New Zealanders spent more on their credit and debit cards in February, fuelled by spending on hospitality, while durables and apparel rebounded from declines in January.
The value of electronic card spending on retail rose 0.9 percent to a seasonally adjusted $4.58 billion in February, according to Statistics New Zealand. Core retailing, which excludes spending on fuel and auto-related items, gained 1.1 percent to $3.7 billion.
Spending on hospitality rose for a seventh month, up 1.5 percent to $719 million, while durables expenditure rose 1.3 percent to $1.1 billion, recovering from its January decline of 1.3 percent. Apparel spending rose 2.1 percent to $295 million, after dropping 2.7 percent the previous month. Consumables rose marginally, up 0.1 percent to $1.58 billion.
“February card spending showed continued growth,” ASB economist Daniel Smith said in a note. “Durables spending was boosted by increased housing market activity over 2012 and 2013, with home buyers looking to furnish their new homes and higher house prices potentially inducing ‘big-ticket’ purchases through equity withdrawal or just higher confidence amongst households. Over recent months, however, growth in the durables category has slowed noticeably.
“Spending on durables may not grow as quickly as was the case last year, but strong consumer confidence is flowing through to hospitality spending,” Smith said. “The environment for restaurants, cafes and bars looks very encouraging. High consumer confidence and strong population growth should continue to drive fairly strong spending growth.”
The gain in total retail was in part buoyed by a jump in vehicle sales, up 2 percent to $131 million. Spending on fuel declined 1.8 percent to $744 million.
Expenditure on services rose 0.2 percent to $209 million, while non-retail industries slipped 0.1 percent to $1.28 billion.
On an unadjusted basis, total spending on electronic cards rose 5.8 percent to $5.72 billion from the same month a year earlier.
There were 108 million transactions on electronic cards in February, worth an average $53. About 54.1 percent of all transactions were on debit cards, with the remainder on credit. Electronic card transactions account for about two-thirds of all retail spending.
The New Zealand government’s operating deficit was wider than expected in the first seven months of the 2014 financial year, with a smaller tax take than forecast and lower than anticipated tobacco excise duty.
The Crown’s operating balance before gains and losses (obegal) was a deficit of $1.06 billion in the seven months ended Jan. 31, more than twice the size of the $426 million deficit predicted three months ago, in the Dec. 17 half-year economic and fiscal update.
However, the obegal is still tracking below the deficit of $2.51 billion recorded at the same time last year. Core tax revenue was 2.4 percent, or $876 million, below forecast at $34.98 billion.
“At this stage, it is difficult to determine how much of the lower than forecast tax is temporary versus permanent, but we expect this to become clearer over the next few months,” the Treasury’s acting chief government accountant Fergus Welsh said in a statement. “Timing issues are likely to see some of the current variance narrow by year end.”
Finance Minister Bill English acknowledged the growing concern over the lower than expected tax take, which was occurring “despite stronger economic growth.”
“The lower revenue is at odds with other macro-economic indicators that have been broadly in line with the Half-Year Update forecasts and, if anything, point to even stronger economic growth in the second half of the 2014 fiscal year,” said English.
The reduced tax-take was across the board with personal tax accrued 1.4 percent below forecast at $16.46 billion, corporate tax 4.9 percent short of expectations at $4.29 billion, other income tax such as resident withholding tax 1.2 percent below forecast at $1.13 billion, and goods and services tax accrued 3.7 percent below expectations at $9.2 billion.
Treasury officials said some of the lower tax receipts were due to a mismatch in timing between GST refunds and receipts relating to exports and the Canterbury rebuild, and tax revenue from some large corporate taxpayerss not yet visible to the Inland Revenue Department.
Tobacco excise was 11 percent below forecast at $987 million, adding to pressure on the Crown revenue, and the Treasury now expects about $80 million of that reduction to be permanent. The government hiked tobacco excise in the 2012 Budget, which was forecast to raise $1.4 billion over a four-year period, but was raised in part to reduce tobacco use and therefore should fall over time as smokers quit.
The government expects to post an obegal deficit of $2.3 billion in the current financial year ending June 30 before returning a surplus of $86 million the following year. Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages get caught in the fiscal drag of people entering a higher tax bracket.
Finance Minister Bill English said the government is still on track to meet its surplus in the 2015 financial year, but the tax take uncertainty underlined the importance of controlling government spending, even as the economy recovers.
The Crown’s operating expenses were 0.3 percent, or $138 million, lower than forecast at $40.13 billion in the seven-month period, due to delays in finalising Treaty of Waitangi negotiations.
The core residual cash deficit was $4.11 billion, 27 percent below forecast, due to the lower than expected tax take and earlier personnel and operating payments across a number of government departments.
The Crown’s net debt was a bigger than expected $59.9 billion, or 27.7 percent of gross domestic product, while gross debt was below forecast at $83.33 billion, or 38.6 percent of GDP.
The operating balance, which includes movements in the Crown’s investment portfolios and actuarial adjustments, was a surplus of $3.37 billion, $629 million ahead of the December forecast, due to unrealised investment gains from the likes of the New Zealand Superannuation Fund. That compares with a surplus of $4.17 billion a year earlier.
New Zealand property sales fell 7.6 percent in February from a year earlier, which may indicate restrictions on high-debt lending are hindering first-home buyers, according to the industry body representing real estate agents.
Some 6,125 properties were sold by real estate agents in February, down from 6,632 the same month last year, the Real Estate Institute of New Zealand said in a statement.
The median price increased 8.6 percent to $415,000 from the year earlier, possibly reflecting an increase in the sale of higher priced properties as the number of sales worth $600,000 to $1 million rose 9.2 percent, the institute said. Sales below $400,000 tumbled almost 18 percent.
House sale volumes have been dented by the Reserve Bank’s imposition of restrictions on high-debt lending last October on concern an overheated housing market, driven by shortages in Auckland and Christchurch, could threaten financial stability.
“The results for February show further evidence that the national sales volume trend is easing, with only two of 12 regions showing an increase in sales volumes compared to February 2013,” said institute chief executive Helen O’Sullivan. “Some regions are reporting increasing interest from first-home buyers while others report little in the way of activity.”
Property sales volumes increased 29.8 percent from January, reflecting a bounce following the summer holiday period. This year’s increase lags the 10-year average gain of 33.5 percent between January and February, the institute said.
The stratified house price index, which aims to smooth out peaks and troughs and is the preferred measure used by the Reserve Bank, is 8.2 percent higher in February than the year earlier month. The Auckland index rose 16.9 percent to a record, while the Christchurch index gained 6.8 percent.
The increase in prices “may be evidence of more activity taking place in higher price brackets, beyond the reach of most first-home buyers,” O’Sullivan said.
It took two days longer to sell a house in February from the year earlier month. The total value of residential sales, including sections rose to $3.17 billion in February, from $3.15 billion a year earlier.
The New Zealand dollar touched a month-high against the British pound after a Bank of England official talked down the value of sterling.
The kiwi rose as high as 50.92 British pence early this morning, matching the level it reached a month ago, and was trading at 50.84 pence at 8am in Wellington from 50.56 pence at 5pm yesterday. The local currency was little changed at 84.64 US cents from 84.61 cents yesterday.
Sterling weakened after Bank of England deputy governor Charlie Bean said further appreciation of the currency may dent exports and hamper the UK’s economic recovery. The BOE isn’t alone in trying to lower the value of its currency with Australian officials recently making a concerted effort to push down the value of the Aussie to boost economic growth. Traders will be looking to New Zealand Reserve Bank governor Graeme Wheeler on Thursday to see if he comments on the elevated level of New Zealand’s currency in a meeting where he is widely expected to hike rates.
“The Bank of England’s Bean was the latest in a long line of global central bank officials to talk down their currency”, Kymberly Martin, markets strategist at Bank of New Zealand, said in a note. “In this regard, it will be interest to see what the RBNZ has in store for the NZD at this Thursday’s meeting.”
In New Zealand today, the Real Estate Institute will publish its latest figures on house sales for February about 9am. Electronic card transaction data for February will be released at 10:45am while the latest Crown accounts will be published at 10am.
In Australia, the key focus will be on the latest NAB business survey where signs of further improvement may arrest the kiwi’s climb against the Aussie. The New Zealand dollar touched a week high of 93.92 Australian cents and was trading at 93.83 cents at 8am from 93.53 cents at 5pm yesterday.
The local currency inched up to 60.99 euro cents from 60.91 cents yesterday and edged up to 87.32 yen from 87.22 yen ahead of a Bank of Japan meeting today where no change is expected. The trade-weighted index gained to 79.33 from 79.19.
Stocks and commodities including copper and iron ore fell after a surprise drop in China’s exports bolstered concern about the slowing growth in the world’s second-largest economy.
China’s exports sank 18.1 percent in February from a year earlier, according to General Administration of Customs data on the weekend. As a result, copper futures for May delivery shed 1.5 percent to US$3.0355 a pound in afternoon trading on the Comex in New York, extending Friday’s slide of about 4 percent.
In afternoon trading in New York, the Dow Jones Industrial Average fell 0.35 percent, the Standard & Poor’s 500 Index slipped 0.14 percent, while the Nasdaq Composite Index edged 0.13 percent lower.
“Any poor news from China is always going to hit short-term market sentiment, especially in the mining sector, and fears of slower growth will hit base metals,” IPR Capital director Steven Mayne told Reuters.
Slides in shares of Boeing, last down 2.3 percent, and those of Verizon, last down 0.9 percent, led declines in the Dow.
Boeing was dragged lower after saying it would inspect wings for cracks on undelivered 787s, and after a 777 flown by Malaysian Airline System disappeared over the ocean three days ago.
“News of the wing and inspections likely lower first quarter deliveries, plus the 777 aircraft incident in Asia will likely weigh on the Boeing stock this week,” Peter Arment, an analyst at Sterne, Agee & Leach, told Bloomberg News.
In Europe, the Stoxx 600 Index ended the session with a 0.5 percent drop from the previous close. The UK’s FTSE 100 fell 0.4 percent, while Germany’s DAX gave up 0.9 percent. France’s CAC 40 added 0.1 percent.
Concern about the ongoing crisis in Ukraine keeps weighing on markets worldwide.
Meanwhile, Philadelphia Federal Reserve Bank President Charles Plosser reiterated his concern that the US economy might be stronger than policy makers anticipate and suggested the Fed should accelerate the tapering of its monthly bond-buying programme.
On Friday, a report showed American employers added a higher-than-expected 175,000 jobs, while January’s jobs gain was revised up. The unemployment rate rose to 6.7 percent, from 6.6 percent.
“I expect that the unemployment rate will reach about 6.2 percent by the end of 2014, and, if anything, that may prove too pessimistic,” Plosser said in a speech in Paris. “Given the recent trends, an unemployment rate below 6 percent is certainly plausible.”
“Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts,” Plosser said.
SkyCity Entertainment Group’s pledge to maintain dividends at higher levels even as it spends on major developments may see the listed casino company pay out almost all of its second half profit to investors.
SkyCity, which has four casinos in New Zealand and two in Australia, increased its dividend policy last year to annual payments of not less than 20 cents a share and not less than 80 percent of normalised profit. Previously, dividends were cut to 60-70 percent of profits in 2009 in an attempt to reduce debt following the appointment of chief executive Nigel Morrison in 2008.
Based on current forecasts for weak profitability this financial year, the company is likely to pay out 97 percent of its second half earnings as dividends to shareholders, Arie Dekker, a research analyst at Craigs Investment Partners, said in a note to clients. Dekker expects second half profit will fall to $60 million from $66.4 million in the first half reflecting higher depreciation costs following increased capital spending. In the first half, SkyCity paid 10 cents a share in dividends, representing 87 percent of earnings.
“The shift in dividend policy to a minimum of 20 cents per share was put in place to provide investors with some certainty ahead of the major development expenditure,” Dekker said. “As it turns out, while that expenditure is yet to commence in full; the very strong NZ$/A$ and ongoing mixed performance across the group means that the payout ratio in FY14 will be above 90 percent.”
Dekker expects $200 million of capital spending in 2014, slowing to $150 million in 2015 and ramping up again to $235 million in 2016.
Auckland-based SkyCity wasn’t immediately able to say if the company had previously paid a higher ratio of dividends.
The Ministry for Primary Industries has raised its forecasts for exports of dairy products, meat and forestry, citing growing demand and limited supplies of milk, lower US and European beef production and high prices for logs.
The ministry raised its forecast for total primary sector exports in the year ending June 30 by 15.6 percent compared to its estimates last June to $36.5 billion and its 2015 forecast by about 8 percent to $35.7 billion.
The revisions are led by dairy products, which are seen generating $16.69 billion in the current year, up $2.7 billion, or 19.5 percent from its original forecasts last June. The forecast for meat, pelts and wool was lifted by $1.2 billion, or 22 percent, to $6.6 billion and forestry is revised up by $820 million, or 19 percent, to $5.1 billion.
“New Zealand exporters are able to direct product into emerging markets to meet rapidly growing demand,” the ministry said in the report. “This is predominantly increased volume of exports to China.”
At the same time, “supply constraints among our major export competitors (are) causing rising prices on international markets. This is largely due to US and EU diminished dairy and beef production.”
More modest revisions include a $109 million, or 3.4 percent, increase in horticulture exports to about $3.3 billion for the year ending June 30 and a $52 million, or 3.4 percent gain to $1.58 billion for seafood.
The Financial Markets Authority has charged two contributory mortgage brokers for failing to file their annual reports on time.
Christchurch-based Prudential Mortgage and Auckland-based First Mortgage Investments have each been charged for failing to deliver an annual report to the Companies Registrar for the year ended March 31, 2013 by the end of last June, the FMA said in a statement.
“Non-filing of annual reports and financial statements is an issue which FMA takes seriously and we are considering a number of cases where these key documents have not been filed,” head of enforcement Belinda Moffat said. “Ensuring accurate and timely disclosure to investors and promoting compliance with reporting obligations is a key priority for FMA.”
Prudential is set to appear in the Christchurch District Court on March 5, while First Mortgage Investments appeared in the Auckland District Court on Jan. 30 and will reappear on March 20.
The charges have been laid under the Securities Act (Contributory Mortgage) Regulations and carry a maximum fine of $5,000.
Meridian Energy won’t invest further in Australian renewable energy projects if the Federal government’s Renewable Energy Target subsidy scheme is scrapped, says chief executive Mark Binns.
He was speaking at the company’s first half-year profit announcement since its partial privatisation in October.
The Australian government announced Monday that the RET scheme will be reviewed, although Binns was optimistic any change would “grandfather” renewable generation schemes that were built under the scheme.
Meridian is in the final phase of building a A$260 million, 64 turbine wind farm at Mt Mercer, inland Victoria, capable of generating 131 Megawatts. It also owns a smaller South Australian windfarm, at Mt Millar, purchased in 2010 from Transfield for A$191 million.
The expansion into renewables in Australia also saw Meridian go 50-50 in a joint venture on the A$1 billion construction of the Macarthur windfarm in Victoria, the largest such development in the southern hemisphere. Meridian sold its interest in Macarthur in June last year. Its current Australian portfolio has total installed capacity of 201MW, compared with 2,822MW in New Zealand, 415MW of which is wind generation and the remainder hydro, including the Mill Creek project, under construction.
Its trans-Tasman foray in part reflected the lack of opportunities for new renewable generation projects in New Zealand, which is currently over-supplied. Binns conceded today that Meridian’s only New Zealand wind project, the $169 million Mill Creek development near Wellington, would probably not have gone ahead had the company known at the time that it could be facing the closure of the Tiwai Point aluminium smelter, its largest customer, later this year.
In 2012, when the Mt Mercer development was announced, Meridian chief financial officer Paul Chambers said “Australia’s long term regulatory support and the quality of this project ensure that Meridian will get an excellent return from Mt Mercer.”
Its construction would underpin the launch of Meridian’s acquisition brand, Powershop, into the Australian market, which occurred late last year. Serviced by Meridian staff based in Masterton, the Australian Powershop operation now has some 5,000 customers, which Binns said was in line with its business plan so far.
The RET scheme targets 20 percent renewable electricity generation in Australia by 2020, and subsidises wind, solar and other renewable generation options to compete with low-priced coal-fired power stations, which produce much of Australia’s electricity and give the country a heavy carbon footprint.
The scheme is estimated to cost Australian consumers around A$1 a week on the average power bill, and was described in The Australian newspaper this week as a “hidden carbon tax” that was hiking power prices by stealth.
Windfarms in New Zealand run profitably without subsidies.
“The RET is very significant to the renewables industry (in Australia),” said Binns. “The message given if it goes is a significant one. You will see a lot of people will be reluctant to go back into Australia and invest, given the signals given to support renewables.”
A decision on the scheme’s future was unlikely before September and Meridian expected to “survive in a form very similar to what it is currently”, at least for existing investments.
“We won’t invest further before the regulatory situation in Australia becomes clearer.”
On New Zealand electricity sector issues, Binns said the Electricity Authority was slowly moving towards a new regime for sharing the cost of the national grid in a way that was likely to be fairer for South Island generators, such as Meridian, but he doubted a final outcome within the next 18 months.
Meridian instalment receipts rose 1.5 percent in trading on the NZX this morning to $1.05, 5 cents above their listing price in October last year, after the company announced a result for the six months to Dec. 31 that was ahead of prospectus forecasts, although lower than the same period last year.
Underlying net profit, the company’s preferred measure of profitability because it removes distorting items, was $83 million, 6 percent lower than for the same period a year earlier, but 28 percent above the company’s internal half year split of the prospectus forecast, Binns said in an NZX statement.
“Given performance to date, should inflows from this point match the assumptions in Meridian’s prospectus, full year EBITDAF would exceed the prospectus forecast by approximately 7 percent.”
Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments (EBITDAF) was $268.2 million, 3.2 percent below the same period last year, but 6.5 percent above prospectus on the same split basis, Binns said.
Statutory net profit, at $116.9 million was 33 percent lower than in the same period last year, largely reflecting big swings in unrealised changes in the value of financial instruments on Meridian’s balance sheet.
Meridian declared a maiden dividend of 4.19 cents per share, 90 percent imputed, to the 49 percent of shareholders who took instalment receipts in its partial float in October, payable on April 15.
“With hydrology inflows 122 percent of average in Meridian’s catchments, the company was able to maintain a high generation market share (36 percent) during the period,” said Binns. The completion of the new Cook Strait cable connection, known as Pole 3, in November, had also assisted.
“In December, the upgrade resulted in the highest northward flows since 2007.”
Reflecting competitive retail market conditions and low average wholesale electricity prices, Binns said Meridian “does not foresee energy prices increasing until at least June 2015″ although cost increases from the national grid and local monopoly lines networks would be passed through.
Meridian instalment receipts listed in late October at $1, traded up to $1.11 in the following days and then sank as low as 89.5 cents in early December, but have recovered since to close yesterday at $1.035
Shares in Trade Me Group fell to a 19-month low, making the stock the worst performer on the benchmark NZX 50 Index, after New Zealand’s largest online auction site posted lower-than-expected first half profit, raising doubts about its future earnings growth.
Trade Me shares fell as low as $3.68, and recently traded down 6.2 percent at $3.80.The Wellington-based company said first half net profit rose 2 percent to $38 million, slower than the 2.7 percent earnings growth in the year earlier period and below First NZ Capital’s estimate of $40.9 million.
Trade Me employed an extra 50 people in the past six months, taking its total headcount to 350, as it strives to improve its web site, adding more services and functions, in order to grow future profits. Expenses rose 19 percent to $25.2 million, outpacing 6.6 percent revenue growth to $85.7 million. In the second half, the company expects expenses will continue to accelerate at a faster pace while revenue will grow only modestly, leading to “subdued” full-year earnings growth.
“It was a weak result, revenue growth was far lower than expected whereas growth in expenses was quite high, which really meant that net profit was pretty flat so that was very disappointing,” said Mark Warminger, who helps manage $710 million in New Zealand equities at Milford Asset Management. “There is going to be material downgrades right across the board for this year and for next year. It doesn’t really look like the business is going to turn around any time soon especially with poor revenue growth and higher costs going forward.”
Milford sold down its holding in Trade Me, which was spun out of Fairfax Media in 2011, after the shares reached around the $4.50 to $5 level, believing the stock was expensive for what the fund manager considered a low growth company.
The stock is currently trading at around 17 times its expected 2014 earnings, when it should be trading around 14 times earnings given its growth and maturity, Warminger said.
Revenue growth in the latest period was the most disappointing aspect of the result, Warminger said.
Sales from general items fell 1.6 percent as it suffered increased competition as a high New Zealand dollar made new goods from overseas websites more competitive than many second-hand goods from Trade Me, Warminger said.
Trade Me is struggling to boost revenue from new areas, such as the sale of new products through its web site better known for second-hand goods, and its plan to increase fees that real estate agents pay for listing properties through the site, Warminger said.
“Really what it is looking like at the moment is a mature business which is having poor earnings and it is trading on a high valuation which is never a good combination,” he said.
Trade Me reiterated today that it expects stronger profit growth over the course of its 2015 financial year. Before today’s earnings, analysts were expected the company to increase full-year profit 7 percent this year, before picking up to an 11.2 percent pace in 2015, according to analysts polled by Reuters.
“We’ve embarked on a period of reinvestment which will impact short-term earnings growth but ensure the company’s long-term growth and success,” said chairman David Kirk. “We are convinced this is the right approach for Trade Me and we believe investment now will result in stronger market positions and greater growth opportunities in the future.”
Investment in the business had gone well and Trade Me will continue to “invest assertively” in the second half of the company’s financial year, Kirk said.
Trade Me will pay a first half dividend of 7.6 cents a share on March 25.