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YEAR IN REVIEW: NZ economy rocks on as milk's star fades

Monday 29th December 2014

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2014 was a year of the rockstar economy where New Zealand was a top performer compared to other OECD countries with an annualised GDP growth rate of 3.5 percent while inflation remained in check.

The economic uplift boosted business confidence and the employment rate even though it was mainly due to the Christchurch rebuild and Auckland housing boom. It also attracted record numbers of migrants including returning Kiwi expats deciding the grass really was greener on this side of the Tasman.

It was a year of falling oil and commodity prices – in particular for dairy which doesn’t bode well for dairy farmers and the rural communities they impact in the 2004/2015 season despite increased milk production.

When people tired of talking about dairy prices and Auckland’s housing boom and potential bust, there was always Shanghai Pengxin to get them going.  The Chinese company, famous in New Zealand for the Crafar farm wrangle, got regulatory approval earlier this year for its $85.7 million compulsory acquisition of Synlait.  It is still awaiting approval for the second-biggest foreign acquisition of New Zealand land, Lochinver Station near Taupo, which is valued at more than $70 million.

In other business outcomes, the ports and the banks made record profits this year while most exporters continued to struggle to make good margins against a strong currency. The share price of former market darling, Xero, returned from stratospheric heights of $44.98 per share in March to a more rational $16.35 per share in December. Telecom spent $20 million on a controversial rebrand to become Spark in August while Fletcher Building sold off its Pacific Steel for $120 million earlier in the year to Australia’s Bluescope Steel to focus on residential development.

Retailers continued to have a hard time with Postie Plus putting it itself into the hands of administrators after making an $11.6 million loss last year. It was sold to South African-based Pepkor in July for an undisclosed sum. Pumpkin Patch auditor PwC flagged the loss-making retailer might have difficulty continuing as a going concern if it couldn’t meet banking covenant agreements with its bank, the ANZ. Its net bank debt has risen 34.4 percent to $64.9 million while its share price has dropped nearly 75 percent for the year to 20 cents per share.

Listed food and beverage sector investment company Veritas has been on a spending spree. Its latest acquisition was The Better Bar Company which owns gastro pubs in Auckland and Hamilton and is its fourth buy since purchasing the Mad Butcher franchisor business in May last year.

And what’s corporate life without a board dustup – Abano Healthcare came out the winner when dissident shareholders Peter Hutson and James Reeves failed in an attempt mid-year to oust chairman Trevor Janes. The Financial Markets Authority later filed civil action against Hutson and private equity firm Archer Capital for failing to notify the market earlier than they did about a deal for a takeover bid for Abano, which subsequently failed.

Our regulators kept busy this year with the FMA approving crowd funding and peer to peer lending and ushering in the “once in a generation” Financial Markets Conduct Act which introduced a new fair dealings provision. Auckland utilities software company, Gentrack - one of a spate of initial public offers on the NZX this year – got told off by the market regulator for failing to make risks in its May prospectus clearer after the company issued a profit downgrade six weeks after its IPO and New Zealand’s first market manipulation case saw Brian Henry of fined $130,000 over breaching market manipulation laws by trading in NZX-listed Diligent Board Member Services shares.

A $22 million settlement was reached with the former directors and advisers of failed finance company Strategic Finance, and an $18.9 million settlement was also agreed between the Bridgecorp receivers and its directors and liability insurers in exchange for the FMA dropping civil proceedings. Both the FMA and Commerce Commission reached an $18.9 million settlement with the ANZ this month over interest rate swaps sold to farmers and negotiations are continuing with Westpac and the ASB.

Serious Fraud Office action saw Malcolm Mayer jailed to six years for a $47 million mortgage fraud while lawyer Hugh Hamilton got four years nine months jail time for fraud charges in relation to $12 million of loans at Belgrave Finance.

In other court action the long-running South Canterbury Finance trial saw former chief executive Lachie McLeod and director Robert White walk free while another former director Ed Sullivan was sentenced to 12 months’ home detention and 400 hours of community work after being found guilty on five of nine charges, mainly relating to making false statements in prospectuses.

In another long-running action, the High Court found the directors of failed carpetmaker Feltex were not liable in a case brought by Eric Houghton on behalf of shareholders who claimed misleading statements were made in the 2004 investment statement and prospectus. 

The Commerce Commission let Countdown off the hook following an inquiry that ran most of the year into allegations raised by former MP Shane Jones under Parliamentary privilege that the supermarket chain had been bullying its suppliers. The antitrust regulator also found nothing untoward in its probe into Fletcher Building’s dominant position in the plasterboard market.

Its draft determination on what Chorus can charge retail services providers for access to its traditional copper lines and broadband network has seen Spark threaten imminent price increases.

Dairy giant Fonterra continued to suffer the fallout from the WPC80 botulism scare, getting fined $300,000 from Ministry of Primary Industry charges over the incident and is still facing a multi-million dollar compensation claim from Danone, parent of infant formula maker Nutricia, which will go to arbitration early next year. Two inquiries into the saga so far have made recommendations on what could be done better in relation to food safety while a third inquiry report on how the problem was handled is still sitting with government ministers.

Tweet of the year went to Trade Me founder Sam Morgan who ruffled the unflappable Steven Joyce’s feathers by tweeting funding to help some companies grow faster was “corporate welfare”.

Emerging trends this year included big data just getting bigger, the rise of crowd-funding, the on-going uptake of mobile devices and apps for everything, and a global shift to what MyWave founder Geraldine McBride called digital Darwinism. Traditional business models are being digitally disrupted with the power being put into consumer hands.

Nowhere is that more evident than in the media space, where consumers are increasingly demanding more choice in paid television content and where there is demand, you’ll find competition. Traditional broadcasters such as Sky Network Television, Television New Zealand and MediaWorks are being challenged by newcomers including American online video and movie subscription service Netflix arriving in March and Spark launching its Lightbox on-demand online video service during the year.

Media ownership is also changing with Mark Weldon seemingly readying MediaWorks for a potential sharemarket float later next year while NZME (former APN) has delayed doing the same until the first quarter of next year, supposedly so forward-looking revenue looks better. Who knows, as with paid TV content, 2015 may also see the rise of alternative media ventures to take on the mainstream media.

 

 

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BusinessDesk.co.nz



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