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New economy firms add twist to rural-city economic divide

Friday 11th August 2000

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PETER V O'BRIEN finds wide-ranging effects from uneven conditions in companies that report on June 30

Uneven economic activity is starting to show up in results from companies with a June 30 half-year or full-year balance date.

Although The Warehouse Group's latest sales figures were not related to the company's profit, the slowdown in growth was confirmed when Statistics New Zealand issued retail sales figures for the June quarter.

The Warehouse's sales for the three months ended July were $293.3 million, a 10.2% increase on the $217.1 million in the corresponding quarter of the previous year.

Group same-store sales were 5.8% higher than in the same quarter of 1999.

The sales' report for the three months ended April was released in May and showed same-store sales were 12.4% up on the April quarter of last year.

Statistics New Zealand's figures for the June quarter put seasonally adjusted retail sales 1% ahead of the previous quarter.

The Warehouse chief operating officer Greg Muir indirectly confirmed uneven economic conditions when he said the company's sales in non-metropolitan areas were "going better" than in metropolitan areas. That reflected the relative strength of the export sector while the domestic sector appeared to be flat.

The conclusion was logical, given rising export prices and recent declines in the exchange rate. They were good for the rural sector but unfortunate for non-rural areas where the higher cost of imports, particularly petrol, would affect consumer spending power.

Another angle on the domestic economy was seen in the "outlook" section in Carter Holt Harvey's report for the three months ended June 30.

The company said activity in New Zealand, particularly residential construction, had continued to slow.

It expected demand for logs and pulp in Asian markets would remain solid in the current quarter, while the market for linerboard may soften in the short term as regional demand and supply rebalanced.

The overall outlook was mixed but the company intended to ensure the quality of earnings would be maintained through a continued focus on performance improvement.

Carter Holt also said the New Zealand market for wood products had slowed from its peak in the previous quarter. A contraction in the domestic market had a negative impact on the Whakatane cartonboard mill's result and, in the packaging sector, the declining domestic market adversely affected Carton New Zealand, although that subsidiary lifted earnings compared with the same quarter last year.

Tranz Rail's report for its fourth quarter and for the year ended June said the company continued to benefit from strong export commodity markets.

Agricultural products and coal moved at greater volumes than seen in recent years.

On the domestic side, freight markets appeared to have slowed in the June quarter compared with earlier in the year.

Tranz Rail was managing to service the increased levels of freight business at lower average costs than in previous years in all cost areas, except fuel where recent prices continued to affect the company. Fuel price rises in the year ended June had an adverse impact of about $14 million.

The company would be focusing on improving service levels and the quality of revenue and that plus the impact of fuel costs, were likely to result in more freight rate increases.

An increase in rail freight rates must put more pressure on the domestic economy. Other transport forms - trucking for example - would also have to look at freight rates if fuel costs eroded margins.

Waste specialist Waste Management NZ's report for the six months ended June said the company had a strong half year and the directors expected a full-year result that would meet market expectations, subject to no major downturns in the economy.

While it may seem strange a company that specialises in waste disposal, or recycling, could suffer from an economic downturn, it should be remembered Waste Management's operations include industrial and commercial waste. A dull economy could effect waste volumes in those areas, a matter softening the "where there's muck there's brass" adage.

The four companies considered could be described fairly as "old economy."

It was probably no coincidence two other groups reporting last week, Renaissance and Freightways Express Services, have interests in the "new economy."

Renaissance operates in information technology distribution, ebusiness and education-information technology. Profit for the six months ended June increased 77.3% to $626,000, compared with $353,000 for the same period last year.

Renaissance said the outlook was positive across all its divisions and continued to invest in them in a time of general business pessimism.

Freightways Express' main business is courier services, DX mail, records management and contract distribution but it has moved into e-commerce activities which were said to have attracted "strong interest" and would assist the company in future.

It seems an old economy-new economy differentiation is accompanying the traditional rural-non-rural differentiation.

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