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Allied Farmers back in black as livestock unit grows

Allied Farmers, which is rebuilding from a disastrous takeover of the Hanover and United Finance loan books, returned to profit as its core livestock unit lifted income with gains in Taranaki and Waikato.

The Hawera-based company reported a profit of $1.03 million, or 1.03 cents per share, in the 12 months ended June 30, turning around a loss of $1.12 million, or 2.94 cents, a year earlier, it said in a statement. Revenue in the slimmed down entity shrank 38 percent to $16.9 million.

“The focus for the coming year will be to continue to grow the livestock business and to leverage off the client relationships and trust that exists with those clients to provide value for money services,” chairman Garry Bluett said. “The effect of the reduced dairy payout is likely to have some uncertain impact on dairy livestock sales going forward and the continuing high dollar is already having some impact on meat exports at the early stage of this season.”

This month Allied cut a deal with Crown Asset Management Ltd to repay $2 million by selling down its stake in subsidiary company NZ Farmers Livestock and issuing a three-year bond. It avoided liquidation last year, raising $600,000 in a bond issue, almost half of which was bought by interests associated with chairman Bluett, and as a series of asset sales helped reduce its debt with Crown Asset Management.

Allied’s livestock unit reported a profit of $1.65 million on revenue of $15.2 million, up from earnings of $468,000 and sales of $12.8 million a year earlier.

The asset management unit, which housed the former Hanover assets, reported a profit of $198,000 on income of $398,000, compared to a loss of $3.7 million on income of $14 million a year earlier. The unit held assets worth $103,000 with liabilities of $1.01 million as at June 30.

“This reflects some small over-recovery on the disposal of assets less some small write-downs on assets still held,” Bluett said. The unit “remains active in pursuing possible avenues for improving the returns from these assets.”

The shares last traded at 6.5 cents, valuing Allied at $6.86 million.

NZ dollar rises to 4-month high vs. Russian ruble on rising tensions over Ukraine

The New Zealand dollar rose to a four-month high against the ruble on concern Russia may face more sanctions over Ukraine, further denting the fragile Russian economy.

The kiwi touched a high of 31.14 rubles and was trading at 30.95 rubles at 8am in Wellington, from 30.83 rubles at 5pm on Friday. The local currency was little changed at 83.58 US cents from 83.59 cents at the New York close and 83.67 cents on Friday. US markets are closed for a Labor Day holiday today.

An escalation of fighting in Ukraine has prompted European leaders to threaten more sanctions against Russia, where the nation’s economy is currently expected to grow just 0.5 percent this year, the slowest pace since a 2009 contraction. However Russian president Vladimir Putin yesterday criticised European leaders for supporting Ukraine and said talks on the conflict should include the issue of ‘statehood’ in eastern Ukraine, suggesting he is unlikely to back down.

“Tensions seem to be on the rise again in the Ukraine, after what Western officials called a Russian invasion in everything but name last week,” Bank of New Zealand currency strategist Raiko Shareef said in a note. “Investors are braced for a fresh round of sanctions.”

In New Zealand today, traders will be eyeing second quarter terms of trade data, scheduled for release at 10:45am. The trade data is expected to weaken, reflecting the impact of lower dairy prices.

They will also be gauging Chinese manufacturing reports due for publication today for an indication of how New Zealand’s largest trading partner is faring.

The New Zealand dollar edged up to 89.56 Australian cents from 89.47 cents on Friday ahead of the Reserve Bank of Australia decision on interest rates tomorrow.

The kiwi advanced to 63.64 euro cents from 63.50 cents on Friday after a report showed European consumer prices rose just 0.3 percent in August from the year earlier, the weakest rate since October 2009. Traders are speculating the European Central Bank may announce more stimulus at its meeting on Thursday.

The local currency slipped to 50.34 British pence from 50.45 pence and rose to 87.03 yen from 86.87 yen. The trade-weighted index was at 78.96 from 78.90 on Friday.

World Week Ahead: Focus on US jobs, ECB

US employment data and a meeting of policymakers at the European Central Bank will renew the focus on when interest rates will begin to rise in the US, and the degree and timing of additional stimulus in the euro zone.

The state of the labour market in the US will be revealed in the ADP employment report, due Wednesday, weekly jobless claims, due Thursday, and the employment report for August, due Friday.

Last month, in Jackson Hole, Wyoming, US Federal Reserve Chair Janet Yellen warned that “the labour market has yet to fully recover.

On Friday, the Standard & Poor’s 500 Index finished the session at a record 2,003.37.

“We reached and closed above the 2,000 milestone … and that gets the mental obstacle out of the way,” Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey, told Reuters.

“Economic numbers have been positive for the most part, people are drawing comfort from these numbers, using them as a justification for optimism,” Bakhos said.

Other US data due in the coming days include reports on the PMI and ISM manufacturing indices, as well as construction spending, due Tuesday; factory orders, dueWednesday; and international trade, productivity and costs, the PMI services index and the ISM non-manufacturing index, due Thursday.

On Wednesday, the Fed releases its Beige Book. Investors will also hear from several Fed officials.

On Thursday, Cleveland Fed President Loretta Mester will talk about the economic outlook, monetary policy, and communications, in Pittsburgh, Fed Governor Jerome Powell is scheduled to speak to NYU Money Marketeers, while Minneapolis Fed President Narayana Kocherlakota will address a town hall forum in Helena, Montana.

On Friday, Philadelphia Fed President Charles Plosser discusses the economic outlook at Amelia Island, Florida, while Boston Fed President Eric Rosengren talks to the New Hampshire and Vermont Bankers Association in Boston.

For the week, the S&P 500 gained 0.75 percent, the Dow Jones Industrial Average added 0.57 percent, while the Nasdaq Composite Index climbed 0.92 percent.

With last week’s advance, the Dow has increased 4.8 percent so far in 2014, while the S&P 500 has added 9.9 percent, and the Nasdaq has risen 10.6 percent.

US markets are closed today for the Labor Day holiday, marking the traditional end to the summer season in North America.

In Europe, the Stoxx 600 jumped 1.6 percent last week, while the UK’s FTSE 100 Index rose 0.7 percent. European bonds also rallied, pushing German 10-year yields nine basis points lower to 0.89 percent.

Investors tried to interpret European Central Bank President Mario Draghi comments made in Jackson Hole about a downgraded outlook for inflation and whether that meant further monetary stimulus in the form of asset purchases would be announced soon. Policymakers of the ECB gather on Thursday.

Last Friday a report showed that inflation in the euro zone fell to 0.3 percent in August, the lowest level in almost five years, and well under the ECB’s target of below, but close to, 2 percent.

“Inflation is very low, inflation expectations are drifting lower, but it’s premature to suggest deflation is inevitable,” Martin van Vliet, senior economist at ING Groep in Amsterdam, told Bloomberg News. “We need to see further signs of slowdown, an increased risk of a new downturn before they are willing to say we now have to implement full-blown [quantitative easing]; that’s the nuclear option.”

The latest data on the euro zone scheduled for release in the coming days include.

German GDP, euro-zone manufacturing PMI, due today; euro-zone PPI, due Tuesday; euro-zone retail sales, due Wednesday; German factory orders, due Thursday; and euro-zone GDP on Friday.

Pumpkin Patch takes $12 mln charge after latest round of write downs

Pumpkin Patch, which slashed its earnings forecast earlier this year, will take a $12 million charge to write down the value of stores and IT software, while posting underlying profit in line with guidance.

The children’s clothing chain said a provision for the write down of IT software and store assets will be reflected in its 2014 results, taking total reorganisation costs to $12 million. Post-tax earnings before reorganisation costs were between $1 million and $2 million in the 12 months ended July 31, in line with its May guidance of between $1 million and $3 million

The Auckland-based retailer embarked on a strategic review in a bid to revive its ailing performance, focusing on its store footprint, stock levels, and an IT system upgrade.

Pumpkin Patch said early trading in the 2015 financial year was “encouraging” with summer season collections “positively received.

The shares were unchanged at 42 cents yesterday, and have slumped 53 percent this year.

NZ dollar slips as better US economic data buoys greenback

The New Zealand dollar slipped as the US dollar edged up following better-than-expected US economic data which lifted optimism about a recovery in the world’s largest economy.

The kiwi weakened to 83.82 US cents at 8am in Wellington, from 83.91 cents at 5pm yesterday. The trade-weighted index was at 79.01 from 79.06 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, rose overnight after a report showed the US economy expanded at a 4.2 percent annual rate in the second quarter, ahead of a previous estimate of 4 percent and the fastest pace since the third quarter of 2013. Meanwhile, separate reports on the labour market and the housing sector also pointed to a recovery in the US.

“The US dollar found support from the second read of US GDP, which contained positive revisions,” ANZ Bank New Zealand senior economist Mark Smith and senior foreign exchange strategist Sam Tuck said in a note. ” We expect NZD/USD to remain under pressure from both New Zealand and US data releases.”

The kiwi will likely trade between 83.30 US cents and 84.20 cents today, ANZ said.

In New Zealand today, data on building permits for July will be published at 10:45am, and the ANZ business confidence survey is released at 1pm.

“Today’s data will provide insights on how well the New Zealand economy is faring, while the Chicago purchasing managers survey and Michigan confidence (released in the US today) should continue to support the US dollar,” ANZ said. “We continue to favour declines (in the kiwi) on US dollar optimism.”

The New Zealand dollar edged up to 63.57 euro cents from 63.50 cents yesterday ahead of data on European inflation today.

The kiwi edged lower to 89.58 Australian cents from 89.65 yesterday, was little changed at 50.52 British pence from 50.55 pence, and dropped to 86.89 yen from 87.04 yen.

While you were sleeping: Ukraine tension lifts bonds

Stocks fell, while US Treasuries rose, as concern about intensifying tension in Ukraine outweighed further evidence that the American economy is gathering strength.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.21 percent, the Standard & Poor’s 500 index slipped 0.11 percent, while the Nasdaq Composite Index gave up 0.18 percent.

Declines in shares of Nike and Visa, down 1.1 percent and 1 percent respectively, led the Dow lower.

US Treasuries advanced, pushing yields on the 30-year bond 2 basis points lower to 3.08 percent, while yields on the 10-year note declined 2 basis points to 2.34 percent.

“The geopolitical concerns are overriding any kind of economic data,” Thomas di Galoma, head of fixed-income rates at ED&F Man Capital Markets in New York, told Bloomberg News. “It doesn’t look like it’s going to stop.”

US gross domestic product grew at a 4.2 percent annual rate in the second quarter, up from an initial estimate of 4.0 percent, according to the Commerce Department.

“The economy is in good shape and getting better,” Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania, told Reuters.

Separately, the National Association of Realtors’s pending home sales index increased 3.3 percent to 105.9 in July, the highest level since August 2013.

“Interest rates are lower than they were a year ago, price growth continues to moderate and total housing inventory is at its highest level since August 2012,” Lawrence Yun, NAR chief economist, said in a statement. “The increase in the number of new and existing homes for sale is creating less competition and is giving prospective buyers more time to review their options before submitting an offer.”

“More importantly, steady job additions to the economy are helping family finances and giving them added confidence to enter the market,” Yun said.

In other positive data, the number of Americans filing for unemployment benefits fell 1,000 to 298,000 in the week ended August 23, according to the Labor Department.

In Europe, the Stoxx 600 Index finished the day with a 0.7 percent decline from previous close, as did France’s CAC 40. The UK’s FTSE 100 fell 0.4 percent, while Germany’s DAX slumped 1.1 percent.

A European Commission report showed that the euro-zone’s economic confidence dropped more than expected in July, while a separate report showed that German unemployment unexpectedly climbed in August.

The data underpinned concern about the euro-zone’s economy and bolstered expectations that the European Central Bank will add additional stimulus.

“The German economy is not in as good a shape as it was at the beginning of the year,” Michael Holstein, an economist at DZ Bank in Frankfurt, told Bloomberg.

A2 Milk, hit by strong kiwi, to use Australian cash for global expansion

A2 Milk Co, which markets milk with a protein variant said to have health benefits, will ramp up its expansion in the US, the UK and Asia using cash generated in its biggest market of Australia after a year in which a strong kiwi slashed the value of sales and earnings.

Profit tumbled to $10,000 in the 12 months ended June 30, from $4.1 million a year earlier, the Auckland-based company said in a statement. Sales rose 17 percent to $111 million and would have been some $14 million higher if not for the strength of the New Zealand dollar against its Australian counterpart.

A2′s cash flow comes from its success in Australia, where it now claims 9 percent of the fresh milk market sold through the grocery channel. Australian sales from continuing operations climbed 16 percent to $106.9 million in the latest year, accounting for 96 percent of total revenue, while earnings rose 25 percent to $4.5 million, helping make up for losses in China and the UK. Managing director Geoffrey Babidge calls the Australian market A2′s “big cash generator”, which will bankroll its push into new markets.

“Our strategy is about increasing Australian profits fully funding initiatives in other markets,” Babidge told BusinessDesk. “That’s our core proposition.”

Growth in Australian market share gave A2 confidence to launch a thickened cream product, which is performing to expectations and the range could be widened to include ice cream, he said. The company has also trialled sales of fresh Australian milk into China, in reasonably small volumes, which the company sells the milk free on board to Chinese distributors, who can reap enough of the premium in the Chinese market to make up for the increased transport costs.

A bigger opportunity will be sales of UHT milk from Australia into China, Babidge said.

A2′s sales push for its Platinum brand infant formula in China was thwarted this year by changes to Chinese registration rules. New Zealand New Milk, which has been packing the product for A2, did achieve registration in July but sales of A2′s products won’t ramp up until its main partner, Synlait Milk, gains registration, which Babidge hopes will be in September.

“We’re very much joined at the hip with Synlait,” he said. That relationship “provides more certainty and longevity going forward.” A2 has made only two small shipments to China of A2 Platinum, the last in April. Once Synlait gains registration shipments would start in earnest, likely in the first half of the current year.

The company sees a “big revenue opportunity” in the US market, where it plans to invest $20 million over three years. Its US push will be through a wholly owned subsidiary, with manufacture and packaging of A2 milk outsourced to contract packers. It has shortlisted two candidates.

The company has also identified sources of milk with the A2 protein variant though work still needed to be done to separate out those cows from local herds. A “very managed, regional launch” in the US is likely to be in the second half of 2015, Babidge said.

The  company will also increase investment in the UK market, where it recorded  a wider loss of $2.2 million in the latest year, on sales of $1.1 million. A2 had some $16 million cash on hand at the end of the year, down from $20 million at the start of the year.

The shares last traded at 65 cents and have declined 19 percent this year. The stock is rated a ‘buy’, based on the consensus of four analysts polled by Reuters, with a median price target of 86 cents.

Airwork annual profit climbs 52 percent, beating forecast

Airwork Holdings, the aviation services firm which listed last December, boosted annual profit 52 percent on the strength of its helicopter engineering unit, beating guidance. The shares gained.

Net profit rose to $9.83 million, or 20.8 cents per share, in the 12 months ended June 30, from $6.47 million, or 15.2 cents, a year earlier, the Auckland-based company said in a statement. That beat the $9.4 million guidance it gave in March, and the $8 million forecast in its December offer document. Revenue rose 5.9 percent to $125.4 million, in line with the prospectus forecast.

“Airwork has undertaken a successful IPO and NZX listing, exceeded its growth targets and laid the foundations for further growth in the current financial year and beyond,” chairman Mike Daniel said. “Underpinning our performance was the certification of key areas of the helicopter engineering business (including engine modification and upgrade programmes) by European and North American regulatory agencies, opening further market opportunities that we are well positioned to develop.”

The aviation company raised $37.5 million in an initial public offer last December, of which $20 million was set aside to fund its growth plans. Airwork anticipates more earnings growth in 2015, with the helicopter division focusing on organic growth through extending its engineering and maintenance capacity and expanding its fleet in emerging markets. It will focus further on refining its fixed wing segment, reducing unscheduled and charter flying hours, cutting down on costs and expanding its dry lease fleet and customer base to widen margins.

The shares rose 1.9 percent to $2.70, and have gained 3.8 percent from the $2.60 offer price last year. The stock is rated a ‘hold’ by First NZ Capital, with a price target of $3.15, according to Reuters data.

The board declared a final dividend of 8 cents per share, payable on Oct. 10 with an Oct. 3 record date. That takes the annual payout to 15 cents, beating the 14 cents dividend forecast in the December offer document, and up from 10 cents a year earlier.

Chief executive Chris Hart said there were “significant growth opportunities” for the helicopter engineering and leasing business, with US aircraft acquisitions being refurbished, then leased or sold to generate more revenue streams.

The helicopter segment lifted revenue from external customers 21 percent to $64.3 million, and increased operating earnings 30 percent to $14 million. The fixed wing unit reported a 6.6 percent drop in revenue to $61 million, while earnings gained 26 percent to $11.7 million.

Airwork generated operating cashflow of $44.6 million in the year, compared to $22.5 million a year earlier. It had cash and equivalents of $2.4 million as at June 30, with net debt of $52.4 million.

Westland cuts forecast payout on falling global dairy prices, strong kiwi

Westland Milk Products, the Hokitika-based dairy cooperative, has overtaken rival Fonterra Cooperative Group in cutting its forecast payout to farmers, citing falling global dairy prices and the persistent strength in the kiwi dollar.

The cooperative revised its payout forecast to between $5.40 and $5.80 per kilogram of milk solids before retentions in the 2014/15 season, down from between the $6 and $6.40/kgMS forecast in July. Chief executive Rod Quin pointed to the 12 percent drop in skim milk powder prices at the last GlobalDairyTrade auction, which makes up a substantial proportion of Westland’s production as weighing on the new forecast.

“The reduction is driven by falls in prices across the global and the continued high value of the New Zealand dollar,” Quin said in a statement. “Our traditional reliance bulk dairy commodities such as skim milk makes us more vulnerable to the cyclical swings of the international dairy market.”

Fonterra yesterday affirmed its forecast payout at $6/kgMS, saying it expects commodity prices to improve later this year or early in 2015, with global dairy demand continuing to grow.

The GDT price index slipped 0.6 percent to a two-year low of US$3,000 in the GlobalDairyTrade auction on Aug. 20, as a percent slump in skim milk powder was partly offset by a 3.4 percent gain for whole milk powder.

Westland’s Quin said the company is continuing with its strategy to grow production of higher value nutritional products such as infant formula, including its recent $102 million investment in a drier at Hokitka to shift more production to those products.

NZ dollar buoyed by Fonterra plans to expand capacity, form Chinese partnership

The New Zealand dollar rose after Fonterra Cooperative Group yesterday said it would maintain its milk price forecast, expand its local processing capacity and form a partnership to help sell its products in China, New Zealand’s largest trading partner.

The kiwi gained to 83.75 US cents at 8am in Wellington, from 83.67 cents at 5pm yesterday. The trade-weighted index was at 78.98 from 79 yesterday.

The local currency has jumped half a US cent in the past 24 hours following the announcement from Fonterra, the world’s largest dairy exporter. Dairy is New Zealand’s largest commodity export and traders had been concerned the company could have lowered its $6 per kilogram of milk solids forecast for 2015 as increased supply weighs on prices.

“The kiwi was the star of the night as the announcement by dairy giant Fonterra that it’s entering a joint venture to meet demand for infant formula in China was met with approval by the market,” Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note. The investment “suggests that Fonterra may be able to smooth out its delivery problems and also indicates that its stream of income from China – which is a significant contributor to the New Zealand economy – is likely to remain in place.”

The kiwi may target 84 US cents, Schlossberg said.

The local currency’s gain was assisted by a broadly weaker US dollar overnight, with the US dollar index declining from its highest level in more than a year.

The New Zealand dollar edged lower to 89.69 Australian cents from 89.77 cents yesterday ahead of Australian data on capital expenditure today. While data for the second quarter may be weaker reflecting a decline in mining investment, the currency affect could be muted as capex forecasts for the coming year may be revised higher, Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note.

The kiwi slipped to 63.47 euro cents from 63.57 cents yesterday. The European Central Bank meets next week amid elevated expectations of additional stimulus following ECB President Mario Draghi’s comments about the region’s declining inflation in Jackson Hole last week. However, the ECB is unlikely to take new policy action next week unless August inflation figures due tomorrow show the euro zone sinking significantly towards deflation, Reuters reported, citing unnamed ECB sources.

“The barrier to QE is still very high,” said one of the sources, all of whom requested anonymity, adding that discussion at the meeting was expected to centre on reinforcing existing policy measures of credit easing and liquidity provision, according to Reuters.

The local currency was little changed at 50.53 British pence from 50.55 pence yesterday, and at 87.01 yen from 87.02 yen.

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