Saturday, May 28, 2011

carbon taxes & dairy flatulence

How much carbon in my milk? Well, not actually in the milk, so to speak, but according to evil foreign New Zealand dairy multi-national Fonterra there is about 1kg of CO2 equivalent emissions in every litre of milk. This mostly comes as methane from the cows.

Carbon E. Coyote at Macrobusiness points out that "if all emissions were taxed, or charged, and the carbon price was $20/t CO2e, that’s 2c per litre of milk, or 4 cents per 2 litre bottle. That’s right 4 cents. Meaningless in the scheme of things, especially in the context of the recent dairy wars that have seen milk shelf prices drop substantially."  However, even such agricultural emissions are currently ruled out for later review under the proposed carbon tax.

The controversial milk price war started by Coles has produced almost as much flatulence from the dairy farmers as their cows. This flatulence drew some responses, particularly from Stephen King of Monash, and previously with the ACCC, at Core Economics. King points out that the losers from the dairy price war should be the bulk processors, not the farmers.

KS was pleased to recently see Mungalli Farm, our most prominent local food brand, recognised for the quality of their products. Depite premium prices Mungalli have problems maintaining supply to meet demand. Mungalli now accounts for 10% of Tablelands dairy farm supply.

A hearsay passed on recently was that a supplier to Mungalli had pulled out because it was too onerous to meet the Mungalli quality criteria rather than just supply the cheap bulk milk. Just hearsay!

Qld regional price indexes

Our ABC has posted on the recent release of a survey and report of the Index of Retail Prices in Queensland Regional Centres, May 2010, Office of Economic and Statistical Research, Queensland Treasury.

"The survey was conducted in May 2010. The information is expressed in the form of index numbers, which allow comparison of relative retail prices between selected centres and the average for the Brisbane Statistical Division (Brisbane) at the time of the survey."

There is not much surprising in any of the results with differences betweeen regions principally related to housing (BNE is 100 oon all indexes):

"The differences between the centres with the highest and lowest indexes also varied considerably across the various index types (see Table 1). While the range for the All items index was 21.8 index points (from 92.1 to 113.9), the Housing index had a range of 108.7 index points (from 56.7 to 165.4). When housing is excluded from the overall index, the variation is reduced to 8.6 index points. Substantial ranges in prices were also recorded for Clothing and footwear (39.4 index points), Alcohol and tobacco (24.7 index points), Recreation (24.1 index points), Food (19.4 index points) and Household content and services (18.7 index points)."

Cairns: All items 99.2; Housing 88.8; All items ex housing 101.9

Friday, May 27, 2011

decline of manufacturing a good thing?

We often hear much angst about the decline of manufacturing and jobs moving offshore. Carpe Diem has posted a chart of this as "a global phenomenon as the entire world becomes increasingly a services-intensive economy." 
"The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16-17% of total world output compared to 1970, when it was almost twice as high at 26.7%. And for that progress, we should applaud, not complain."

change happens again

The Journal of Ignorance has posted an unusually positive story on the CRC scheme to scrap headwork costs for developers. This would appear to be another positive stimulus. There are two key underlying themes reported here which hit on some previous posts at Loose Change.

1. There is a problem with business finance, significantly impacting coastal Qld economies, which rather than bank bashing, can only be solved with Federal policy initiatives which are not evident anywhere, with no evidence the local Feral Member can see beyond his beer gut?

2. There is a problem and blame game with Council charges everywhere in Australia for new development and affordable housing. This has actually been a subject of economic debate for years and years now in all states. The Qld State Guvmint has now moved to regulate these charges by Council ..... but entirely unreported in local mejia.

The other point of note is that this story features new first time developers in Cairns. The cry babies who bemoaned the collapse of the local heroes have failed to look at history. Always failed developers are replaced. In the 'recession we had to have' some went to Majorca while others spent time in custody of Her Majesty. They were replaced by others. Happens every time but the world moves on ......

P.S: Only a charlatan will offer you an affordable, politically popular solution that fits on a page.

Thursday, May 26, 2011

Construction Data

Macrobusiness blog has posted some charts and commentary from yesterdays release of ABS construction data which emphasise the weakness in Queensland residential construction.

Queensland shows a classic boom and bust with similar weakness also in the resource state of WA. Again (sounding like a cracked record) construction weakness in Cairns is not something unique but widespread throughout Queensland.

RBA Deputy Guvnor Ric Battelino has also made reference to similar trends in a speech today with reference to mortgage loan arrears:

"Recently, it has been parts of Queensland and Western Australia that have shown a deterioration in loan arrears, albeit from low levels. As had been the case in Sydney earlier in the decade, the recent increase in loan arrears in these states followed a sharp increase in housing loans and unusually strong rises in house prices between 2006 and 2008. Some part of this was justified by the emerging resources boom but, as had occurred earlier in Sydney, this was accompanied by some lowering of credit standards and increased speculative activity, with the result that some households over-extended themselves. Adding to the stress on household finances was the fact that both these states experienced larger-than-average increases in unemployment during the 2009 downturn, though again from relatively low levels."

Wednesday, May 25, 2011

Nick Dalton reports two month old 'news'

Nick Dalton, business editor at the Journal of Ignorance, has a story today under the headline 'Cairns Reef Casino reveals taxing year'. This story, posted ahead of the Reef Casino AGM this afternoon, is entirely based on the Reef annual report released more than two months ago now for the year ended December 31, 2010.

Reef have now released the Chairman's and CEO's address to the AGM today, and an update for the current half. The CEO particularly noted the potential of direct flights from China. The tone of the update is quite optimistic. Many may be surprised to learn the Casino is trading well ahead of the equivalent period last year. 

"In the first 4 months of this year, rentals paid by the Reef Hotel Casino to the Trust have recorded strong growth compared to the same period last year. Consequently, Trust distributable profits for the first 4 months came in at $3.48 million (compared to $2.41 million for the first 4 months last year) and have already exceeded the distributable profit for the first half of last year which was $3.25 million."

"While there is some reason to be optimistic, it is our view that 2011 will again present as a challenging year. There are some positive signs that Cairns’ and the Far North Queensland region are slowly recovering from the global financial crisis and that tourism is generally improving from a sluggish 2010."

Regardless of any negative perceptions around gambling and its role in the local entertainment community the casino continues to impress as a well managed and structured business, at least relative to some other fallen angels.

It's time to justify Guvmint spending in regional Australia?

That is the question proffered by the Grattan Institute in a new report.

"For nearly a hundred years, governments have spent a lot of money trying to promote economic growth in regional Australia. This year’s Federal Budget was no exception, with $4.3 billion worth of programs announced to help ``unlock the economic potential of our regions’’. But governments are already spending more than $2 billion a year on programs for regional Australia that fail to produce the economic growth they are explicitly designed to achieve.

Op-eds in the AFR and at The Conversation provide an overview which includes:

"The report, Investing in regions: Making a difference, shows that governments already spend more than $2 billion a year on programs that fail to achieve what they explicitly set out to do – make slow-growing regions grow faster. Local job-creation schemes, regional universities, small-scale road and major infrastructure programs are not only expensive, they do little or nothing to accelerate slow-growing regions."

"Building infrastructure does not produce economic growth unless there is already a skilled workforce and an expanding private sector to exploit it. Job creation schemes are expensive, require continuing support and tend to divert jobs from elsewhere rather than create new ones."

The contents includes sections such as: "Aiming for equal economic growth in regions is unproductive" and also includes some controversial analysis on the impact of a university on the growth of a regional centre.

The report divides regions into "bolters" and "lagging". Cairns, along with many Queensland regional coastal cities, is included as a bolter based on past population growth, despite the current recession and despair.

Further commentary at Queensland Economy Watch.

Redcape recapitalisation

Corporate activity around the ex-Hedley pub fund with Redcape coming out of a trading halt this morning to announce a potential proposal to recapitalise the group. Last week a consortium of investment funds, led by Goldman Sachs, acquired a 39% stake in Redcape's senior bank debt, including voting rights.

Redcape has been advised by the consortium that it is interested in a proposal to underwrite a recapitalisation of the group. The has now blocked the proposal to sell 20 pubs to the private Laundy Group, which requires approval of the banking syndicate.

Redcape director are currently investigating the terms of the proposal which is where the interest will lie for existing shareholders with potential for dilution. Redcape is down 5c (20%) on the news with  a quite high volume traded.  KS has previously commented on the stark difference in performance between Redcape and the ALE (ASX:LEP) pub group after that group raised capital from shareholders early in the GFC to cut debt. Similar capability has been constrained for Redcape by the Hedley holding.

Tom's receivers continue to hold a majority stake with board representation. The most recent top 20 holders list also included local business identity Greg Kern (who remains on the board), ex-Hedley CFO Donnelly, and Tom's partner Jeannine Cooke. It would be presumed that Redcape has also maintained a number of local smaller investors following the high profile float in 2007, which also included an allocation to Hedley employees.

Update: AFR (paywalled) has reported that Goldman Sachs and US hedge fund York Capital purchased their debt stakes from Westpac and BoQ for about 80c in the dollar. The recapitalisation move is likely to heavily dilute existing unit holders. AFR reports the receivers are unlikely (unable) to participate in any rights issue. There seems to  be quite a bit of confusion around the current status of proposed deals. There is much nastiness going on with Laundy apparently annoyed that life-long banker Westpac has sold out on them. This sore has festered too long!

Tully takeover tussle #2

The Tully Mill takeover tussle is ongoing with the evil foreigners upping their bids above the Mackay QSL consortium. As expected the commmentariat at The Journal of Ignorance is not immpressed with a foreign takeover. Tully rejected a scrip based takeover offer last year from the now Cairns based MSF.

It was interesting at the weekend to see The Courier-Mail report the MSF proposal to move HQ to Cairns while the Journal of Ignorance simply reported the profit downgrade with no mention of the move.

"Having taken a big position in the north Queensland industry in the past year, MSF is about to move its headquarters to Cairns.

That distressed tourism destination will no doubt be grateful to have a significant corporate head office come to town."

Also of interest this week, Elders half yearly result reported a $9.2 million cyclone damage loss to their North Queensland forestry assets. Elders also signalled disposal of these red mahogany MIS (managed investment scheme) plantations. MSF has indicated that failed forestry MIS could be a source of additional cane land.

Sunday, May 22, 2011

Australian dollar raptures bogans

Kitchenslut was partaking of a Sunday morning browsing on his laptop in bed, with an infusion of single origin Ethiopian coffee, when he came across an interesting link at the blog of Harvard economics professor Greg Mankiw to save beloved pets left behind by raptured Christians.

"You've committed your life to Jesus. You know you're saved. But when the Rapture comes what's to become of your loving pets who are left behind? Eternal Earth-Bound Pets takes that burden off your mind.

We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you've received your reward. Our network of animal activists are committed to step in when you step up to Jesus.

We are currently active in 26 states, employing 40 pet rescuers. Our representatives have been screened to ensure that they are atheists, animal lovers, are moral/ethical with no criminal background, have the ability and desire to rescue your pet and the means to retrieve them and ensure their care for your pet's natural life.

Our service is plain and simple; our fee structure is reasonable. For $135.00 we will guarantee that should the Rapture occur within ten (10) years of receipt of payment, one pet per residence will be saved. Each additional pet at your residence will be saved for an additional $20.00 fee."

Mankiw saw this as an example of the profit motive providing a market. Kitchenslut saw this as a strategic opportunity for Cairns. This is an opportunity to diversify the economy with a new industry and income stream. We can offer Cairns as a global sanctuary for post-rapture abadndoned pets.

This would be similar to the recent proposal to offer Cairns as a refuge following the Japanese earthquake. We have a significant marketing advantage here, as we all know in the Far North, being able to offer the saved pets their own paradise here on earth. Not something that can be offered in Iowa or Montana.

This scheme also delivers an immediate cash income stream to support the local economy. Kitchenslut intends to pass this idea on to Paul Freebody who has previously seen the light in adapting innovations from the USA with his Car Wash Cafe.

Rapture is something also impacting the Cairns economy in a different way. The broader definition of rapture at freedictionary is: "The state of being transported by a lofty emotion; ecstasy." It is just this rapture for the Australian dollar identified by Boganomics

"On Monday, 31st January 2011, the bogan woke to find the lemon-coloured morning sunlight playing whimsically on the folds of its Ultimate Fighting Championship bedspread. On this glorious day, the Australian dollar had surpassed the US dollar for the first time since its float in 1983. The bogan reclined in its bed, entertaining pleasant fantasies of magic omelettes, maxtreme tats, hair extensions and an orgy of full moon madness, not to mention monstrous bright pink Hummers costing just a week’s salary. The bogan was king of the world, right where it belonged. Chants of “Aussie Aussie Aussie, oi oi oi” could be heard rattling up the McMansion-lined avenues of suburbia."

This Australian dollar rapture has transported our bogans away from Cairns to Bali, Thailand, Bali, Thailand, and shopping expeditions to the USA. Perhaps a strategy to counter this would be an offer to redeem fees paid by clients to save their pets, for tourism to Cairns.  For example any un-enraptured client who travels to Cairns could rebate their upfront fee on, say, Great Adventures, Skyrail, or an all-you-can-eat-during-your-entire-stay voucher at the Night Markets food court.

This would replace our elsewhere transported, dollar enraptured bogans with incoming un- enraptued Jesus-loving Christians. This is just the sort of innovative marketing entirely absent down at TTNQ!

Kitchenslut has noted the use of polemic slogans by the Editor-at-Loose, Gavin King, following the technique of his journalism mentor, blogger and macca-acolyte, Raj. This is usually "Cairns needs blah". Just a single 'blah' as it's important for the slogan to be succinct and absent any rationale. So it's fair enough for Kitchenslut to follow this style


Note: has already posted on the post-rapture pet care phenomenon. Boganomics also posts at Things Bogans Like.

Saturday, May 21, 2011

Hey! That sounds good for Cairns!

"Looking ahead, a growing Asian middle class will boost demand for our commodities, and for our services exports - education, tourism and professional services - and for niche, high-end manufactures."

- Ross Gittins, veteran economics columnist at The Sydney Morning Herald.

A useful Saturday morning antidote to yet another moronic polemic rant at The Journal of Ignorance. KS economic themes align with Gittins in his messsage of structural adjustment and change which needs to be embraced rather than resisted.

"Why is there so much discomfort in the community about this transformation? Because it involves change and change is often difficult. Because the short-term costs of adjustment are concentrated in particular sectors. But also because what's happening - the longer-term structural nature of the change - is not well understood.

People need to be reminded, for instance, that a higher exchange rate helps spread the benefits of the resources boom through the community by reducing the price of imported goods and services.

They need to be reminded the economy is always changing - far more than we realise. Each year, about 300,000 businesses are born and a similar number die. About 2 million workers start new jobs and a similar number leave their jobs. And about 500,000 workers a year change industries.

The gravity point of world trade is shifting closer to us, giving us the opportunity to become a lot richer."

That last point was previously graphically demonstrated with our post The World is Getting Closer.

Friday, May 20, 2011

MSF to Cairns

Maryborough Sugar Factory has held their AGM this morning at Gordonvale. MSF have downgraded their profit forecasts, as reported at BusinessSpectator. They have also announced that the company will be renamed to MSF Sugar Limited and their head office will be re-located to Cairns.

"We will be re-locating the head office of MSF Sugar Limited to Cairns. We
believe this further demonstrates our commitment to the region and is what is
required to continue to build and grow a world class sugar business."

The name change and move reflect that the business is now largely based in the Far North. MSF merged with Mulgrave Mill a few years ago, and has recently acquired South Johnstone and Tablelands, as well as the now closed Babinda Mill. A positive move which draws attention to the agribusiness opportunities in the Far North, far preferable to the economically dubious idea of moving public servants to Cairns for the sake of it as a kind of regional welfare, rather than economic sense or efficiency.

Random observations from the CEO and Chairman presentations:

  • Much on sugar markets including recent price weakness on strong Thai production. A Thai company, with substantial operations in China, is now the largest holder in MSF just below the 20% takeover threshold. Local shareholders remain prominent following the Mulgrave merger.
  • The $AUD has not eroded competiveness so much because currencies such as Brazil have been almost as strong. There is a curious spray from the Chairman on irresponsible US monetary policy. There is much intellectual debate on this, however the logical presumption should be that the Chairman has all his assets in gold rather than sugar?
  • Capital spending on operational mills and rehabilitation spending on Babinda a positive.
  • Despite  closure of Babinda there is still surplus mill capacity and strategy to actively increase cane supply.  

Thursday, May 19, 2011

Crisis? What crisis?

April regional unemployment numbers from ABS just out this morning and the numbers for the Far North are all good, and the best for some months with the arrival of fine weather, as previously fearlessly predicted.

The unemployment rate fell from 10.6% to 7.9%. Total number employed jumped by 9,000 for the month. Number unemployed fell at the same time as the participation rate increased to healthier levels. The divergence between male and female unemployment closed.

For those convinced that we are victims of some kind of our own localised recession in Cairns, deserving of special regional handout treatment, the unemployment rate here is now similar to Gold Coast. I also note an obscure snippet at the botton of page four in yesterdays Composted hard copy that CRC has the third highest rate of development application approvals in Queensland. I blame Val Schier for stopping all those developments!

Disclaimmer: The ABS regional stats can be volatile month by month and some numbers this time are flagged with sample warnings. We await the spin at the Journal of Ignorance.

Tully Sugar Takeover Tussle

The Australian today has good coverage of the three way takeover tussle for Tully Mill. Shareholders yesterday voted in favour of a constitutional change which would allow a takeover. The change had previously been defeated with a blocking vote from Qld Sugar. A takeover would inject a healthy amount of cash to growers and the local economy.

Sugar growers voted in favour of a change to Tully Sugar's constitution, which will allow any one individual shareholder to own more than 20 per cent of the company's shares.
The three bidders for Tully -- Bunge, Cofco and Mackay Sugar -- all had offers of $41 a share on the table, but yesterday's vote signals that the takeover battle is now on in earnest.
Bunge Australia chairman Christopher White, who was at the meeting yesterday, immediately announced that his company would be increasing its offer to $42 a share and would include various sweeteners such as flexible acceptance, which allows shareholders to accept a higher offer if they so desire.
The new offer values Tully Sugar at $130 million.
Mr White told the meeting Bunge still wanted to win, and he invited the shareholders to a nearby pub for a reception.
He said the Tully mill was the best in north Queensland.
"We saw it as the crown jewel when we surveyed the landscape," Mr White said.
Although Bunge is an international company, it is using a local firm of solicitors, Pohlmann and Spicer, as a place where acceptances can be dropped off.
Mackay Sugar was also active at the meeting, telling the 320 growers who make up about half the shareholdings that it had formed a partnership with global sugar giant Louis Dreyfus, which is loaning it $102m for the bid.
Cofco has indicated that it may consider changing its bid.
Industry adviser John Amies has said Cofco ownership would allow the mill to expand and Tully growers to boost their businesses.
He said Cofco would be open to dialogue with Mackay Sugar about its bid proposal but said there was nothing to talk about with Bunge at this stage.
Cofco representative Honghuan Pan said Cofco was interested in buying the north Queensland mill because the company wanted to learn from the Tully mill's extensive operational experience to help inform its own nascent milling businesses in China.
Mackay Sugar chief executive Quinton Hildebrand said the company had a 10 per cent stake in Tully Sugar already and would be working to increase it.
"I'm confident we are a good cultural fit with the growers of Tully," Mr Hildebrand said.
All three major bidders are expected to change their offers over the next few weeks.
While Tully mill is one of the largest mills in north Queensland, crushing up to 2.5 million tonnes annually, the industry is going through a period of rationalisation and sugar industry observers feel several other mills may come into play once Tully is sold.
At the moment, Cofco has contracts on almost 20 per cent of Tully Sugar shares, which is conditional on Foreign Investment Review Board Approval.
Mackay Sugar has recently increased its shareholding to nearly 10 per cent and Queensland Sugar Limited, the sugar marketing body, has 20 per cent.
QSL has the potential to be the king maker in the deal. Its chairman, Alan Winney, said it would probably sell its shares, although it had not yet decided to whom.
Mr Winney said he had been unimpressed with Bunge's bid.
Tully Sugar chief executive John King said the race for the mill had just begun.
"Hang on to your hats. This is not a Black Caviar race -- it's not a short one, it's a Phar Lap one," Mr King said.

rate rise to hurt like hell

David Liddy, the soon to retire boss at Bank Of Queensland, has warned that another rate rise would "hurt like hell". 

Mr Liddy said yesterday that the Queensland economy was the weakest it had been for at least five years.

"Tourism is at crisis point and property's not far from that," he told The Australian

"I think the state's economy is running at about six different speeds, because the resources sector is doing well, the manufacturing industry supporting mining is doing OK, and so is the services sector.

"But, overall, another rate rise will hurt like hell."

The most recent BoQ result reflected that weaknesss in the Qld economy. Christopher Joye takes issue with those squealing for the RBA not to hike!

Wednesday, May 18, 2011

Passion in Gordonvale

Way down south in Gordonvale passions are still running hot on the Council's unanimous rejection of a Woolworths development application. Today's instalment is a call from Brett Moller for a convenience store small enough and far enough away (700m west of proposed site on west side of Hwy) not to be competitive with anything actually in Gordonvale.

"Mulgrave and District Chamber of Commerce president Brett Moller said there was a 1000 sq m site, owned by the CEC Group, that was appropriately zoned for a convenience store."

Simon Berger from Woolworths responded: "“Our supermarket is about 3000 sq m. This is about a third of the size, about the size of the existing IGA,”

Just last week the Productivity Commission released a weighty report on Planning, Zoning & Assessments. Within this overview of the report KS particularly notes:

"Competition restrictions in retail markets are evident in all states and territories. They
arise: from excessive and complex zoning; through taking inappropriate account of
impacts on established businesses when considering new competitor proposals; and by
enabling incumbent objectors to delay the operations of new developments".

The most infamous example some years ago was shopping centre giant Westfield setting up community action groups to oppose competing developments in Sydney. I can understand some community concern that growth in the southern corridor will have implications for the ambience of Gordonvale, however this may not be the strategy to protect that, and may even be counterproductive over time.

Brett Moller is a "quintessential country solicitor" who "holds interests in sugar cane farms in the Mulgrave Mill area south of Cairns and is Chairman of the Far North Queensland branch of Chamber of Commerce and Industry Queensland." He is also a director of Maryborough Sugar (MSF), now operator of Mulgrave Mill and the recently closed Babinda Mill.

Fred Fearless:comment of the day

Sycophancy from Nick Dalton at The Journal of Ignorance with an excellent riposte from Fred Fearless!

Some 99 years ago, the SS Titanic, the largest passenger vessel built to date, which some believed
unsinkable, sailed on her maiden voyage across an iceberg strewn North Atlantic. On Sunday, 14th
April, 1912, the vessel ignored radio calls from other vessels warning it of icebergs, including
calls from the SS Californian which perceived the risk of icebergs too great, and adopted a risk
adverse strategy of stopping for the night. The Titanic continued at high speed to collide with an
iceberg, resulting in the loss of the vessel and over 1,500 lives. Most lives were loss due to the
shortage of lifeboat capacity, as the head of the shipping line had ordered the number of lifeboats
in the original design be reduced from 48 to just 16, the absolute minimum then allowed. Having
chosen to place the vessel and lives in danger, should the shipping line blame the iceberg for the
disaster? In wanting to be the biggest, CEC chose to depart from the “previous risk adverse
strategy” and allowed liabilities to spiral to $147 million by June 2007. Despite repaying some $100
million to the CBA, the liabilities are still almost $135 million as at December, 2010, a reduction
of only $12 million. Since listing, they have made a total net loss of over $90 million, despite
using their creditors’ money interest and repayment free.
CEC blaming the bank is like the Titanic blaming the iceberg.

Posted by: Fred Fearless   8:58am today
Comment 1 of 1

move public servants to regions only if cost-effective?

Gene Tunny at Queensland Economy Watch has posted a warning today on the merits of moving public servants from Brisbane to Cairns. KS has commented on this before as a pet-shop-parrot-policy, surprisingly coming from supposed champions of free enterprise in the LNP, and being thoughtlessly spruiked as a "good idea".

"There is a major risk that Opposition Leader Campbell Newman’s decentralisation plan to move Queensland public servants out of Brisbane CBD and into the regions – particularly Cairns, Maryborough, and Gympie – would eventually result in an overweight and inefficient public service. With public servants underpinning regional economies, Governments would be very reluctant to cut the public service fat that accumulates from time-to-time.

Hence, if he becomes Premier, Mr Newman would be well advised to commission an assessment of the cost-effectiveness of relocating the public service to the regions. My intuition is that there may be gains from relocating public servants out of Brisbane CBD and to suburban hubs such as Toowong and Mt Gravatt, but that mass relocations to the regions would not be cost-efffective."

KS is in full agreement with Tunny that it only makes sense if it stacks up on its own merits and NOT as some kind of economic stabilisation policy. There have already been suggestions Federally of more closely tying State funding to efficiency and service delivery criteria.

The idea was included again yesterday at the Journal of Ignorance, this time from solicitor Russell Beer, among an array of special regional handout requests from local business leaders. Brett Moller again displayed why he is also a solicitor and not an economist with a call for "special allowances up here".

A few weeks back KS flipped through the last census data which showed that the Far North already has a high representation of public sector employees relative to other Queenssland regions. Yes, Townsville is higher, mainly because of Federal employees in the military and ATO. Trying to replicate the Townsville model as a policy for other regional centres is nonsensical.

Tuesday, May 17, 2011

Banking on Small Business

An excellent post at BusinessSpectator. This is a paper by Joseph Healy, a NAB business banking executive, to a small business credit conference last week. Maybe some NAB propoganda but it gives a good insight into the issues around bank lending to small and medium business (SME's), particularly the systemic bias to residential mortgage lending over business lending and the potential for that to create harmful distortions.

"In all of this, we mustn’t lose sight of the fact that the efficient capital allocation by the banking system is important to long term growth of the economy and any bias can be harmful in crowding out lending to other sectors ie a bias to home lending could mean there is less capital to allocate to businesses, the most productive area of the economy – this could be bad for growth, competition, jobs and in the end bad for Australia."

Healy explains why it is rational for a banker to allocate more capital to a residential mortgage, rather than a productive business, under the current regulatory regime. Commentary from Robert Gottleibsen.

There is a lot of relevance here to our regional economy with it's strong reliance on SME's, particularly in tourism. Again, many of the problems and issues require broader fundamental policy responses rather than local. Beyond local politicking and bank bashing it's not clear our Federal member has any understanding or capability to contribute to a policy response.

Regional Queensland is also more heavily exposed to smaller banks, via Suncorp and BoQ, than other states.

Pub deals

The AFR has reported that the Woolworths pub JV has approached the ACCC over a deal with the private Laundy Group to acquire 20 pubs in NSW currently held by Redcape (freeholds) and NLG (leaseholds) for $330 million. Redcape was formerly Hedley Leisure and Gaming with Tom's receivers still holding a majority stake. The receivers also hold a 20% stake in NLG. There is an exclusivity period on the proposal due to expire this week.

Redcape still holds a number of local pubs and bottle shops leased to Coles and also Hedz. The old Barrier Reef Hotel (Coles) is looking particulary shabby these days with limited opening hours. The most recent result earlier in the year from ING Entertainment Fund (IEF) wrote down the freehold value of the Courthouse Hotel from $6.1 to $5.6 million. Cost to date of the Courthouse to IEF since acquisition in 2006 is $11.5 million. A tragedy this heritage building was sold and turned into a pub.

There is a stark difference over rccent years between the performance of the comparable ALE (Woolies freehold pubs) and Redcape. ALE (ASX:LEP) raised capital and cut debt, while Redcape options were constrained by the Hedley holding and has been restricted to selling assets to cut debt. 

Monday, May 16, 2011

The rise and demise of CEC

My excel skills are not what they were to properly represent what I want to show ....... however ......
That bar second from the left is the result Gavin King hung his entire fictional narrative on in the 'analysis' in the Weekend Compost!
Apart from that subsequent escalation in assets up to the end of 2007, Kitchenslut Global Economics would also focus on the size of the red bit at the top and it's validity!! Bear in mind that this was the catalyst result for the catastrophic fall for CEC shares from more than $2 down to around 50c in weeks previously posted at Loose Change. Funny that!
Graph not the best representation and also note that assets at the second last bar were very close to all deferred tax assets worthless according to the auditor ...... red bits are net assets ....
P.S. A prize dinner with KitchenSlut to anyone who can identify at what point on the chart Warren Entsch became a director of CEC?

To be continued ......

currency perspective

Just thought I would add this chart for perspective. All we usually hear on the news is whether the currency is up or down v the $US. The trade weighted index basically measures the $AUD against a basket of other currencies weighted on their trade with us. So places like Japan, Korea, and China matter more than the US.

There has been much talk about the impact of the currency on nn-resource trade industries such as manufacturing and tourism. Ricardian Ambivalence suggests that maybe manufacturing is doing OK and in line with long term trends? Analysis of ABS tourism data may shw something similar?

Saturday, May 14, 2011

loosely swinging and largely missing

Kitchenslut reeled off some recent thoughts on CEC at this blog recently from memory while quietly imbibing a Pinot Grigio. Surprisingly, he didn't make a goose of himself. However, the Editor-at-Loose down the road at the Journal of Ignorance, has indeed made a goose of himself with a post labelled as 'analysis' in the hardcopy Weekend Compost.

Loose Goose stakes everything on the history and fate of CEC being a signalled by the largely irrelevant December 2004 half yearly result and says:

"When the next half-yearly financial report was released in March 2005, CEC’s profit had nose-dived to just $658,915, seven per cent of the $9.2 million it had forecast. It was the first public sign of trouble, a tipping point it never recovered from."

Well the half yearly result was actually released in February 2005, not March, and there is a bit of a problem with this 'analysis'. Ya see, the $9.2 million forecast was a full year, not the half. The full year result for CEC was $7.1 million. Below forecast but, close to 80% of forecast, not 7%. There was a reason for that which was explained and reasonable in that half-yearly report which has been ignored.

The half-yearly result stated "substantial profits are locked in stock and land that cannot be brought to account until the first half of 2005 so our half yearly result will not give a true indication of our year to date financial position". This was further explained that there were 123 contracts for land sales conditional following sub-division on the issue of title which had not been issued as at December 31. CEC missed the full year forecast but there was no huge significant hole as in the narrative from the Editor-at-Loose.

The Goose then goes on to hyperbowl the market reaction: "About $8.8 million was wiped off the company’s market value in the space of just a day’s trading." The result was released on Monday February 28. CEC took a hit the next day falling from $1.60 to $1.38 before recovering to close the week at $1.49. As in chart previously posted, CEC shares consolidated and subsequently went on to surge higher and the company rapidly grow debt funded assets all the way to the brink. There was no "tipping point it never recovered from" for another two years!

I think I need another bottle of shiraz to cope with anything further!

"I want to grow this business to a billion dollars very very quickly"

" I want to grow this business to a billion dollars very very quickly" - Roy Lavis, Commsec presentation, 29 November 2007 (at 27 minutes in), and about to walk off a cliff. At the time CEC claimed gross assets of $300 million, which had doubled from a year earlier.

It was the bank what done it I tells ya!!

Friday, May 13, 2011

Gordonvale Woolworths

There is a surprisingly illuminating discussion going on at the  Journal of Ignorance on the rejection by Council of a Woolworths development application at Gordonvale. Cr Paul Gregory has, to his credit, weighed in a few times and there are a few points to note.

 “We’re faced with the classic dilemma of current community wants and needs, and the wants and needs of the community in 40 or 50 years,” division councillor Paul Gregory said

Is that really what we are faced with? Is Paul suggesting that Woolies are building a half century ahead of when they should? How is Paul, or Council, in any position to make that judgement?

"The refusal was for that application on that site, considered by Council and State planners to be too big and premature."  says Paul in comments. State planners have said that?

"There is already a site allocated for Local Shopping on that side of the highway, which could have easily been utilised. That site was allocated via a legal process from a previous application that was approved by Council, appealed against and overturned by the Courts, which proves that such approvals cannot be given without the full scrutiny of planning aspects and law included."

That's a quite opaque description and makes me wonder who is the owner of the approved site to receive a Woolies valuation windfall via planning legislation? Paul is a long term Councillor, probably one of the better ones especially with his committee contribution, and someone deserving of respect. However, there are some issues lurking in here!

Curiously, comments on this thread are reservedly absent any mysoginist val-hate for the rejection of a development. I would have thought this had more credit than the previously approved Capital Globe and RSL developments, outside planning guidelines, to say nothing of the Freebody waterpark?

Update: Paul Gregory has confirmed that the owner of his preferred zoned site as described above is/was CEC. Which is interesting ......

Thursday, May 12, 2011


The National Labour Force stats today from the ABS are being decribed as weaker than expected and the $AUD is down a couple of cents. Commentary from Adam Carr and Christopher Joye.

However, most of the weakness showed up in NSW while jobs "rose almost 20,000 in Queensland, with the unemployment rate down to 5.2 per cent from 5.5 per cent." Queensland had been very weak in recent months so this gives some optimism that when the regional stats are releaed next week unemployment in the Far North will fall back under 10%.

Warren Entsch claimed on ABC Far North this week that unemployment here was at 14%, unchallenged by Fiona Sewell. The most recent number for March was 10.6%.

The Life of Brian

Even at the Journal of Ignorance there are some gems to be found in the muckpile. Spot on Brian! Short and sweet, with both sentiment and financial reality, and hits the nail smack on the head! I am finding the victim mentality in Cairns increasingly nauseating and claustrophobic!

It's sad to see a company such as CEC go bust and I feel sorry for Roy and his employees. But its not the fault of the Commonwealth Bank. Roy hired the wrong people to run his company and advise him. It is the exact same scenario as Hedley. Both got too big too quickly and borrowed too heavily to sustain the expansion momentum.In a nutshell, greed has been the cause. Now the advisors have long gone with their pockets full and the contractors, employees and local businesses are all suffering.
Posted by: Brian of Cairns 9:17am today

Wednesday, May 11, 2011

The delusion of CEC?

Much comment and activity at the Journal of Ignorance on the demise today of CEC. Not kosher blogging maybe but will just update as I go here with thoughts. Many peculiarities and even the accounts published yesteday vary materially from announcement as recently as April 29. Events as far back as 2008 are worthy of attention as is the role of Warren Entsch as an 'independent' director and Chairman.

Apologies for the recent posts on CEC problems copying from PDF files of announcements to Google blogger!

To start my delusion of CEC before delving back as far as events in 2008, CEC did finally lodge accounts yesterday afternoon. However .... the bottom line on the CEC net position showed net assets of negative $41million? You should compare this with the ASX release just a few weeks before on 29 April which stated "Following the above impairments the accounts would show Negative Net Assets of around $27.6 million" Oops, just a bit of a divergence here boys? In less than two weeks?

So, lets go back in time to 2008 ......

Cairns entered 2008 on the back of a large debt fueled construction boom despite the first ripples of the GFC in late 2007 in the USA. At the end of February 2008 CEC surprised the market with a bad result and some recent high profile value investors fled (ie 452 Capital) the share register. This result preceded calls by the bank, CBA, to reduce property related debt.

CEC, in 2008, then announced a joint venture deal on its substantial land bank with Trinity Properties. These companies were previously closely aligned when CEC floated and shared directors including Keith Delacey and a senior Trinity exec. This deal collapsed early in 2008 with accusations that the CEC properties didn't stack up to values. Property write downs in that year by CEC don't seem to align with the indicated shortfall in property values in the failed JV.

CEC has had many opportunities to do something and has frequently referred to possible joint ventures, syndications, or capital raisings. Almost any company listed on ASX with any property related activity raised huge capital in 2008/2009. Selling assets was not the sole option of CEC to satisfy the bank.

So why didn't CEC follow the market? Did the directors make judgements based on Roy Lavis (26%) maintaining control rather than the interest of all shareholders?

The most striking deterioriation at CEC since it listed in 2004 was not the financials but the quality of the board. In 2004 it was an outstanding board. It is now Roy, his son, and an 'independent' Chairman, who replaced Warren Entsch, with politcal connections also as main background and Entsch's renowned sycophancy with Roy. It's an appallingly weak board which should scare any investor!

Small CEC shareholders deserve a damned lot more than has been delivered here!

Federal Budget Commentary

Just some Federal Budget comment links from a broad spectrum: Delusional Ecconomics, Alan Kohler, James Thomson, Christopher Joye, Ross Gittins, Michael Stutchbury, John Quiggin, Nicholas Gruen, and finally a good overview from Peter Martin.

Queensland Economy Watch has an interesting post on ten budgeted target areas of disadvantage, including Rockhampton? Despite the screams of economic doom, Cairns is not among the ten.

Tuesday, May 10, 2011

nine lives lost?

The nasty bank has asked CEC for its money back! This announcement, dated yesterday, appeared on ASX at 12.42pm today, 10th May. CEC had previously advised that they were still finalising the long delayed half-yearly accounts and that these would be lodged yesterday. That has not happened and there has been no further announcement to advise when it may happen. I think that may be deferral number nine (?) .... or eight (?) ....... but who's counting anymore .......  
CBA Demand Payment
The principal financier of CEC Group Limited (ASX: CEG) sent a Demand dated 9 May 2011, for payment of all funds due to be paid by Tuesday 10th May 2011.
CEC Group will not be in a position to repay the debt to the principal financier by close of business on 10 May 2011. A proposal, including the employee buyout of certain businesses, has been again put forward for the bank’s consideration, and CEG is awaiting a response to that proposal.
The principal financier may appoint a Receiver, Receiver & Manager or Mortgagee
In possession on Wednesday the 11th May 2011, or at a later date, however it is hoped that the principle financier will consider the alternate proposal.

Sunday, May 8, 2011

CEC splits up?

KS Global Economics has read, and re-read, the latest verbose release from CEC, has farted and scratched his head, and determined that there is as yet nothing worthy of comment, such as the fullsome effort at the Journal of Ignorance , until at least there is some capability to release anything at all with numbers attached rather than just words, both for the long awaited half-yearly result and the proposed buyout scheme detail?

CEC deferred release of numbers for the seventh time on Friday. No, hang on , I think it's the eighth now? The construction subsidiary is now in voluntary administration pending a proposed employee buy out. The full text of the CEC announcement is below:

ASX Announcement and Media Release 6 May 2011

As part of the ongoing restructuring of CEC Group and its operations, the Board of the CEC Group announced today that it was placing the one of the group’s construction company’s into voluntary administration. That company is CEC Constructions Pty Ltd. The Board found it necessary to take this action as pressure from a handful of creditors and the principal financier reaches a critical level.
At this stage the voluntary appointment of an external administrator is considered a responsible course of action by the board. The appointment of a Voluntary Administrator gives the company the ability to finalise some of the transactions we have been working on to overcome the debt issues the company faces within the framework provided for by the Corporations Act.
The administrator’s appointed are Mr Terry van der Velde and Mr David Stimpson of SV Partners in Brisbane.
It may be necessary to take similar action with certain other subsidiaries, especially those that have ceased trading.
The employees of CEC Constructions Pty Ltd along with employees of other subsidiaries wish to participate in the buyout of the construction businesses. The possibility of this buyout is being strongly supported by the Federal Government’s sponsored Australian Employee Buyout Centre (‘AEBC’), a centre under the Department of Education, Employment and Workplace Relations. AEBC is a recent creation set up to aid employee buyouts of struggling businesses affected by the global financial crisis (‘GFC’).
An overwhelming majority of employees (over 90% have signed up) wish to participate in the buyout of the operational construction businesses of the CEC Group.
Further a major bank has expressed interest in supporting the employee buyout and the opportunity will be advanced hastily.
The employee group have now put a preliminary letter of interest to the Board of CEC Group and this is under consideration.
Certain relevant managers and consultants have agreed to assist the employees in establishing the buyout on the basis of fees only upon success.
CEC Constructions Pty Ltd is in a precarious financial position and the prospect of employees taking a position to help assure their employment in the region is very welcome.
While unemployment in the Cairns and Far North Queensland region is amongst the highest in Australia, perversely the considerable reconstruction activities in the region are being awarded to companies from outside the region. It is commendable that employees wish to personally fight against this trend and fight for their own employment.
Aside from the considerable reconstruction activities in the region, other opportunities include mining infrastructure works and various projects in PNG.
In the alternative, the directors continue to advance possible funding being available to completely refinance the CEC Group’s operations. Clearly a refinancing package of this size and nature takes time to negotiate and to put in place but the process has been underway for some time now.
Despite the need to take this action, placing CEC Constructions Pty Ltd in Voluntary Administration will further expose the whole Group to potential enforcement action by the principal financier.
CEC Group has provided explanations and analysis to the current bank to demonstrate that the restructure (including the voluntary administrations of the construction company) potentially creates the most favourable result for the bank, not to mention other interested parties ie: creditors, employees, shareholders and the community.
Since the GFC, CEC Group has paid the principal financier around $104 million in principal repayments and in excess of $20 million in interest and other charges, consequently reducing the debt to the bank from $168 million to $64 million. At the same time many other loans have been almost eliminated. Given the achievement of this debt reduction the CEC Group is certain that the bank will properly consider the potential results from the restructure and cooperate to ensure the best result for the bank, creditors, employees, shareholders and the community.
The December 2010 accounts of CEC Group will be lodged shortly and it is envisaged that the shares of the Group will be trading soon after. The Board is concerned of the risk of imminent enforcement action by the bank or a creditor on the Group as a whole and all investors (existing and potential) should make themselves aware of that possibility.
The continued patience and cooperation in the short term of the bank, Australian Taxation Office, State Revenue Office (Qld), and creditors is required to successfully achieve the reconstruction and in turn achieve the best result for all of these interested parties.
Construction Subsidiary to go into Voluntary Administration
and Employee Buyout

Saturday, May 7, 2011

tourism: it's the product stupid!

The Sydney Morning Herald has today run a series of posts on the stagnation of the Australian tourism industry with some slamming criticism from James Packer. Here, here, and here.

As Packer says of the Barrier Reef: "The experience for a well travelled tourist is you arrive in Cairns, where the beach is unfortunately a mud flat, you go out to the reef on a hydrofoil that looks like it needs some money spent on it, you dive into the water and where the pontoon is located the reef looks like it is dying. You come back up and you are meant to say, 'Isn't this amazing'. It could be an amazing, world-class experience, but we need to get our act together.''

KS is usually defensive of criticism that Cairns doesn't have a beach and once pointed out to a lady from Sydney that her city didn't have a beach either as it took longer to get to Bondi from the CBD than I could get to Trinity. However there are some criticisms in here worthy of attention on the KS Global Economics theme that it's the product and quality that need attention rather than just marketing. We are no longer a cheap destination.

To be continued as I have to make use of such a beautiful day and replenish my fine food supplies .....

Thursday, May 5, 2011

CEC six & counting

CEC Group misses financial deadline for third time was the headline at the Cairns Post on Tuesday when they got around to reporting the failure of CEC to again lodge accounts the previous Friday. Now, KS has no idea how they count numbers down at the Journal of Ignorance but by his count of ASX announcements it was the fifth deferral by CEC since the required ASX deadline at the end of February.

The fifth became the sixth this morning with another ASX release: "Unfortunately late advices received have delayed lodgement and CEG will further inform the market tomorrow, Thursday 5th May , further2011, regarding lodgement of the Appendix 4D."

Those "late advices" must have been quite late as this announcement, dated yesterday, did not appear until this morning. We await the next update or deferral supposedly sometime today ......

Update: Six becomes seven with a release on ASX this morning, Friday, dated yesterday, the 5th, that accounts will be lodged sometime tomorrow ...... errr ...... make that today: "Final amendments are currently being made to the Appendix 4D, and it will be lodged tomorrow, Friday 6th May 2011."

Wednesday, May 4, 2011

coffee climbs

Arabica coffee has been one of the most outstanding performers among agricultural commodity markets in recent years which should be at least encouraging to local growers. Coffee growing in Australia is not significant on a global scale, but it may be an example of the diverse agricultural potential of the Far North as food prices become a global issue. With a thriving cafe and coffee culture it's growing component of local food tourism.

Allen Sandersen, from the University of Chicago, has a satirical take on the economics of diversification & protectioon policies with a declaration of coffee independence for the USA.

Tuesday, May 3, 2011

shock news: who'd a thought it?

Construction weak link in Cairns economy

Note the reference to Far North unemployment: "This remains well below the state unemployment rate of 5.8 per cent." Oops?

Sunday, May 1, 2011

Roads & Bridges

In a previous post reference was made to The PPI (producer price index) Roads & Bridges Index for QLD as being more relevant to Council costs thann CPI. So I downloaded the data from the ABS and this is the chart on the index since since inception in 1998:

Go the purple! Queensland a winner again! I blame Val Schier! The significance should not be lost when examined against the outsized roads expenditure in Queensland: Queensland is Top Spender on Roads.

Note: Kitchenslut Global Economics solution would include importing more bridges from Germany!?