In addition, companies with a high exposure to Australian retail sales may also be affected if people react to falling house prices by tightening the grip on their wallets.

The final death knell for the New Zealand Stock Market could come next year if a radical proposal is adopted in Australia that would see most companies pay no tax.
The Treasurer, Wayne Swan, is said to have set up a nine-person working group to consider a proposal known as “Allowance for Corporate Equity”.
This would mean no tax would be levied to the portion of corporate profits necessary to get a ‘reasonable’ (but so far undefined) return on equity.
Most companies – especially manufacturers – are likely to fail to meet that hurdle and therefore would pay no corporate tax.
Banks and mining companies make a much greater return on equity and so would be liable for a ‘super tax’ on the excess portion of their earnings.
If a company with a lowish return on equity could pay no tax in Australia, then they would be duty bound to move over there.
The NZX finds it hard enough to persuade companies to come on to the market and stay there and a wholesale flight across could the Tasman could be very damaging.
Potentially, the New Zealand government would have to match the Australian plan to avoid an exodus but we will have to wait and see.
The tax change may not be implemented in Australia but there appears to be widespread support for it, including from the unions.
Also, by putting the tax burden on the banks and resource companies, which can’t move offshore, the Australian government makes it less likely that more nimble companies would do just that.

Latest leading indicators from the OECD show more good news for New Zealand, but little joy for other countries.
The figures for New Zealand, which combine statistics for various sectors that point to changes in the overall economy for up to 12 months ahead, have been rising steadily throughout 2011.
This goes against the trend in the rest of the world and probably is being caused by strong food prices. Since the rest of the world is more industrial than clean, green New Zealand, our economic cycle tends to be different from other countries.
The country showing the worst figures is the UK, where the indicators have been trending down since May 2010. However, the rate of decline has been picking up in recent months and this does not bode well for that country’s economy, which already is implementing austerity measures.
The rest of Europe and the US have also seen downturns.
China has had a gradual decline, which appears to be in keeping with the government’s desire there to engineer a ‘soft landing’ for its economy in order to keep a lid on speculation and inflation.
In Australia, the indicators are showing a gradual upturn after a few months of decline. Its reliance upon resources means it is vulnerable to global growth and this pattern appears in keeping with impacts upon demand for important industrial minerals and energy.
The good news for investors is that, while the rest of the world might slow down in 2012, New Zealand and Australia are sitting pretty comfortably.
That offers encouragement to share market investors, and suggests that increasing exposure is a worthwhile venture.

The New Zealand Shareholders Association Chairman John Hawkins said today that the NZSA was pleased with the decision by Pumpkin Patch Chairman Jane Freeman to reduce the director’s fee pool by $130,000 as part of a wider cost cutting exercise. Hawkins said that this was a clear indication that the Associations broad message that fees should align more closely with size and performance was being heard.

While shareholders were not happy that the former high flying retailer had been so heavily impacted by the economic head winds, possibly exacerbated by an overly ambitious expansion program, they would now feel that the cost was being carried by all involved, he said. The action also indicates that the company is serious about turning its situation around.

The Shareholders Association has criticised some actions by Pumpkin Patch in the past, but on this occasion we are pleased to give credit to the company and directors, said Hawkins.

Pumpkin Patch shares have fallen by 65% in the last year, but rallied by more than 6% after the cost cutting initiatives were announced.

John Hawkins

Chairman

Ph 021 640 588

Sacking a couple of incompetent politicians is not going to solve Europe’s debt crisis and it could well take decades to sort the problems out.

One possible solution, using the European Central Bank’s trillions of euros in reserves to help out ailing members, is not on the table because of deep fears about stimulating inflation.

Germany in particular, having experienced hyperinflation in the 1930s, is particularly paranoid about it. However, there has been no sign of widespread inflation in countries where there has been a lot of fiscal stimulus.

One exception is food prices, which seem to be escalating.

In the US, it has just been calculated that an average family Thanksgiving this year will be 13% higher than in 2010. In India, food prices are up 12.2% over the past year on average. In the UK, latest figures show food and drink prices rising at an annual rate of 5.8% and a forecast of 7.5% has been made for continental Europe.

In New Zealand, the figure is a more moderate 6.2% for the year to September.

Since the price of food affects everyone, but the poor more so, expect further social unrest if this trend continues.

Despite this, the global economy looks like it will avoid a double dip despite Europe’s issues, latest statistics suggest.

Recent good news includes a decline in the US unemployment rate to 9%, the lowest since April, evidence that Chinese manufacturing continued to expand in October and, in Japan, the economy grew in the third quarter, the first time that has happened in a year.

One announcement in particular this week struck me as significant. This was a statement by China’s premier at the recent Apec summit in Hawaii that China wanted to increase its imports. It flagged this as a heartfelt desire to help the rest of the world but in reality China’s leaders are keen to develop an economy that can drive itself based on internal activity, rather than just being a source of cheap goods for the west.

Fortunately, what benefits China will also benefit the rest of the world and this, plus the recent figures, are vindicating the mildly positive upturn in equity markets of the past week or two. Barring further shocks, there is a good chance markets will stabilise at least.

New Zealand Shareholders Association Corporate Liaison Director Des Hunt said today that the NZSA had engaged with Sky City at the highest level in regard to the proposal to increase their director fees.  Hunt pointed out that the increases of 25-33% are well ahead of inflation, which was around 16% since the date of the last increase in 2006. The Sky City directors have told us they want to bring themselves up to the 50^th percentile of equivalent companies he said. They also argue that they need to hire an Australian Director at Australian market rates.

Hunt pointed out that Sky City’s operating performance has been flat since 2008. Revenue 803m against last year’s $804m; EBIT 224.5m against last year’s $221.6m.  NPAT (prior to asset sales) has increased from $108m to $123m, an apparent increase of $15m, but in fact this is due to a drop of $32m in funding costs, because they raised more capital from shareholders and sold some heavily geared assets.

The company argues their Total Return to Shareholders (TRS) is better than many, but Hunt said this ignores the fact that since 2007, the TRS has fallen. We feel that they are really comparing themselves to the greedy majority, whose fees have not moved in parallel with shareholder returns he said.

Hunt said that the Association accepted some increase was necessary, and supported providing additional funds to appoint a deputy chairperson. It had suggested to the directors that they should take 50% this year and the balance next year, dependent on results. This would be a fairer decision to shareholders, and a better reflection of the economic conditions today, he said, adding that it would allow “improved performance’’ to show through.

Hunt said that the Association would prefer companies to consider revisiting director’s fees every two years to avoid large catch-ups, which are difficult for shareholders to assess.

For any company to continue to increase directors’ fees ahead of the CPI without some relationship to shareholder returns is unacceptable he said.

Des Hunt

Director

Contact: 021 669 048

After years of waiting for new companies to come to the New Zealand market, it has been disappointing to see the poor results of two recent floats.
Lightbulb company Energy Mad (MAD) has seen its price drop by 15% in the few weeks it has been listed. This is perhaps forgiveable since the company is a small technology company and therefore high risk and likely to have a volatile share price.
Less encouraging is the poor start of retirement villages company Summerset (SUM). Its shares were sold to investors at $1.40, the lower end of an indicative range, but failed to provide a decent initial profit on its first day trading and since then has been sitting a slightly under the offer price. The New Zealand market is doomed unless it quickly finds a way to introduce some good companies at a reasonable price that will generate some wealth and excitement for investors.
Here’s hoping the looming IPO of Trademe does better. I think the float will be well supported but only because individual investors like to invest in companies they are familiar with. With a price of $2.70 per share, it is at the top end of its anticipated price range and appears, at the least, to be fully priced relative to international equivalents.
Unfortunately, good companies that do decide to list on the local market don’t last particularly long before they are taken over by international competitors.
However, despite some speculation that it could be the precursor to a takeover bid, there is no need to get too excited about the emergence of US institutional investor Blackrock on the Telecom Corporation (TEL) share register. Blackrock revealed recently it had built up a 5% stake.
Keep in mind that the $220m or so Blackrock has spent on its investment is a mere drop in the bucket of its $4 trillion or so in funds under management. The investment is spread over 16 entities and I believe this is just a routine investment into this part of the world. No doubt the dividend offered by Telecom is part of the appeal, which is very high by US standards.
I am not a big fan of Telecom and think the benefits of its breakup are already reflected in the price.
Once the Trademe float is over, the next excitement will be the float of some government-owned entities, principally energy companies, next year. I am convinced these will be priced to ensure a good start so investors should pursue these with enthusiasm.