The good, the bad and the ugly – NBR's plays of the week

Results season has hit full swing and while the grades have been mixed, there is a general sense that for most sectors of the economy there are better times ahead.Some of New Zealand's biggest companies have made announcements indicating that, although economic conditions aren't going to get better quickly, they at least aren't going to get any worse.

Results season has hit full swing and while the grades have been mixed, there is a general sense that for most sectors of the economy there are better times ahead.

Some of New Zealand’s biggest companies have made announcements indicating that, although economic conditions aren’t going to get better quickly, they at least aren’t going to get any worse.

Although his company reported a 4% fall in net earnings to $301 million for the year, Fletcher Building chief executive Jonathan Ling said it had gone past the bottom of its earnings cycle.

“While we are not seeing a further strong recovery, we are off the bottom and overall, we are not unhappy about the world,” Mr Ling told the National Business Review.

The company’s building products division recorded 8% growth in operating earnings to $114 million, up from $106 million in the previous year, while sales increased 4% to $798 million.

Telecom, which has had a tough time recently for more reasons than just the economic downturn, also announced a steady profit result.

Payout steady

But perhaps the best result of the week was not from a publicly listed company but from giant dairy cooperative Fonterra, which announced it is sticking to its forecast payout for the 2010/11 season of between $6.90 and $7.10 per kilogram of milksolids.

This represents a gross income of about $700,000 for the average supplier, and based on average on-farm costs compiled by the Ministery of Agriculture and Forestry, a profit approaching $150,000.

The milk price forecast was held at $6.60/kgMS, which would be coupled with a profit after tax of 30-50c per share.

This is an encouraging forecast after prices fell at Fonterra’s online auction platform in the last couple of months.

Fonterra chairman Sir Henry van der Heyden said although international prices had declined recently, a number of factors signalled potential improvement in prices later in the year.

“While there is still some uncertainty in global markets, if current commodity pricing and foreign exchange rates were at current levels for the rest of the season, then we estimate the 2010/11 payout would be marginally lower than our current forecast,” he said.

It’s a fact of life in New Zealand that Fonterra’s payout forecast would have a bigger impact on the economy than any of the other company results.

But the results of the smaller, listed companies are still important for measuring the health of the economy, which seems to be slowly on the mend after a long time in hospital.

Taxpayers prop up a lemon

National’s decision to use taxpayer funds to prop up Kiwibank’s credit rating ensures not only will this dog remain on the government’s books but also the liability will continue to grow.

Only a few months after considering at least a partial sell-down of Xenophobiabank, the government has decided to give it a credit facility, allowing it to borrow about half a billion dollars more to try to keep the housing bubble inflated.

Massey University banking studies lecturer David Tripe told media the facility was basically a government guarantee that gave Kiwibank an unfair competitive advantage over the other main banks.

But there should be no surprise the spineless National Party has continued to pander to unthinking nationalism and economic illiteracy.

Just as with Kiwirail, that other capital-destroying “investment” made by the previous Labour government, National opposed Kiwibank when it was created.

However, when handed the levers of power it decided to send more funds down this giant black hole for taxpayer money, just as it did with Kiwirail.

Throwing good money after bad is a strategy only governments can get away with for any length of time, because they can continue to thieve from taxpayers to fund the stupidity.

If a private company destroyed this much wealth it would go bust faster than you can say “malinvestment.”

Not making any money

The problem with Kiwibank, as Commonwealth Bank of Australia chief executive Ralph Norris said in a Radio Live interview this week, is that it isn’t profitable enough.

This week Kiwibank revealed its net profit had fallen 13% to $45.8 million for the year to June 30, a headline number masks the financial reality at the bank, which is heavily subsidised by its parent New Zealand Post.

Mr Norris argued Kiwibank had undercharged for too long, meaning it hasn’t been generating enough profit to grow its capital internally.

But why would it bother when it can just go cap in hand to the government whenever it finds itself pressed up against the brick wall of capital inadequacy?

The irony is that Kiwibank blames intense competition for deposits from the Australian banks for its profit decline; you know, those Aussie banks that are supposedly ripping Kiwis off.

Even more ironic is that National is considering making KiwiSaver compulsory to boost savings rates and reduce reliance on foreign debt, while at the same time using taxpayer money to support a state-owned bank borrowing more from overseas.

Act in meltdown mode

The Act Party’s implosion has continued this week with Heather Roy rolled as deputy leader, raising questions about whether the party can even survive the next election.

At a time when the party is struggling to find electoral traction, this is exactly the sort of negative publicity it doesn’t need.

One of the problems is that the party, in Parliament at least, is made up of a collection of loose cannons liable to fire potshots in any direction at any given time.

Rugged individualism is an admirable trait but in the dirty game of politics it can be a hindrance – a little bit of group solidarity can go a long way.

Comparing the Greens to Act is illuminating: think what you want of their politics, the Greens present a united front and give the party a clear, recognisable brand, while the Act MPs look as if they couldn’t organise a binge-drinking session at a brewery.

What does Act actually stand for these days?

It’s the supposedly “liberal” party that brought us the draconian three strikes legislation, the party of small government that supports the creation of the Auckland Super Bureaucracy.

Meanwhile, Sir Roger Douglas continues to put out sensible policy proposals and alternative budgets that are ignored because he carries too much political baggage.

Last chance saloon

Act reaching the 5% threshold is incredibly unlikely, so Rodney Hide winning his Epsom seat will be the party’s only avenue back into Parliament.

Epsom voters have been smart enough in the last couple of elections to work out that voting for Mr Hide allows the right to snare a greater share of seats in Parliament.

However, they were helped in their decision by National’s tacit support of Mr Hide’s candidacy.

But the embarrassment Act is causing may prompt National to cut it loose, reasoning that being associated with Act may cost it more politically than if it lost Act’s five seats in support.

Losing Act would mean National would only have centrist and left-wing parties as potential coalition partners, meaning New Zealand’s slide into socialism would continue unabated.

Act, though, has done little to reverse that trend, focusing itself on populist issues such as law and order when it should be hammering home the themes of small government and lower taxes to appeal to National’s dissatisfied right-wing base.

National’s deal with the Maori Party has made Act even more irrelevant because if Act doesn’t like a policy National can just turn to the Maori Party instead.

Perhaps Act disappearing would be a good thing, as it would allow a new right wing party to rise from the ashes and target the 5-7% of New Zealanders who actually support individual freedom and smaller government.

If and when that new party emerges, its members would be well advised to look at the Greens and realise politics is the one sphere of life where groupthink is an asset.

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