Archive | Gainz

ANZ announces over $800 million of negatives week before half-year result

8 days before the scheduled release of its half-year financial report, ANZ Banking Group Ltd disclosed an $A632 million hit to its bottom line following sale of Wealth Australia & OnePath businesses.

The bank also disclosed an $A16 million first-half hit for legal & other costs related to the Australian royal commission into banking, and an anticipated $A50 million commission cost in the second half.

With an $A80 million addition of restructuring charges, the total comes to $A778 million ($NZ827 million).

The bank is scheduled to announce its half-year financial results next Tuesday, 1 May, but issued an advance package of information yesterday “to assist market participants preparing to analyse the group’s financial performance”.

ANZ created OnePath when it bought various ING businesses in Australia & New Zealand in 2010. It ran into immediate outrage in New Zealand when it tried to lift the price on management contracts on 2 NZX-listed former ING entities, the ING Property Trust & ING Medical Properties Trust, which became the Argosy Property Trust (now Argosy Property Ltd) and the Vital Healthcare Property Trust.

Argosy became internally managed and Vital’s management contract is held by a subsidiary of the Northwest Healthcare group headed by Paul Dalla Lana of Toronto, Canada.

ANZ’s disclosure of losses now arises from its reclassification, as discontinued operations, of Wealth Australia businesses it’s sold. The bank announced 2 separate Wealth Australia sales last year:

  • Sale of the OnePath pensions & investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Ltd on 17 October, and
  • Sale of the life insurance business to Zurich Financial Services Australia on 12 December.

As discontinued operations, their assets & liabilities have been reclassified as at 31 March as held for sale and measured at the lower of their carrying value & fair value less costs to sell.

Consequently, the bank said, “an $A632 million loss has been recognised, comprising an $A277 million net loss on measuring the assets & liabilities at fair value (including a treasury shares adjustment of $A396 million) and future separation & transaction costs to complete both transactions of $A355 million”.

Wealth Australia businesses the bank retains are ANZ Lenders Mortgage Insurance, ANZ Share Investing, distribution of general insurance products and ANZ Financial Planning. The bank said the profit for these retained businesses in the 2017 financial year was $A95 million before group elimination adjustments.

Restructuring charge

The bank said the ANZ group had incurred about $A80 million in restructuring charges within cash profit in the 2018 first half, compared to charges of $A26 million & $A36 million in the second & first halves of 2017. “In large part, the 2018 first-half charges relate to the implementation of agile ways of working in the Australia division,” the bank said.

In other accounting details, ANZ said its total net gain on sale from divestments in the 2018 first half was $A138 million, comprising:

  • an $A85 million net gain on sale for the Asia Retail & Wealth businesses, including a gain on sale for Vietnam retail
  • an $A86 million loss on sale of Shanghai Rural Commercial Bank, which includes the offset to $A58 million of equity-accounted earnings (recognised in cash profit in the 2017 first half and identified as a large/notable item), which increased the carrying value. Allowing for this, the total net loss is $A28 million, reflecting additional hedging & tax costs associated with the extended completion
  • an $A121 million net gain on sale for the first tranche of multi-currency conversion. The sale of the second tranche is subject to a put option exercisable in the fourth quarter of the 2018 financial year.
  • an $A18 million cost recovery related to UDC. The derivative valuation adjustment charge for the Institutional Markets business is not material in 1H18. The charges for 1H17 and 2H17 are shown in the large/notable items template.

ANZ announced the $660 million sale of its subsidiary UDC Finance Ltd to the Chinese HNA Group in January 2017, but the Overseas Investment Office declined the application in December, saying it was dissatisfied by HNA’s opaque ownership trail.

Link: Guide to ANZ’s half-year 2018 results

Earlier stories:
21 March 2018: ANZ says listing among UDC options
18 October 2017: ANZ sells pensions & investments businesses to IOOF
12 January 2017: ANZ sells UDC Finance to Chinese HNA Group
 2 November 2016: ANZ sells Asian retail & wealth business to DBS
 29 July 2011: OnePath management sell-off totally unstuck
9 June 2011: 3 institutions fight $32.5 million Argosy management buyout, demand manager be sacked
20 April 2011: ANZ proposes internal management for 2 NZ property trusts
25 March 2010: ING to get its own brand under ANZ Bank ownership

Attribution: Bank release.

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Precinct working on ANZ Centre deal, has conditional Wellington sale

Precinct Properties NZ Ltd says it’s working with one party on the sale of a 50% interest in the 39-storey ANZ Centre in Auckland and has an agreement to sell the quake-damaged former Deloitte House in Wellington (pictured) at a huge markdown.

Precinct chief executive Scott Pritchard said yesterday: “The half-share interest in the ANZ Centre has received very strong interest and we look forward to forming a long-term relationship with the preferred bidder.

“With several options for 10 Brandon St having been assessed to date, we believe the sale of this asset represents the best option for Precinct. Progressing these asset sales will enable Precinct to focus on and recycle capital into its future development opportunities.”

The company sought expressions of interest this year in a 50% interest in the ANZ Centre on Albert St in Auckland. The campaign has closed, and Mr Pritchard said pricing indications were at a premium to the June 2017 valuation of $324 million.

Precinct spent $76 million refurbishing the whole of the ANZ Centre after the bank committed to a new long-term lease in 2011. The building has a net lettable area of 33,520 m² and a weighted average lease term of 8.6 years.

Mr Pritchard said there’d been strong interest in the opportunity to take a 50% interest in the building. “Precinct has agreed to a period of exclusivity for one party to complete due diligence and enter into a binding sale & purchase agreement. At this stage there is no binding agreement for the sale & purchase of the property.”

Changing fortunes on Brandon St

Precinct took the former Deloitte House at 10 Brandon St, Wellington, out of its investment portfolio last year, when its value had already plummeted, and called it a development property. Then the company abandoned the idea of fixing it up itself and looked for a buyer.

It’s found one at $10.2 million, conditional on ground lessor approvals, and the sale is due to settle in August.

Deloitte House was valued at $62 million in 2008 but had dropped to $49.3 million, with a carrying value of $45 million, in 2015.

Following the November 2016 Kaikoura earthquake, the building needed to be remediated & seismically improved, and the valuation (and carrying value) dropped in 2017 from $49 million to $26.1 million, and the some more.

In Precinct’s report in March on the December 2017 half-year, the company said it had written the valuation down from $20.2 million in June to just $7 million in December.

The building had 14 storeys when it was constructed in 1983 and had 2½ new floors added during a retrofit in 2005-06. It also now has 34 basement parking spaces & ground-floor retail, and a total lettable area of 12,972m².

Attribution: Company release.

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Net migrant inflow slips below 68,000

The net annual inflow of migrants is down by 4000 compared to a year ago, and 4400 below the peak last July. But, as Statistics NZ pointed out today, 67,984/year is still an historically high migration level.

The net inflow in March was 959 short of the figure last March, the result of a drop of 121 in arrivals but, having greater impact, a rise in exits of 838.

On an annual basis, exits got down to about 56,000 2 years ago but have risen close to 63,000 in the last 12 months, while arrivals climbed over the 100,000 mark in 2015 and continued rising – to 124,000 in the March 2016 year, just under 130,000 the next year and just over 130,000 this year.

The net exit of NZ citizens was 701 in March and 1081 for the last 12 months on about 32-33,000 arrivals & departures.

Non-citizen arrivals rose by about 1240 over the last 12 months while departures were up nearly 5000.

From 2007-14, the net outflow of NZ citizens to Australia totalled 215,000. In the next 3 years it totalled only 14,000. In March there was a net outflow (NZ citizens & others) to Australia of 281. And for the 12 months to March? A net inflow from Australia to New Zealand of 8.

Statistics NZ said migrants arriving on work visas rose 6% in the March year to 46,338 (43,725), while there was a 13% fall in arrivals on residence visas to 14,590 (16,763). The largest numbers of work-visa migrants were the UK, France & Germany.

Statistics questioned

The Statistics NZ report made no mention of a Treasury paper published a week ago, which questioned the actual level of population growth in Auckland, in particular. You can see what that’s about in the separate article link below.

The bald statistics:

Net migrant inflow March: 3919 (4878 in March last year)
Net migrant inflow March year: 67,984 (71,932; 72,402 in the 12 months to July 2017)
Migrants into Auckland in March: 4603 (4748)
Migrants into Auckland in March year: 58,461 (57,710)
Net Auckland inflow in March:  2307 (2787)
Net Auckland inflow in March year: 34,448 (35,772)
Net outflow to Australia in March: 283 (112)
Net outflow to Australia in March year: 1018 inflow (8 inflow).

Related story:
24 March 2018: Treasury paper questions Auckland’s actual population growth

Attribution: Statistics NZ tables & release.

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Treasury paper questions Auckland’s actual population growth

An analytical paper published by the NZ Treasury last week raises questions about the accuracy of migration figures, largely because of the hard-to-analyse internal migration.

The paper’s author, senior Treasury modelling analyst Keith McLeod, said in its introduction: “Our estimate of Auckland population growth due to net migration between 2013-16 is about half the official figure.”

The paper describes new sub-national New Zealand population measures that Treasury has developed using integrated administrative data. They’re in an interactive online form in Treasury’s Insights tool.

The paper doesn’t accuse others of getting things wrong – and Treasury says of its own work that it can’t be trusted yet. It’s more a case of additional information giving a more accurate picture of population movements.

Mr McLeod: “New Zealand has a robust system of population estimates, and the data described in this paper has the potential to complement this system. Nevertheless, the results are exploratory in nature, and further work is required to better understand the strengths & limitations of the data. The findings are not official statistics and should be treated with caution.

“A particular strength of the analysis outlined here is the ability to measure & describe patterns of internal migration within New Zealand, something that has previously been largely reliant on the 5-yearly census.

“The analysis not only describes patterns of internal migration, but sets these alongside other key dimensions of population change: ageing, natural increase & international migration.”

Estimates aren’t immediately available for release, and results for a particular calendar year are only likely to be able to be produced 9 or more months after the end of that year.

The Auckland question

On the question of Auckland’s growth, the paper says: “Auckland, New Zealand’s largest city, has experienced year-on-year growth since 2008. This has been driven largely by migration from overseas, with foreign migrants more than offsetting net losses of New Zealanders moving away.

“Since 2012, increasing numbers of people have been leaving Auckland to move to other areas, especially Tauranga, Waikato District, Whangarei & the Far North. This has slowed population increase in Auckland over that period.

“Although the case studies presented here tell a similar story to official population estimates, there are some differences, particularly in Auckland, where our estimates show much lower population growth in recent years.

“Our estimate of Auckland population growth due to net migration between 2013-16 is about half the official figure.

“More work is required to better understand these differences. The difference could derive from the difficulty in determining people’s location of residence after their arrival in New Zealand in either or both of the sources, or may relate to the different residence definitions adopted.”

  • For me, this research is very welcome because information on internal migration has long appeared to be lacking.

Treasury Insights analytical paper, 18 April 2018: Where we come from, where we go – describing population change in NZ

Attribution: Treasury Insights.

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Metlifecare unconditional on Hobsonville site

Metlifecare Ltd said last week it had gone unconditional on its purchase of a 5.3ha waterfront site at Orion Pt in Hobsonville. Settlement is expected by June.

The retirement village company plans to spend $200 million building over 264 units, including a 36-bed care home, on the north-facing coastal site.

Chief executive Glen Sowry said the village would provide the full continuum of independent living & care options, including exclusive waterfront villas, serviced apartments & hospital-level care: “We will make the most of this exceptional site, with its expansive harbour views as well as direct access to the adjoining coastal walkway and 11ha nature reserve at Bomb Pt.”

“Our research & analysis indicates that we can expect strong demand for this offering in Auckland’s north-west, where the 75+ age demographic is projected to treble in size over the next 20 years.”

Mr Sowry said the company expected the village to generate a development margin for its independent living units & apartments above its 15% hurdle rate and a positive cash margin net of the costs of the common & care facilities.
Mr Sowry said design & consenting were well advanced and construction was planned to start in the second half of 2018. He said the village would be built over 4 stages, with the first delivered in 2020.

The new site takes Metlifecare’s total village sites to 28, of which 18 are in the Auckland region.

Attribution: Company release.

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Summerset takes greenfield sites to 7

Summerset Group Holdings Ltd has bought a 9ha property at Eriksen Rd, Te Awa, for its second retirement village in Napier & fourth in Hawke’s Bay.

Chief executive Julian Cook said the village would have about 320 homes, including 2- & 3-bedroom villas and one-bedroom serviced apartments. There will also be rest-home and hospital level care as well as Summerset’s first memory care centre (for people with dementia) in Hawke’s Bay.

Mr Cook said Summerset was on track to build 450 retirement units this year. It now has 7 greenfield sites. The others are Richmond (Nelson), Avonhead (Christchurch), St Johns & Parnell (Auckland), Kenepuru (Wellington) & Boulcott (Lower Hutt).

Attribution: Company release.

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Institutional bookbuild puts $1.35 premium on Fletcher shares

Fletcher Building Ltd shares resumed trading today after the institutional shortfall bookbuild of the company’s $750 million fully underwritten pro rata accelerated 1:4.46 entitlement offer of new shares.

The clearing price under the shortfall bookbuild of 2.2 million entitlements was $6.15/share, a $1.35 premium over the entitlement offer price of $4.80, and a premium over the theoretical ex-rights price of $6.

Following ongoing shareholder reconciliations, the gross proceeds (excluding the premium) raised in the institutional entitlement offer & institutional bookbuild has increased from the expected $500 million to $515 million.

The retail entitlement offer, at the same offer price & offer ratio as the institutional entitlement offer, will open on Monday 23 April and close on Friday 11 May.

Earlier stories:
18 April 2018: Big Fletcher fundraiser plus divestments intended to stabilise construction’s fallen giant
4 April 2018: Lenders give Fletcher Building 2-month waiver extension

Fletcher links:
News: 1:4.46 entitlement offer
Offer document

NZX documents:
Investor presentation
Offer document
NZX appendix 7
ASX appendix 3B

Attribution: Company releases.

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Research indicates construction cost inflation near peak

The NZ Institute of Economic Research’s forecasts for cost management & quantity surveying firm Rider Levett Bucknall indicate construction cost inflation peaking at just below 5% in the next year before moderating to 4% by late 2019.

Rider Levett Bucknall Wellington director Grant Watkins said on Wednesday: “Beyond that, we expect annual construction cost inflation to ease to around 3.5% in late 2020, as capacity pressures in the construction sector ease.”

The research showed construction sector firms continuing to report acute labour shortages, especially in skilled labour. Mr Watkins said: “Migrants have helped to alleviate this, with an increase in technicians & trades’ workers moving to New Zealand on a work visa. Rider Levett Bucknall expects this to continue, given the amount of construction activity required over the coming years.”

According to the Rider Levett Bucknall Forecast 87 report – NZ Trends in Property & Construction, the construction pipeline should be solid for the next few years as house-building activity lifts to meet increased demand from the surge in population in recent years.

Other points it noted:

  • Demand for social buildings has now overtaken hotel developments as the top driver of growth in non-residential construction demand over the last year
    Despite net migration continuing to slow, population growth (while moderating) & tourism are expected to underpin many longer-term trends. These include office growth for the higher number of white collar workers, new accommodation buildings for the high number of international visitors, and strong domestic tourism & earthquake strengthening activity will also contribute to non-residential construction demand
  • Auckland continued to lead growth in non-residential construction demand over the last year. Demand strengthened across a broad range of sectors, with particularly large increases in demand for hotels & social buildings
  • Business confidence has been particularly soft in Wellington in the wake of the new government taking office, and Mr Watkins said this might further dampen demand for investment in new buildings over the coming year. The recent announcement by Fletcher Building Ltd that it will stop bidding for ‘vertical construction’ work also added uncertainty.

RLB NZ Trends in Property &Construction Q2 2018

Attribution: Company release.

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Housing-related costs upward but overall inflation down

The annual inflation figure fell from 1.6% in the December quarter to 1.1% in the latest quarter, Statistics NZ said yesterday.

In the March quarter compared to a year ago, tradeables (imported or in competition with foreign goods & services) were down 0.4%, non-tradeables (which don’t face foreign competition) were up 0.5% for the combined 1.1% rise.

Looking only at the quarterly move from December, the index rose 0.5%.

The last time New Zealand inflation hit what the world’s economists seem to think is “good” inflation – 2%/year – was in the September 2011 quarter, when it was at 4.6%, falling from 5.3% the previous quarter.

Housing-related costs lead annual inflation

Construction & rents led a 3.1% rise in housing & household utility prices in the March 2018 year, up from 3% rise in each of the previous 2 quarters, which followed rises of 3.1% in the June 2017 quarter & 3.3% in the March 2017 quarter.

Construction prices increased 4.7% in the year, 0.4% in the quarter. Statistics NZ said this was the smallest quarterly rise since the March 2011 quarter.
Prices senior manager Paul Pascoe said: “Rising building prices in Auckland & Wellington have begun to slow. Both were up 0.3% in the latest quarter. For Auckland, this is the smallest rise since December 2012.”

Construction in Canterbury fell 1.1% in the March quarter as the market continued to cool.

Housing rentals increased 2.1% in the March 2018 year. Regionally, Wellington rents increased 4.2%, while Auckland increased 2.5% and Canterbury rents decreased 1.5%.

“Wellington rents were up 1.8% in the March quarter, while nationally they rose just 0.6%,” Mr Pascoe said. “The average quarterly rent rise reflects many tenants not having an increase, as well as those facing higher costs. Nationally, about 80% of properties surveyed had no price change in the March quarter.

Attribution: Statistics NZ.

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US gdp excluding federal debt spirals down

Daily Reckoning managing editor Brian Maher ran a hard-hitting column on US debt & gdp overnight. One graph in it represents, to me, scary accuracy. It shows the line of gdp minus federal debt rising until 2008, then plummeting.

I’ve followed the Daily Reckoning and owner Bill Bonner’s related website for several years for their frequently contrary views and for their unremitting questioning of mainstream thinking.

After posting a criticism from a reader alleging the website is “consistently ignorant”, Mr Maher proceeded to dismantle the belief that the US economy is doing well. Consistently, the Daily Reckoning has criticised the post-global financial crisis spiral in US public debt, which has doubled in the last decade to $US21.144 trillion.

The US Debt Clock website shows total US debt closing in on $US70 trillion (as I wrote this sentence it had less than $US23 billion to go and the clock was ticking very fast).

Mr Maher put the US ratio of debt to gdp at 105%. According to that clock, it’s now 106.2%.

He quoted research by economics professors Carmen Reinhart & Kenneth Rogoff that showed annual economic growth falls 2%/year when the debt:gdp ratio reaches 60%.

The official gdp figure doesn’t distinguish between money the government raises through taxes and what it raises by borrowing. Mr Maher cited US financial advisory firm Baker & Co’s argument that the money the government borrows must eventually be repaid, so it’s not income but artificial stimulus.

From another side, New Yorker columnist John Cassidy laid into the Reinhart-Rogoff research in 2013: “In one of life’s little ironies, last Friday’s disappointing gdp figures, which reflected a sharp fall in government spending, appeared on the same day that the economists Carmen Reinhart & Kenneth Rogoff published an op-ed in the Times [New York Times] defending their famous (now infamous) research that conservative politicians around the world had seized upon to justify penny-pinching policies.”

This one is a typical US argument: start at an extreme and work yourself into a frenzy. I haven’t read all the material so I can’t say which frenzy I prefer. However, on New Zealand’s experience post-1987, in particular, belt-tightening without going to the extreme of austerity seemed a superior policy to tough-love austerity or the opposite, feeding money into the system to keep consumption running.

That debt-creation policy is the one the US has followed since 2008, and now it has a Federal Reserve trying to ease the pedal back, but against presidential & other pressure to hold interest rates down and to increase the federal deficit.

Daily Reckoning, 19 April 2018: America’s “actual” gdp: The shocking truth
Daily Reckoning
US Debt Clock
Professors Carmen Reinhart & Kenneth Rogoff, working paper January 2010, revised December 2011: Growth in a time of debt
Reinhart & Rogoff book published 2009, This time is different
John Cassidy in The New Yorker, 26 April 2013: The Reinhart & Rogoff controversy: a summing up

Attribution: Daily Reckoning, US Debt Clock, Reinhart & Rogoff, New Yorker.

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