The O'Brien Column: NZ retailers in Australia could be heading for a tough month

Friday 1st December 2000

The Warehouse Group chairman Keith Smith could have been speaking for many listed companies when he told the company's annual meeting last week the Christmas trading season was such an important part of the group's sales and profitability.

Mr Smith's comment was made in the context of his view that the Warehouse was placed well to compete for the shrinking consumer discretionary dollar.

It was also related to the point that the company would not be able to predict the effect of the Australian and New Zealand economies on the first-half performance until it released quarterly sales figures in early February.

Mr Smith said New Zealand consumers were having to fund higher petrol and tobacco prices and mortgage increases while the weak New Zealand dollar was adding to consumers weekly grocery bills.

It would take time for the improvement in the export sector to feed into the domestic economy and an improved outlook for retailers such as The Warehouse.

Mr Smith said the company's observations were that Australian retailers may have a difficult Christmas, although the introduction of GST and the Sydney Olympics had complicated an accurate reading of the Australian retail sector.

Assuming The Warehouse's view of Australia's Christmas trading proved correct, other New Zealand retailers operating in Australia, such as Hallenstein, Glasson and jeweller Michael Hill International, could find December a tough trading month.

That will be known when the companies issue half-year reports in the coming months.

That economic developments affect companies in different ways was seen in freight company Mainfreight's report for the six months ended September 30.

Mainfreight said its New Zealand provincial branches were benefiting from the rural upturn and revenue gains had been achieved through existing and new customers.

The company's half-year profit of $812,000 was well down on the $3.04 million recorded in the corresponding period of the previous year, but there were unusual costs associated with the acquisition and reorganisation of Australian company K&S Express, and Mainfreight took up a share of a loss in its US associate company, Carotrans.

Part of the "rural upturn" referred to would have come from the decline in the New Zealand dollar, a matter mentioned in the half-year report from Nuhaka Farm Forestry Fund.

Perpetual Trust general manager Stephen Eaton said demand for logs from Nuhaka remained high and the fund was now benefiting from a further increase in production, a weak New Zealand dollar and the ability to provide logs to diversified markets, both domestic and export.

Nuhaka's report was significant, because the fund made its first distribution to unitholders.

The fund was formed in 1974 as a group investment fund and began planting forests on the North Island's East Coast, with harvesting projected for the period 1998/2007.

The value of the units grew in line with the growth of the trees. At the end of 1980, for example, they sold for $2.70, but were $13 last week. There was an increase in the number of units over the years from the original 1.39 million to the current 1.77 million.

People who were prepared to treat the units as a long-term investment did well in absolute terms, but the net gain has to take account of inflation and the opportunity cost of sticking with the investment rather than putting money elsewhere.

The Nuhaka report referred to an unseasonably wet winter inhibiting production, resulting in production of 45,000 tonnes rather then the planned 51,300 tonnes.

The weather this winter was another factor in improving the outlook for the rural economy but, like other matters, had the reverse effect on some companies including energy specialist Contact Energy.

Acting chief executive Steve Barret was succinct when summing up weather's influence on his company. "Contact performs best when the weather is cold and dry."

The wet, warm, winter depressed wholesale electricity prices and retail demand.

Rain and warmth apparently fed on each other in regard to contact. Heavy rain meant storage levels in South Island lakes were 58% above average at the end of September, putting downward pressure on wholesale electricity prices.

Mr Barret said this year's winter was the second warmest on record since the 1850s, weakening retail demand for electricity and putting more downward pressure on wholesale prices.

It can be seen as a strange world when South Island farmers rejoice in and benefit from drought-breaking rain and energy companies lament the same rain and accompanying warmth.

Such a dichotomy will probably appear again when companies and shareholders do their sums after Christmas,

Some will be very happy and some very sad, but the latter can reflect that even Scrooge eventually saw things in a different light.

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