two businesses that are reporting revenue.

It just seems like they're caught up in this big tech sell off at the moment.

Yeah, there's a general theme I think of some of the things that have worked really well unraveling over the past couple of weeks.

That's been true in the US, it's true here in Australia as well.

But I think there's a really clear distinction between the businesses where there's not much behind them and businesses like Catapult and three sixty, where there's a lot of revenue, there's improving profitability and margins, there's cash flow starting to come in.

They are both businesses that I would like to own at the right price, and in fact we did own Catapult for most of the past four years, really from twenty twenty two right through two months ago.

It's a fantastic business.

I think it's got a lot of growth ahead of it.

But the share price went from seventy five cents just three years ago to seven dollars fifty so it was up ten times over a pretty short period of time, and that was on the back of growing revenue and growing profitability, but it wasn't actually any more than we had anticipated when we first bought the stock.

So I think, alongside is it a good business and is it a good story, you do need to look at the share price and say, well, what is this share price and valuation implying about how much it has.

To grow into the future.

And I think both of those companies the share price just got ahead of the fundamentals, and one of two things can happen.

Either the share price comes back a long way and it becomes attractive again, or at trade sideways for a long period of time while the fundamentals catch up with where the share price is at.

But neither of those flaky businesses.

They are real, real buzzy success stories that have got some global growth ahead of them, and we don't have a lot of that on the ASEX.

I'd be more wary about shorting some of those than I would some of these businesses that are much flaky er business models.

Steve Johnson from Forager Funds, Great to have you on the show.

I really appreciate it.

Thanks ed, good to be here.

Accounting software company Zero is used by small and medium sized businesses all over the world.

This week, it reported a fort increase in full year profit off the back of a twenty percent jump in revenue.

For many years, Zero has been focused on adding more small business customers to its platform, but now since acquiring the US accounts payable company Milio for about two and a half billion US dollars in June, it's shifting towards higher value targets.

Ross Greenwood spoke to Zero chief executive Sekinder Sincassidy earlier this week and started by asking her whether Zero can be an Australian and New Zealand based business long term.

Oh, it absolutely is.

I mean, remember, we have a large portfolio of markets, and although the US represents a large growth opportunity, we love that diversified revenue base that comes from having a flagged flagship market in Australia and New Zealand and then obviously very high growth opportunity still in the UK, very high growth rest of world.

So we really do see it as a portfolio of markets, even though of course we believe that the US has a bigger opportunity to play in that portfolio.

Okay, because it strikes me that trying to get access to coders, trying to get access to cheaper tax rights, trying to get access to deeper pools of capital, they're all there in the United States, and I might not be in the same proportion here and in New Zealand.

You know, I would argue that we have access to plenty of capital here on the ASX.

If you look at what we achieved with the financing of Emilio acquisition.

I think we have a very large shareholder base, lots of access to capital.

I think your point about access to talent for areas like AI and so on.

Of course, we will tap into Silicon Valley as we need to.

But one of the things that's most attractive about zero, believe it or not, is its global scale, and we find that that's very attractive to candidates, including candidates in the United States.

Okay, so you mentioned artificial intelligence, a generative artificial intelligence.

You're running running down that path very rapidly.

My questionnaire is whether it's a disruptor to your business or whether it's an opportunity.

Well, you know, of course we think because we're a system of record company that deals in complex workflows for small businesses and accounts and book keepers that they always want to be easier.

AI is a net opportunity.

Why because it gives them back hours of productivity.

I mean, historically software like hours would not only hold your financial data, but it would assist you in doing the job.

Now with AI, the job can be done on your behalf.

A good example is bank reconciliation.

Right in bankrec we are going from assisting you in you doing it yourself to now a leap of a leap with gender to AI, where now we can auto reconcile on your behalf.

So if you think about the amount of time savings and intelligence we can give them a platform, it for sure expands the pool of tam we think in our market size and opportunity now we would be I would say, like any company in this era, as a technology company, I think we would be silly not to be paranoid about the disruptive potential of the technology.

But we think zero can be a winner because of what AI does to expand the value we create for our custs.

Okay, then the other thing I wanted to talk to you about is I can see growth now out of getting more subscribers in the United States, adding on additional services that eyes a small business medium sized business owner will pay for.

I can see that you can potentially get some efficiencies out of generative AI that could.

Cut your costs a little bit.

But it seems to be like your administrative costs were up quite sharply in the past year.

But unlike banks which didn't have much you know, sort of top line growth, you had strong sales growth during that period of time, But is there a moment in the future at which you've really got to start to look and rethink where your growth opportunities come from.

You know, I think we believe we have plenty of TAM.

When we did our investor day, we talked about one hundred billion dollars in TAM in the jobs we do for small businesses and the markets we serve.

So I don't think we think we're running out of TAM.

Now, you noted the very important thing, which is the expansion of not just subscribers, but penetration of our subscribers with new services, the ability to expand up into that larger small business segment.

So when we look at all of the places to grow from the segments we serve and the services we can provide, in addition to the subscriber growth and the relatively low penetration of cloud based services, you know, in the spaces we play for small businesses, we're not really worried about the available TAMP for quite a few years to come.

Okay, So is it also true that as a small business owner, if I am using your system, it's a big jump for me to try to move to another system.

In other words, what You've got me with a price point, an inflection point that's good for me.

I'm happiest staying there than perhaps shopping around going somewhere else.

Do you sense that in your custom advice?

Well, look, we historically are what we call a resilient business with low churn because our customers are trusting us with their financial data.

So I think it's important to recognize as a system of record, you both have a big opportunity to serve customers.

And yes, I don't think they like to move their data around easily, But I don't think you should ever take that for granted.

I think your job is to continue to give them more and more value on top of that core data that they trust you with.

Our job is to give them insight.

On top of that data.

It's to give them accounting services, tax services, payment payroll services on top of that trusted position.

So I don't think you ever want to take that for granted.

So the thing that also struck me about your results is that the average revenue per user is relatively low.

It's not massive, and so surely you would think that these growth opportunities there is that by adding more businesses, or is it simply by rising process eventually.

Well interesting, it's about adding more services and functionality.

So if you think about average revenue per user, which I noted is relatively low, there are high value jobs like payments and payroll.

When you add those jobs, the ARPOO of those individual jobs is often bigger than the size of the accounting job.

In some of the markets we serve, so, particularly as an example the US.

Almost everywhere in the world, payroll is a very highly valued job, and it's even more value when you're talking about small businesses let's say, with let's say more than twenty employees.

So I again I come back to this idea that there is plenty of ARPOO value like value in how you monetize these jobs, because they are very valuable to our customer.

So although our POO is relatively low today, you'll notice that we over the last three years have been steadily you know, I would say, realizing more value from our customers by giving them more value in some of these services.

And just on the United States, can I just ask you about tariffs and where they see it?

Quite clearly, a lot of companies have obviated tariffs by having operations in the United States, you have got operations, it's relatively small compared with what you're developing in Australia and New Zealand.

Is it a point that you may need to defend your revenues and your bottom line in the future by having more operations in the United States?

You know, right now, if you look at tariffs, they've been very much focused on goods based businesses, you know, teriffs so do not apply to digital services like ours.

So I think that's not really something we have in our consideration set.

Of course, we have operations around the world, but this is less driven by tariffs.

It's more driven by where we have access to talent and of course the markets that we serve.

We often have employees in the markets that we serve as well, so I think that's really what drives our location strategy.

And just the final one before you get very rich data general data about the health and the state of small business in particular in different countries.

Quite clearly right.

Now the outcomes in the United States seem quite different to what they are in Europe or to what they are in Australia.

What's your own sense about the pecking order of the world in terms of economic growth and the health of those companies.

Well, it's interesting, you're right that we have our own data sets and we create a report called XSBI that gives us a macro view of the markets in which we operate.

What we see in Australian New zeal And, believe it or not, it's a modest recovery.

We see some increases in sales by small businesses year over year.

It's a little bit more pronounced in Australia, but even in New Zealand we see slate modest signs of recovery.

In the UK you actually see the UK holding relatively steady when it comes to small business sales from our data.

And then in the United States we haven't done our most recent survey yet, but what we see from the National Federation of Businesses is the Small Business Optimism Index remains near all time highs despite TIFFs and uncertainty, which I think is interesting in and of itself.

I'll tell you well see kind sincassidy.

It's always great to chat to you gets your insight from here and around the world, and many thanks for your time today.

Thanks so much for us after the break Australia's I and all mind as it starting to diversify their businesses in the face of falling demand from China.

Richard Creed from S and P Global is up next, Welcome back.

Global steel production is edging lower, partly due to weakening demand from the iron ore hungry China.

Despite the fall in output, the major iron ore producers are increasing production, which will weigh on the commodity price and the federal budget.

The big companies like BHP, Rio and Fortesque are starting to diversify their production ahead of this structural shift in.

The commodity markets.

For more on this, I'm joined by Richard Creed, credit analyst at S and P Global.

Richard, thanks for your time.

Just want to start with that diversification strategy that the big iron ore miners are on.

What are they doing to diversify their businesses?

Thanks Ed.

What we're seeing is that after many years of iron ore powering their earnings, they're looking to diversify as steel product in China is basically plateau.

So when they're looking for growth, they're now in their case of the integrated miners, they're pivoting towards commodities that will benefit from the energy transition, such as copper.

In the case of Fortescu, they're pursuing a decarbonization strategy to make their output more attractive to the Chinese steel mills who are also seeking to decarbonize.

Yeah, I've looked at your report and it does show steel output falling from China but picking up from some other places like India.

But is they're going to be emerging economies like India that will be able to pick up the slack or is the sort of the iron or boob now really coming to a big end.

Well, it's really really plateauing, we think.

So China accounts for more than half global steel production, so even though emerging economies like India are increasing their production, it's really a fraction of what China does.

So China produces over a bit million tons of steel and India is looking to grow to one forty to one fifty million tons, so it's just over really ten to fifteen percent of China producers.

So what China does will drive steel production and will drive the iron ore demand.

And what of the big changes that have been happening in the China economy over the past couple of years that are causing this plateau in demand for steel?

Sure?

Well, if you go back to twenty twenty two, you can see that housing demand was for about three hundred million tons of steel consumption.

Now our SMP Global Market Intelligence business is projecting that next year that demand will fall to about two hundred million tons, So it's quite a fall and that's really driven in the softness of the housing sector in China, which we expect will continue giving the demographic trends in that sort of country.

So all in all, we think that the Chinese steel production is likely to begin to edge down over the rest of the decade.

It will still be quite material, and so the demand will for iron ore will be material, and so iron ore will be a very important part of these businesses going forward.

But it's really about looking for growth and diversification for these businesses to keep them to keep their earnings stable as they fund that diversification strategy.

Yeah, I remember at profit reporting season in August, a couple of the iron ore miners here on the ASX talked about this new big hydro electric dam project that China were going to start building in Tibet, and they were suggesting that would be a really big, great driver for steel production over the next decade.

Or so, yeah, we think so too.

That could well be a demand pull through piece.

But you have to remember that that's just one part of demand for steel in a very large economy.

So even so, wider trends like what's happening in the housing market and just more broadly infrastructure spending and the ability of China to continue to push steel into finished products, particularly autos and the like, and it's currently exporting one hundred million tons a year, So all those trends and what happens in those segments of the market will be at least as important as big new infrastructure projects as well.

All right, So where do you see id or prices going long term?

That's the that's the tricky question.

So we don't generally, for our credit ratings try and project the prices.

Exactly.

What we do is.

We try and triangulate around what looks like a reasonable assumption for our credit ratings when we determine our credit metrics.

And at the moment, we see about ninety dollars for next year being an appropriate assumption reflecting that softening of the Chinese economy and the demand for steel in the housing sector.

So you know, and that compares at the moment to the current price of about one hundred just over one hundred dollars, and over the last twelve months it's really ranged between ninety five and one hundred and five dollars, So not a huge change at the moment, just really edging down for the near term.

In the longer term, some of those structural trends about increasing supply from the majors, what happens to Chinese demand and also the decard strategy in China will also play a part in the demand for iron ore and the sort of aw type that they're looking for.

Yeah, and obviously we've just seen the Simando project in Guinea has had a big opening ceremony just recently.

That's a huge additional part of supply going to the iron or market at a time where the other ironre miners are boosting production as well.

I saw in your report Varallet and Brazil are looking to really put up as well.

So cout prices potentially go down even more in the future with a bit of a supply glut potentially happening.

Yeah, that's absolutely a risk.

So we see Simon Do at full production being about one hundred and twenty million tons by the end of the decade, so that really could cause a structural change in the market at the margin and cause prices to edge down.

And if indeed that was to happen, then that those iron or producers that are higher cost, that are smaller, they may well face the full brunt of those structural changes.

It's important to recognize though, that the major iron ore producers are pretty low cost, so even if prices materially move down, they will still be profitable, just that they won't make as much money.

There could well be a structural change in the industry that the smaller produces more exposed to, and those that have got a lot of leverage and a lot of debt they are probably the most exposed.

So we would expect lenders to be having a careful look at their portfolios and who they've got exposure to over the coming years.

Richie Creed, Credit analystid S and Plea Global.

Great to have you on the show, Manie, thanks for having me, and that's all.

For the show.

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