Friday, August 29, 2008

Charlies juices through the shareholder cash

I have never liked Marc Ellis or his schoolboy type self promotion. It is very hit and miss.

While managing to garner alot of attention for short period of time, Ellis' promotional activities lack substance and I doubt do well in the long term for the business or product being promoted.

His university degree is in commerce at Otago University, majoring in marketing and management, so there is no surprise as to why marketing is at the forefront of his business regime.

His Charlies Group Juice Company [CHA.NZX] seems to be a case in point.

The announcement last week of a NZ$425,000 FY loss to June 2008 mounts on top of other losses incurred since it listed in 2005.

Charlie's was started in 1999 by Stefan Lepionka, Marc Ellis and Simon Neal and has grown rapidly in sales since its listing but has failed to sustain any profitable growth.

Its sales come from its Charlies brand juices and a number of other brands, in New Zealand and Australia.

Charlies seems to have the Burger Fuel or 42 Below approach to business-growth without profit- but that runs at odds with the way most business operates and the way I like the businesses that I own to run-at a profit, for the majority of the time.

I might have this all wrong though, as I could with Burger Fuel.

Charlies might be a big company in the making or a business that Ellis and his mates will flog off to a large conglomerate like Coca Cola Amatil [CCL.ASX] as one of Marc's fellow directors Stefan Lepionka did with his Stefan's Orange Juice which was purchased by Frucor Beverages in 1997.

However, there has been little sign of a good sustained profit thus far and they seem to be chewing through shareholder funds rapidly in the objective to grow yet bigger.

I would love to be proven wrong.

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c Share Investor 2008

Thursday, August 28, 2008

Foodstuffs take their foot off the gas

Foodstuffs Ltd, one of the two players locked neck for neck in a court bid over the last year against the Commerce Commission to allow them to make a bid for The Warehouse [WHS.NZ] say they will now drop their own appeal in the Supreme Court and leave it up to Woolworths Australia [WOW:ASX] the other player, to argue the case in the court.

Foodstuffs managing director Tony Carter has been reported as saying that Woolworths would argue a similar case, and saw no point in their joining, as they did in the Court of Appeal case that the Commerce Commission took, against a decision made in the prospective buyers favour in the High Court.

Having come this far, arguing cases in the High Court and Court of Appeal, I find it curious that Carter and Foodstuffs would now stand aside.

It just isn't in Carter's style to do the "softly, softly" approach. His company fought tooth and nail against Progressive-the former owner of part of the present Woolworths Group in New Zealand-buying the Woolworths brand to add to their Foodtown and Countdown brands a few years back.

It looks to me that Carter can see the possibility of Foodstuffs buying The Warehouse to be moving further and further away from its grasp.

"We will await with interest the outcome of the Woolworths appeal and, as we have consistently said, we would not rule anything in or anything out going forward..."

The fact that Woolworths Australia were the first party to make their bid for an appeal against the Appeal Court decision known publicly would indicate to me a more positive outlook that management have in being a successful bidder for The Warehouse.

There is no news out yet about whether the move to seek leave from the Court of Appeal to take the case to the Supreme Court is a happening thing but it is likely that leave will be given.

Given the backlog in the Supreme Court, it is unlikely that Woolworths will get a court date before Christmas and any decision, either way, will not be made until 2009. Yes 2009.

Shares in The Warehouse have prevaricated with the whims of the Courts. Vacillating in the high 6 buck range when the courts found in the possible bidders' favour, to less than NZ$3 after the decision not to allow any bids for The Warehouse from the Court of Appeal came out on August 15.

Shares closed down 3c to $3.35 today.

The Warehouse Group @ Share Investor

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Discuss WHS @ Share Investor Forum - Register free 
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c Share Investor 2008 & 2009

Tuesday, August 26, 2008

Sky City Entertainment: 2008 Profit Analysis

Share Investor Forum-Discuss this topic

Today's 2008 full year profit announcement for Sky City Entertainment [SKC.NZ] looks like the beginning of a resurgence for the company to me.

CEO Nigel Morrison has written down the value of its cinema business to zero value-it will always struggle-a good chunk of debt has been paid down, cashflow is up, gross revenue at record highs, reduced maintenance and capital expenditure planned for 2009 and VIP revenue up strongly.

Morrison's move away from the expansionist mantra of the previous CEO, Evan Davies to focus on squeezing everything out of the company's existing assets gets the big tick from me.

The New Zealand casino revenue seems to be stagnant, with a plateauing of income at Auckland but management say that is because of a gaming floor refurbishment interfering with gaming.

This is understandable and the company say revenue has picked up since the building was finished.

The good news comes from Australia-finally-with the company's star casino in Darwin increasing revenue by more than 7%.

Darwin really looks set to do the business for the company in the future, as it is expanding its facilities and the economy in that part of Australia is booming. On present form it looks set to overtake the revenue of Adelaide casino in FY 2009.

Sky City Darwin is the only of the company's 6 casinos to be able to expand gaming facilities and it also retains a smoking environment, similarly unique. Both these attributes are important to gamblers, especially the large patronage of Asian customers.

Good news also from Adelaide. Although revenue was down 4.4% for the year, management expected a much bigger drop because of the introduction of no smoking at the casino in 2007.

Similar legislation introduced to the Auckland Casino in 2004 put a stop to the spectacular growth that it had been having up until the introduction, so Adelaide's impact has been minor so far.

Once again, the huge black spot on the whole result and company as a whole, is the pathetic result of the company's cinema division. Revenue was down by over 2% and EBITDA halved to just under $5 million.

The galling thing for me as a shareholder is that 10's of millions of dollars of shareholder money has been spent over the last few years on capital expenditure to refurbish or build new cinema facilities.

Albany 10, which I use, is lovely(but was leaky) but clearly makes no money, would have cost a good $10-15 million in 2008. Manukau 10 will cost $8 million in 2009 and doubtless there will be more to come.

Do the math Nigel. SELL IT !

Looking towards 2009, I feel very positive about the company and its prospects.

The focus on current assets is the key to increasing the bottom line profit and expansion of any business unit should only be done after the simple test of whether shareholders could do better with the money that would be spent on capital expense, than income derived from the new asset.

Its time for long term shareholders to be rewarded.

Sky City @ Share Investor

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c Share Investor 2008

Monday, August 25, 2008

Sky City Entertainment 2008 Full Year profit results

Chart for Sky City Entertainment Group Li (SKC.NZ)

SKYCITY Entertainment Group 2008 Annual Result Monday 25 August 2008.
2008 Full Year Result Presentation
Media Release
NZX Announcement
Financial Statements
Result Briefing Webcast

FLYR: SKC: Summary full year to 30/06/08 $49.9m ($98.4m) -49.3% 10.5 cps


Name of Listed Issuer: SKYCITY Entertainment Group Limited

For full-year ended: 30 June 2008

Current Full Year NZ$'000; Up/Down %; Previous Corresponding Full Year

Total Revenue:
$818,847; up 0.3%; $816,097

$145,782; up 10.8%; $131,555

Unusual items for separate disclosure:
$60,000 Cinemas write-down; $0

$85,782; down 34.8%; $131,555

Less tax on operating profit:
$36,534; up 10.3%; $33,125

$49,856; down 49.3%; $98,402

Extraordinary items after tax attributable to Members of the Listed Issuer:
$0; nil%; $0

$49,856; down 49.3%; $98,402

Earnings per share:
10.8 cps; 22.3 cps

Final distribution:
10.5 cps

Record Date: 12 September 2008. Date Payable: 10 October 2008

Attachments: Appendix 1, 7 and related documents


Chief Executive Officer's Review
Year Ended 30 June 2008

The full version of the Chief Executive Officer's presentation of the SKYCITY
result for
2008 is available on the company's website under the Investor Centre at The full presentation includes comprehensive

information some of which is presented in graphical format which is not able
to be
reproduced for this extract. SKYCITY recommends that the full presentation
be referred
to as it contains useful explanatory information.

FY08 Group Result

- Reported Net Profit after Tax at $49.9m (after non recurring items
including the Cinemas write down of $58.4m). FY07 NPAT $98.4m.
- NPAT adjusted for non-recurring items (including Cinemas write down) at
$111.9m, up 19% over FY07 ($93.8m)
- Earnings per share adjusted for non-recurring items at 24.2cps, up 14% over
FY07 (21.2cps)
- NPAT adjusted for non-recurring items and international VIP commission
business at theoretical at $102.0m, up 7% over FY07 ($95.4m)
- Normalised earnings per share at 21.9cps, up 1.4% over FY07 (21.6cps)
- Group revenue at $818.8m, up 1.7% over FY07 revenues (adjusted for
non-recurring items) of $805.1m
- EBITDA (before Cinemas and adjusted for non-recurring items) at $306.4m, up
7.7% over FY07 at $284.5m
- EBIT adjusted for non-recurring items up 8.0% at $238.5m (FY07: $221.0m)
- Underlying cash flow of $199.1m, up 15% on FY07 ($173.0m)
- Key financial metrics improved: operating cash flow increased from $268m to
$286m, net debt to EBITDA reduced from 3.4x to 3.3x and interest cover
increased from 3.3x to 3.8x
- Results in line with February guidance of $108m-$110m
- Retirement of $92m of debt ($93.1m in FY07) strengthened the company's
balance sheet, further reinforced by Investment Grade BBB- rating from
Standard and Poor's
- Total FY08 distribution 21.5cps (FY07 21.0cps). Final distribution of
10.5cps to be paid 10 October

Management and Operational Highlights

- Permanent CEO appointed in March 2008
- New management appointments have significantly enhanced operational
- Reorganisation of company to drive divisional profit focus and reduce
corporate overhead
- Auckland casino refurbishment completed March 2008
- Strong result from International VIP Commission Business in FY09


- Business plans budget for growth in FY09
- Satisfactory trading in FY09 year to date (25 August 2008)

- Strong control to be maintained over capital expenditure
- Further debt retirement anticipated in FY09

Distribution to Shareholders

- Distribution payout ratio of 90% reaffirmed
- Total distribution 21.5cps for FY08 (21.0cps FY07)
- Final distribution of 10.5 cents per share (12.0cps FY07)
- Entitlement/record date 12 September. Bonus share Issue/payment date 10
- Distribution by way of non-taxable bonus shares with fully-imputed cash
buyback alternative
- Strike price for the bonus share issue for the FY08 final distribution will
be the weighted average SKC price on the NZSX during the 5 day period 15-19
- The number of bonus shares to be issued in respect of the FY08 final
distribution will be confirmed to shareholders on 24 September. Shareholder
elections (for the cash/buyback option) due to share registry (Computershare)
by 8 October

Funding Structure

- Very strong liquidity position
- Cash and undrawn facilities of ~$400m
- Debt repayment of $92m in FY08 (FY07 $93m)
- Debt maturity profile: FY10 $124m, FY11 $318m, FY12 $405m, FY15 $90m, FY17
$35m, FY20 $22m
- No maturity events until May 2010. Capital Notes mature in May 2010, but
the securities offer good rollover flexibility with limited refinancing risk

- Significant headroom within existing covenants
- Reflected in Standard and Poor's Investment Grade Rating (BBB-) with Stable

FY09 Capex

Maintenance Capex

- FY09 maintenance capex of approximately ~$65m will include significant
reinvestment in core business operations
- Primary use of maintenance capex will be on gaming machine product,
technology and systems
- FY09 depreciation estimated at ~$80m

Project Capex

- Completion of Darwin Stage 1 expansion (FY09 spend A$18m)
- Completion of Manukau Cinema complex in Auckland (FY09 spend $8m)
- No significant capex on Little Mindil resort (Darwin) during FY09
- No plans to proceed with Adelaide carpark

Strategic Priorities for FY09

- The core objective for 2009 is to maximise the potential of the company's
existing assets
- SKYCITY's new management team focused on delivering revenue growth, driving
operational efficiencies and maximising EBITDA, while tightly controlling

- To deliver an improved customer experience across all properties, focusing
on customer service, effective marketing and enhanced entertainment
- To significantly enhance IT and systems capabilities and reinvest in new
gaming technology and core operating systems, positioning the business for
- To grow and diversify International VIP commission-based play business
- To improve employee engagement and employee advocacy across all business

FY09 Outlook

- Results and progress achieved in FY08 provide a solid platform for FY09
- Business plans budget for growth in FY09
- SKYCITY's most recent revenue indicators suggest it is trading
satisfactorily in the current economic environment
- The new management team is focused on delivering revenue growth, increasing
operating efficiency and maximising EBITDA, whilst retaining tight control
over capex
- Further debt reduction anticipated in FY09


- Sound result in challenging economic environment
- Revenue up 1.0% at $402.3m (+$3.8m)
- EBITDA down 0.1% at $208.3m (-$0.3m)
- EBIT down 0.3% at $174.4m (-$0.5m)
- New Auckland management team has strong focus on core business with
strategic concentration on product, mix, pricing, presentation, customer
service, marketing and loyalty
- Main gaming floor renovation completed March 2008
- renovation disruption impacted FY08 result
- improvements in casino revenues are evident
- positive feedback from customers and staff
- refurbishment completion provides platform for FY09
- New gaming product and relayout of main floor tables and machines will
further enhance customer experience during FY09
- Recent highlights indicate management strategies are gaining traction:
- 08/08/08 was biggest gaming day in Auckland in over four years
- $1m SKYCITY Auckland Festival of Poker tournament announced for
- SKYCITY Grand Hotel topped Auckland's occupancy levels in August
- record Auckland convention revenues in August


- Solid result given impact from smoking ban (from 1 November 2007)
- revenue impact less significant than anticipated
- minimal impact on table gaming revenues given partial smoking bans already
applied to tables
- Positive cost reductions achieved, holding EBITDA steady with FY07
- Revenue down 4.4% at A$118.2m (-A$5.5m)

- EBITDA down 1.0% at A$20.7m (-A$0.2m)
- EBIT down 3.6% at A$10.6m (-A$0.4m)
- Maintenance capex will be maintained to underpin revenue growth
- No plans to proceed with Adelaide carpark (costs relating to the project
have been written off)


- Solid growth achieved in Darwin
- Regional economic momentum continues
- Revenue up 7.7% at A$100.8m (+A$7.2m)
- EBITDA up 13.9% at A$40.1m (+A$4.9m)
- EBIT up 14.7% at A$32.7m (+A$4.2m)
Stage 1 expansion (A$30m) commenced October 2007. Scheduled for opening by
March 2009. Includes increased gaming floor area (~20%) and new/upgraded
gaming, bars, restaurants and service facilities Darwin's proximity to the
Asian market is key to the International VIP Commission Business development
The Little Mindil site and associated resort development will support the
International VIP Commission Business growth strategy but no significant
capex will be incurred on this project in FY09

International VIP Commission Business
- Strong result from International VIP Commission Business (turnover $1.4bn)

- Revenue up 4.6% at $34.0m (+$1.5m)
- EBITDA up 267% at $17.2m (+$10.6m)
- Revenue assisted by favourable actual to theoretical win rate. FY08 win
rate of 2.63% vs theoretical win rate of 1.33% (FY07 actual win rate 1.24%)
- Core management focus for International Business is to increase
international VIP gaming turnover, to build sustainable revenue, and reduce


- Steady performance in FY08
- Revenue down marginally at $39.0m (-$0.7m)
- EBITDA down 5.1% at $18.5m (-$1.0m)
- EBIT down 4.8% at $14.0m (-$0.7m)
- New management team with significant additional casino and gaming
- Current focus on increased utilisation/performance of the existing assets
and on the core gaming customers
- New machine introductions during FY09 expected to refresh customer interest

- New and upgraded facilities in place (including new bars and restaurants)


- Solid performance from Christchurch Casino in FY08. Earnings up marginally
at $5.7m, from $5.6m in FY07
- New management appointed
- Phased refurbishment initiated to renew/refresh the overall property,
self-funded from cash flows
- Crowne Plaza Hotel interest sold and Intercontinental Hotel Group's shares
in the casino acquired. As a result SKYCITY and Skyline have each increased
their ownership interest in Christchurch Casino by 5.2%, from 40.5% to 45.7%


- Increased revenues for FY08 lifted operating earnings
- Revenue up 9.4% at $7.0m (+$0.6m)
- EBITDA at $0.5m (+$0.2m)
- New management appointed
- Good progress at Queenstown during FY08, although result not material to
the overall Group result
- New machine introductions during FY09 expected to refresh customer interest


- Cinema's result for FY08 very disappointing
- New management team appointed and focused on growing core revenues
- Revenue (adjusted for non-recurring items) down 2.1% at $66.2m (-$1.4m)
- EBITDA (adjusted for non-recurring items) down significantly from $8.7m in
FY07 to $4.8m in FY08
- Cinemas' performance suffered as a consequence of unusually good weather
during FY08 summer and management distraction from the sale process
- Management team focus on greater customer value, increased facility
utilisation, and greater diversity of product aligned to demographics
- 55% market share in Auckland and 38% across all of New Zealand
- New cinema complexes improve SKYCITY's penetration in the important
Auckland market: Albany (10 screens) opened April 2008, and Manukau (10
screens) opens September 2008

Summary Profit and Loss for FY08 and Balance Sheet (and Notes) as at 30 June
- A summary of revenue and earnings performance by site (FY08 and FY07) is
attached to this presentation
- Balance sheet positions as at 30 June 2007 and 2008, and explanatory notes,
are also attached.

Presentation Format

As referred earlier, the full CEO FY08 result presentation is available from
the company's website. Information presented in graphical format is
reproduced in this narrative format (as required by NZX) but a full and
detailed explanation of the result is set out in the website presentation

Nigel Morrison
Chief Executive Officer
25 August 2008

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c Share Investor 2008

Sunday, August 24, 2008

Sky City 2008 profit preamble

It is going to be Sky City Entertainment [SKC.NZ] 'tastic at the Share Investor Blog over the next few days as I take a look at the company, analyze and comment on tomorrow's profit announcement live webcast (10.00am Monday 25 Aug 2008-NZ time) and generally rip management a new one if I don't like what I hear.

The casino company is my largest holding and I have been a shareholder since 2002.

Its NZ$3.43c closing on August 22 2008 is lower than the $8.05c (pre 2:1 share split) it was on Jan 1 2003 and it had a profit of $107.2 million on $556 million in revenue.

2004 saw Sky City post a record $121.1 million profit (before abnormals) on revenues of $590 million and the 2007 year saw the company post a $98.4 million profit on record revenue of $798.6 million.

Sky City’s guidance
(PDF) for the full year 2008 year to June 30 is for a net tax-paid profit of $108-110 million, excluding the $60 million write down of its cinema business.

These figures do not make pleasant reading for any investor. Rising revenues but patchy, stagnant and poor profit results.

There are a number of reasons for this.

Management under the previous CEO made some bad decisions.

The purchase and subsequent write off of NZ $20 million on Canbet, the Australian online betting company.

The purchase and write off of more than NZ $100 million on Force Corp's cinema business, now operating as Sky City Cinemas and barely breaking even.

Overpaying for the Adelaide Casino in 2000, even after 70 million of "refurbishing" it still earns less than $10 million annually.

Not a good record and that is understating it.

All this has been done in a regulatory environment that has had a huge negative impact on the bottom line.

The Labour Government banned smoking in bars and restaurants in December 2004 and that had a marked impact on gambler behaviour. Coupled with the limiting of slot acceptors to $20 from the previous $100 in 2005, that period was the beginning of a slow down in profit growth-minus management induced write downs.

So alot of the deleterious effects on profit were from influences out of management's control but the greatest negative impact has clearly been from bad management decisions and mis-management of largely good assets.

Revenue has tripled from 1999's $ 264 million to 2007's record $798.6 million but profit has less than doubled from $46.9 million to last years $98.4 million.

The bad decisions and government legislation has led to increased borrowing and debt servicing charges and had a subsequent impact on the bottom line after tax profit.

All is not lost though.

With that tripling of revenue comes an opportunity for the current new management to cut out the fat and increase that bottom line.

New CEO Nigel Morrison has hired his own team, who have already cut costs by slimming down middle management and minimising floor staff wages-so much so that some union staff are striking . There is easily more to trim.

At a possible NZ$110 million profit for 2008, Morrison clearly has the scope to increase profit-based on high historical revenues and cost cutting- by at least another $10 million for FY 2009 and beyond that, without even factoring in an increase in revenue from 2007's $798.4 million.

I would expect something between $125-130 million for 2010-barring Kerry Packer winning a baccarat hand or two.

The Auckland Casino historically has been the jewel in the crown for the company It has been stagnant in growth over the last few years but good management of that asset will positively affect revenue growth.

The future star, in my opinion is Sky Citys Darwin Casino. Situated in Australia's fastest growing region.

The Darwin casino has increased revenue from $62 million in its first full year after it was purchased in 2004 to $54.9 million in the half year to December 31 2007. It looks set to keep delivering in the future as a $30 million expansion of the gaming complex is on track to be finished at the end of this year.

The casino operates under a a more relaxed Government regulated gaming regime and is the only casino in the Southern hemisphere to continue to allow smoking. A must for gamblers who like to enjoy a drink and a fag when spending their hard earned.

Tomorrow's announcement
will be interesting to see. It will be Nigel Morrisons first six months and his report will reflect somewhat how he has done and where he will take the company in the future.

I will look forward to seeing some positive direction from Morrison; what he is going to do and how he is going to achieve it.

I want to hear it described clearly, concisely and without the business gobbledygook Evan Davies was well known for.

I wait with unabated, and slightly restrained, enthusiasm.

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Sky City CEO resigns
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Sky City Entertainment Investor Centre

2008 Annual Result
SKYCITY Entertainment Group 2008 Annual Result will be announced on Monday 25 August 2008.
Result Briefing Webcast

2008 Interim Result
2008 Interim Report
2008 Interim Result Presentation
Media Release
NZX Announcement
Financial Statements
Results: Briefing webcast

c Share Investor 2008

Saturday, August 23, 2008

Michael Hill takes on the Windy City

The move by Michael Hill International [MHI.NZ] to buy 17 stores in the United States for about US$5 million ($7 million) from the Chapter 11 bankruptcy of Whitehall Jewelers Holdings-based in the Chicago area, with 2 stores in St Louis-has me a little worried.

I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water.

Australia was started that way and now has 136 very profitable stores and Canada started with a couple and now has 22 virtually break-even stores 3 years later.

Why didn't Michael Hill test the Chicago area with 1 or two stores like they have previously?

It does make sound financial sense, it has worked before.

Micheal Hill, CEO, says the opportunity to buy the distressed sites was a "sound launching pad" to expand the Michael Hill brand across the big US market and secure some "prime sites", very true.

The NZ$7 million purchase price Hill says was largely for the inventory that the stores carried and that was bought at 80c in the dollar.

A good buy there.

Now I'm not an expert in retailing and Jewelry, as Michael Hill clearly is, but what is wrong with "testing the market" as he calls the US move, with a couple of stores, as he has done in the past?

In my opinion you don't test a market with 17 stores, it is too much too soon.

The US Jewelry market is different from Canada, it is more fragmented in demand from state to state and city to city even, and much more competitive. Chicago also has a large black population, with a much less than average yearly income, so the going will be tough, even if Oprah Winfrey does her bling shopping there.

As a shareholder, I would have much preferred little baby steps and less money spent upfront until a few stores were trading for 12 months or so and then make a decision to expand or retreat from there.

There will be more money spent on store refits, staff training etc so the total cost of this exercise will probably exceed NZ$10 million.

This news comes on the back of a great profit announcement this week.

The company reported a record tax paid profit of $25.232m for the twelve months ended 30 June 2008 compared to $21.017m for the previous corresponding period. This was a 20.1% increase in profit on top of a 8% rise in revenue to $376.664 million.

There were 22 additional stores added in the year to bring total store numbers to 210 for the entire group.

A final dividend of 2.0 cents per share with full imputation credits

The dividend will be paid on Monday, 13th October 2008 with the record date being Friday, 3rd October 2008.

Michael Hill International <span class=

Michael Hill shares have moved up strongly this week on the profit result and by almost 4.5% today on the US acquisition news.

Disclosure I own Michael Hill International shares in the Share Investor Portfolio.

Michael Hill International @ Share Investor

Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports

Buy Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up -

c Share Investor 2008

Friday, August 22, 2008

Ports of Auckland put a shot over competitor's bow

The news on Wednesday that Ports of Auckland have an interest in Port of Tauranga Ltd [POT.NZ] "container business" brings to mind this quote by Warren Buffett:

"Buy a business that an idiot can run, because sooner or latter an idiot will run it"

In this case the idiot or idiots are management at Ports of Auckland.

They fit the idiot moniker simply because they had a chance to merge with POT in 2006-07 and after much posturing by both sides, but mostly from Ports of Auckland, POA simply walked away from a possible deal because management couldn't deal with the fact that Port of Tauranga was worth more than Ports of Auckland and wouldn't budge from that stance because of petty local politics.

The Auckland port company like the look of Port of Tauranga's container facilities at Onehunga on the Manukau Harbour which is south of Ports of Auckland's main port on the Waitemata.

Unlike Auckland's big port in Auckland's CBD, POT's Onehunga container hub has scope for expansion and is in a area of high industrial growth and also close to Auckland Airport [AIA].

Port of Tauranga chief executive Mark Cairns wasn't keen on the idea of Ports of Auckland buying the Port of Tauranga container business but had this to say about a marriage between the two port companies.

"...always held the view that a full merger of Port of Tauranga and Ports of Auckland makes very good sense. That view has not changed"

Cairns is clearly right.

New Zealand is a very small market and it would make financial and logistical sense to merge the two businesses.

The capital expenses of expansion to encompass the much larger ships that shipping lines want to use would make the merger of these two ports sensible to say the least.

Port of Tauranga are in the box seat though. Their company has more geographical space for expansion at their locations and that is one reason why POA want them. The company is leaner and better managed and last but by no means least they are unencumbered by the politics that surround the ratepayer owned Ports of Auckland.

Port of Tauranga shareholders shouldn't lose all hope though and shouldn't think of selling their shares, yet.

It looks like the shots across the bow have just started, Ports of Auckland new managing director Jens Madsen says he wants to "buy POT's container business" and Port of Tauranga chief executive Mark Cairns reckons that portion of his business is "...worth substantially more than Ports of Auckland's container business".

Whatever the case it looks like this is the beginning of some sort of marriage process and it will no doubt send the POT share price in a northerly direction.

Lets hope the dropkicks at Ports of Auckland can let politics take a back seat to business acumen this time.

POT @ Share Investor

Long Term View: Port Of Tauranga Ltd
Port in a storm
Ports of Auckland put a shot over competitor's bow

Discuss POT @ Share Investor Forum

Download POT Company Reports

Recommended Amazon Reading

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The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
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c Share Investor 2008

Thursday, August 21, 2008

Domino's Australia dominant in Australasia

Domino’s Pizza [DMP.AX] is the largest pizza chain in Australia, in terms of both store numbers and sales. It is also the largest franchisee for the Domino’s Pizza brand in the world.

Domino’s Pizza Australia now encompasses five countries, with more than 720 stores employing approximately 14,000 people and making more than 60 million pizzas a year.

The Domino's brand is owned by Domino's Pizza, Inc [DPZ.NYSE] a listed US company.

Chart for <span class=

Domino's shares were down by 29c or 8.29% to AU$3.21 on the ASX today. Probably due to a slump in sales for the year. Profit however, was up by almost 30% compared to the previous year.

While Australian based Domino's dominate the New Zealand and Australian pizza market, it is leaving its competition in the dust.

Domino's total same-store sales grew 4.1 per cent over the last year, while its main competitor in New Zealand-Restaurant Brand's [RBD.NZ] run Pizza Hut-same store sales declined 7.1% for the 12 weeks ending 19 May 2008. That quarters total sales were $15.2 million, a decrease of 13.3% over the prior period.

As a customer one can tell the different immediately from the Domino's vs Pizza Hut experience.

Domino's generally has fast efficient friendly service, excellent pricing and a good line of pizza offerings and toppings Their pizzas and marketing are well excecuted.

It is the opposite at Pizza Hut; slow, rubbish service, unfriendly, extremely bad marketing and a disappointing menu and quality of food.

Apart from the differences above Restaurant Brands manage its pizza brand badly. I suspect much direction is from head office and the local input from sub par managers to bolster young uninterested staff to treat customers better is clearly missing.

Domino's New Zealand stores, which number 72 and will max out at 85, are franchisee run while Pizza Hut are company managed in NZ with a parent franchiser YUM! Brands Inc [YUM], based out of the US.

Having the owner running the business at store level is the important difference and another reason why Domino's will continue to kick Pizza Hut around in the coming years

The ASX-listed company yesterday announced net profit after tax for the year ending June 29 was A$11.8 million ($14.42 million), up from A$9.1 million last year.

The Australia-New Zealand market revenue for the group - which has outlets in New Zealand, Australia, France, Belgium and the Netherlands - fell from A$180.4 million to A$160.7 million.

Chief executive Don Meij said he was confident New Zealand operations would continue to perform strongly, regardless of the current recession.

"Pizza's very resilient in economic downturns. We think we're going to ride through whatever economic challenges are out there."

Domino's Australia is a well run company and a must for investors who want exposure to a listed Australasian fast food company but don't have the patience for the slack management at Restaurant Brands to get things right.

Related Share Investor reading

Restaurant Brands Pizza Hut faces further competition

The dots get the hots

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c Share Investor 2008

Wednesday, August 20, 2008

Orange Finance collapse should turn investors red, with rage

Orange Finance, which is 100% owned by Money Managers founder Doug Somers-Edgar, is no longer issuing debentures because of its suspect lending practices.

Doug has apparently sold his interest in Money Managers and has "stepped down" from it in June 2008 but still has manifold financial interests in companies that MM lend money to. Money Managers pushed Orange Finance to its investors.

Money invested with Orange Finance has been lent to some other Money Managers or Doug Somers-Edgar vehicles that have crashed and burned and lost investors money, Money Manager's First Step and its Totara Fund have both lost investors tens of millions so far.

Interrelated financial musical chairs have also been played to pay out investors from these various financial failures and it makes one wonder which investors will truly lose out in the end.

It is unclear at this stage whether investors in Orange Finance will eventually get their money back, considering the large amount of bad loans made by the investment vehicle and money outstanding from debtor borrowers, but the company says it can repay investors on their expected maturity date.

I would advise investors in Orange Finance to keep on the tail of Orange directors and or their adviser from Money Managers who advised them to put their money into the finance company in the first place.

Don't be put in the same position as this fellow:

One investor contacted by the Sunday Star-Times said he had been impoverished by a combination of dealing with Blue Chip, then putting what he had left of his life savings - some $50,000 - into First Step.

When he received $20,000 back (he's still waiting for the rest), he followed Money Managers' advice and put it into Totara.

Relying only on NZ Super, he is now facing $1700 a month mortgage payments he can't afford because of the Blue Chip deal, and has no access to the money he has with Money Managers. 2008

Doug Somers-Edgar, his part or fully owned companies or their subsidiaries and Money Managers cannot be trusted when it comes to your money.

Get it out now if you can.

Related Share Investor reading

The "New" Money Manager's Investment Vehicle still tainted by its past
Don't forget Money Managers
Money Managers First Step gives investors the middle finger
Money Managers First Step saga: 3 Story wrap

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Madoff: Corruption, Deceit, and the Making of the World's Most Notorious Ponzi Scheme by Peter Sander
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c Share Investor 2008 & 2009

Tuesday, August 19, 2008

Big Fisher & Paykel Healthcare share trades a curious tale

Some very large volume trades of various stocks were traded on and off the NZX today.

Big volumes of Telecom NZ [TEL.NZ] Fletcher Building [FBU.NZ] Sky City Entertainment [SKC.NZ] and Fisher & Paykel Healthcare [FPH.NZ] went through before market opening today.

Chart for Fisher & Paykel Healthcare Corp (FPH.NZ) -Discuss this company further

Of principal interest to me was 13,649,401 million shares of FPH being traded.

That volume traded represents just over 2.5% of the total of 509,452,817 million shares on issue as at 22 May 2008.

Big volumes of a similar number were last traded in June at around $2.40 and over the last year larger volumes have traded when the stock price hit new lows.

A large number of shares traded of a particular listed company above the daily average is usually a significant occurrence and smaller shareholders should keep an eye out for large money managers building stakes in undervalued companies, should they want to get in on the action.

Substantial holders owning between 9-14 million shares each, range from the Accident Compensation Corporation with 9.693 million shares, the NZ Superfund with 12.09 million shares, and JP Morgan Nominees (Aust Ltd) with 14.057 million shares, with 6 other much larger holders owning around 9-11% each.

The last substantial movement in Fisher stock was on 21 July and a half a dozen players have been amassing stakes of around 10% each as the stock has become cheaper over the last year with UBS Nominees most recently adding to their holdings to take their total to just under 9%.

Summary for: UBS Nominees Pty Ltd and its related bodies corporate
For this disclosure,-

(a) total number held in class: 39,345,377
(b) total in class: 509,476,963
(c) total percentage held in class: 7.723%
For last disclosure,--
(a) total number held in class: 45,192,939
(b) total in class: 509,037,055
(c) total percentage held in class: 8.878%

On June 6 AXA Asia Pacific Holdings Limited acquired a substantial stake for the first time of just over 5%.

Summary for the
AXA Group

For this disclosure,--
(a) total number held in class: 26,342,324
(b) total in class: 509,452,817
(c) total percentage held in class: 5.17%

There have also been large crossings by Caledonia Investment's Ply Ltd.

The most interesting substantial shareholder to me is a recent one. Schroder Investment Management Australia began with an investment of 29,988,254 million shares or 5.9% on December 11 2007 and have progressively bought shares since then to end up with a stake of 47,573,694 shares or a 9.34% in Fisher and Paykel Healthcare.

Their rapid accumulation makes me wonder that it might be them who have purchased a large stake today-the market will find out for sure tomorrow. Schroders is a global asset management company with US$259.1 billion under management at 30 June 2008 and around $AU12 billion under management at its Australian branch office.

Their investment approach is one that aligns with mine and they certainly seem to be practicing it in buying up FPH.

We are long-term investors: establishing the fair value of a security takes the discipline to avoid being caught up in market fashions and the confidence to be contrarian when necessary. We focus on the ability of a business to generate sustainable value and earnings growth. We look at the quality, as well as quantity, of earnings and we meet company managers and ensure that we fully understand their marketplace and business strategy. We believe that, over time, the mis-pricing of stocks versus fair value will be recognised by the market, and that our long-term approach to research will lead to long-term outperformance.

Clearly Schroders see Fisher & Paykel Healthcare as a "quality earner" and they see the market mis-pricing the stock-it has been severely marked down over the last year.

I recently bought more at $2.35 a few months ago, with a long-term view for good growth based on the company's well placed R & D research and resultant innovative products successfully brought to market.

Schroders would have an approx 11.5% of fisher shares if they were today's substantial buyer which would make them the number 2 largest holder, behind HSBC Nominees with an 11.84% stake as at 22 May 2008.

Fisher & Paykel Healthcare shares were up 7c to NZ$2.95 in trading today(19 August NZ time)

Fisher & Paykel Healthcare @ Share Investor

Why did you buy that stock? [Fisher & Paykel Healthcare]
Drinking and Trading
Share Investor's 2008 stock picks
Fisher & Paykel: A tale of two companies
FPH downgrade masks good performance

Related Links

Schroder Investment Management Australia
Schroder Investment Management Home

Fisher & Paykel Healthcare financial data

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The Business of Healthcare Innovation
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c Share Investor 2008 & 2009