Don't blame Australian syndrome when our investments turn sour

Friday 14th September 2001

Some New Zealand companies seem to be suffering from the effects of Australian syndrome, a debilitating condition well known to our sports teams.

Comments that weak Australian market conditions affected company profits appeared regularly in preliminary results for the latest reporting round and, in some cases, there were signs of earlier investments in Australia either taking longer than expected to become profitable or turning sour.

Air New Zealand's acquisition of the whole of Ansett was in the latter category. The airline had yet to report when this column went to press, but a substantial loss was expected, coming mainly from the Ansett investment.

Screeds have been written or broadcast about Air New Zealand in recent weeks and there is neither the intention nor desire to add much to the saga here, apart from two matters.

It is not being wise after the event to suggest Air New Zealand's analysis of Ansett before full acquisition may have lacked depth, particularly in regard to the state of the Australian carrier's fleet and the competitive environment.

The second point related to Air New Zealand's slumping share price and its effect on 30% shareholder Brierley Investments, another company whose report for the year ended June 30 was awaited at the time of writing.

BIL's report to the Stock Exchange for the six months ended December seemed over-optimistic about Air New Zealand. Chief executive Greg Terry said the airline had experienced a very disappointing first half, with operational performance likely to remain disappointing in the second half.

"However, a completely new management team is now in place, with a new corporate structure and a new strategy. The strategy will see the completion of the Ansett integration as well as initiatives to enhance co-operation with Singapore Airlines."

Air New Zealand and BIL, through its investment in the airline, are not the only companies having problems of varying magnitude in Australia, although the impact on the "others" was nowhere as spectacular as the Air New Zealand/Ansett affair.

The Warehouse Group said its Australian discount retail operations in the year ended June had lower than expected operating earnings as a result of a decision to clear slow-moving inventory.

Operating "earnings" from Australia were a loss of $NZ1.54 million on sales of $NZ404.5 million. The operation margin was -0.4%.

Australian operations were expected to improve considerably in the current year, with August sales (in Australian dollars) 14.6% ahead of the same period last year.

Problems in Australia were advised to the market well before balance date, causing a short-lived drop in the share price. The stock recovered before taking a (probably) short-term knock after the profit announcement.

Telecom also took a hit in Australia when it had an abnormal expense of $215 million, before tax, arising from the closedown of a CDMA mobile network in that country, a joint venture between Telecom's AAPT and Lucent Technologies.

That was one-off abnormal item and only part of Telecom's substantial asset and revenue base, but it happened in Australia through an Australian subsidiary and cut bottom-line net profit for the year ended June 30.

Comments about difficult trading conditions in Australia over the past year were common in the reporting round.

Retailer jeweller Michael Hill said its Australian company experienced very difficult trading conditions in the first three months of the last financial year, associated with the introduction of GST on July 1, 2000.

Earnings before interest and tax (ebit) in New Zealand improved 7.3% over the previous year to $7.64 million, but in Australia were down 4.3% to $A8.18 million.

Transport operator Mainfreight's Australian domestic business lost $NZ2.38 million in the three months ended June 30, after a loss of $NZ10.54 for the year ended March, but the company said the situation was improving.

Rural services group Wrightson lost $3.9 million on its Australian potato business, since sold, and has had to reorganise its seeds operation in Australia.

Other companies had similar experiences but say conditions are now better. That suggested companies suffering form Australian syndrome should keep their composure. Sportspeople take note.

Comments from our readers

No comments yet