CORPORATE AUSTRALIA & THE QLD FLOOD CRISIS: WHO WILL SINK & WHO WILL SWIM?

Updated November 12th 2013

There has been a lot of media attention on the Queensland floods, Victoria floods, and on Cyclone Yasi in recent times. Whilst Cyclone Yasi and the Victorian Floods certainly wreaked havoc in pockets of the country, it was the Queensland floods that will have the most devastating and long-lasting economic impact.

We know that many thousands of homes were lost or damaged in the Brisbane, Ipswich, and Toowoomba regions – however for investors, it is the flow-on impact to businesses that draws a greater focus. Many companies suffered structural and equipment damage, many others will have lost revenue that they will not be able to recover, and the flow-on effect continues almost immeasurably throughout the economy.

Some of the most negatively impacted sectors include (Note: The figures below are preliminary estimates only):

Agricultural producers and their suppliers (fertilisers, supplies).

Sector revenue losses of up to $1.6billion with the following industries affected:

  • Vegetable growing, lost revenue of $271million;
  • Citrus, Banana and fruit growing, lost revenue of $289million;
  • Grain growing, lost revenue of $400million;
  • Sugarcane growing, lost revenue of $400million; and
  • Cotton growing, lost revenue of $257million.

Mining (coal companies in several QLD basins) and of course the related port facilities companies.

  • Sector revenue forecast to be $2.5billion weaker;
  • Mine closures, production halts and disruptions to rail are expected to flow through to mining contractors.
  • As commodity prices rise, coal companies not in QLD with spot pricing would benefit.

Infrastructure companies

  • Sector will experience a brief lapse in activity followed by a mini boom with an injection of $10 billion over the next 30 months when the re-building phase commences;
  • Work has stopped on over $5billion worth of contracts but much of construction had already been halted due to ordinary rains in January and February.

Transport

  • Sector is likely to lose $500million, however, this could more than double depending on the length of time that it takes to get back to normal production
  • Over 100 ships are waiting to be loaded with coal, and port operators forecasting a turnaround of 22 days;
  • The repair bill for rail tracks could be over $1billion.

Insurance

  • Suncorp & IAG are the major players, but both have reinsured most of their exposure;
  • Exposure is materially reduced by the policy holders that do not have flood cover;
  • Suncorp’s exposure is limited to around $200million including the inland flooding in mid December;
  • IAG’s exposure is limited to around $150million including the inland flooding in mid December;
  • All together it is expected that insurance companies will pay out $500million in claims to these regions.

Tourism

  • This sector is already suffering from the high Australian dollar;
  • Many cancellations of holidays have already been effected;
  • It is expected that the floods will have an impact of over $600million on tourism.

Australia is expected to experience a significant drop in GDP in the March quarter due to the floods, which could pull the national GDP to negative territory in the March Quarter. Overall, it is expected that the floods will negatively impact the annual national GDP by 1.0%. Of course, the re-building and reconstruction phase will have a positive impact on the economy that should be reflected in the economic indicators by year end. Significant road, rail and other infrastructure will need to be replaced, while many homes and businesses will need to be rebuilt and repaired. This would benefit infrastructure companies and their suppliers. Depending on the extent of other damage, telecommunications, electricity and water infrastructure companies could benefit, as well as hire companies and skilled workforce suppliers.