Sky City Cinemas no Blockbuster

Sky City Entertainment's share price took a 9c drop today on news that it was writing
down its cinema division by NZ$ 60 Million.



The announcement today of a write down in the value of Sky City Entertainment Group [SKC.NZ] division has been a long time coming and is probably the only positive decision that management have made in a long while.

The loss has finally been realised-a NZ$60 million write down- and an extremely bad decision years back to buy this pig of an asset for an over inflated sum has been dealt with. A shame though that the only casualty of that bad decision was Evan Davies, the CEO who was sacked last year. Members of current management clearly need to fall on their swords over this latest waste of shareholder cash.

That ain't going to happen in this day and age of buck passing though.

I have been bitching and moaning about the cinema business since it was bought many years ago.

I loathe the cinema business, long-term it doesn't make money and is subject to continual capital expenditure due to changing technology and fierce competition, from not only other cinema operators, in a saturated multi-screen race to build more seats, but from many other sectors of the entertainment industry.

Those faceless suits at Sky City should have known these facts and run kicking and screaming along with shareholders checkbooks, from any such wrong headed deal.

The cinema business must be sold, it has over 100 screens and has 10 screens in limbo at the moment at the new Albany Westfield Mall, pending a possible sale.

The write down today values the cinema assets at around $50 million but it is highly unlikely that it is worth that much to a potential suitor.

There has been talk of Hoyts buying the cinema company but I don't think that could possibly happen given the dominance it would give a combined company in the current market.

It is more likely a company like Berkely or Reading Cinemas would be a better fit given their relatively small sizes.

Sky City have had a turbulent preceding 12 months and still have a number of issues to deal with in the future. The company have just started proceedings against the South Australian State Government, in tandem with the TAB, because the State has reneged on a contractually agreed limit in charges and taxes when they sold the Adelaide Casino to Sky back in 2000.

The 2008 General Election in New Zealand is also likely to be of great interest to shareholders as well, If the Labour/Green nanny statists get re-elected, further regulation against perceived "harm" to casino customers and higher gaming taxes are a likely scenario.

All this turbulence makes the job of new CEO Nigel Morrison all the more challenging when he takes up his position at the end of March 2008.

The half year profit is announced on 25 Feb and will include the cinema write down in its figures. Dividends will not be affected.

Sky City Entertainment shares were down more than 2% today (FEB 12, 5.00pm NZ time) on low volume.


Disclosure: I own SKC shares in the Share Investor Portfolio

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Labour buys Tim Shadbolt's silence

c Blanch 2008


News out today that the Labour Party have caved in to the protestations of Tim Shadbolt over his promise to campaign against the anti democratic Electoral Finance Act should be no surprise to those of us with morals and standards.

Labour cut funding to various Southland education facilities because they didn't think anyone would notice or care.

Shadbolt, a former Auckland University colleague of a large number the current crop of Labour Socialists, including Aunt Helen herself, would have focused attention on the controversial Electoral Finance Act by publicly protesting, up until the general election, towards the end of 2008, so the fuse had to be short circuited and Labour backtracked by reinstating some of the funding. Something that Labour said at the time wouldn't happen.

It is a clear message to voters that the Labour Party are highly embarrassed over the Electoral Finance Act and will do anything to stifle the much warranted negative publicity over its introduction and inception on Jan 1 2008. An act that has already had a number of causalities, most notably the young man, Andrew Moore, who was threatened by the Electoral Commission to effectively close his website down because it criticised the Government-something those that voted for the Bill also said would never happen.


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Freightways packages up a good result

Freightways business diversification
should keep them in good stead for
the future.


The announcement today of Freightways Ltd(FRE) and that its profit is up by 2% should be welcome news to shareholders.

The local economy has been stagnant for some time now and severe pressure from increased business costs has had a clear impact on the bottom line, considering revenue was up 12% on last year.

Labour, fuel, electricity and other state imposed business taxes and costs have dragged the results down and will continue to do so until company taxes are slashed and the emphasis on new taxes, like carbon related "green" taxes have been removed from the lexicon of daily life.

The future will be tough but an effort a few years back to diversify revenue streams and invest in a broader range of businesses that Freightways owns has seemed to have paid off.

Document management business in Australia and New Zealand has offset the less rapidly growing traditional areas of delivery services throughout NZ.

Mr Market today didn't like what it heard and pushed the share price down 1.25% to NZ$3.15 but in my humble opinion, the market should be well pleased that the company managed to deliver a solid, but not spectacular result, considering the economic stress kiwi citizens are clearly under.

Management deserve a good 8.5 out of 10 for this last half year.

Disclosure I own FRE shares

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Bruce Sheppard: When the going gets tough...

If my readers haven't already read Bruce Sheppard's Stirring the Pot Blog his latest post is right on the money, so I have added to my blog below. It is essential reading and you need a gander at it before you invest in the sharemarket, or any business for that matter.

The focus by an investor on the quality of management, before anything else, is one of the main criteria for picking a good company to invest in.

If you have good management , it will follow that the business that they management will probably be a good investment.

It is at these times of market stress and economic downturns that good management can get through the tough times.

Bruce Sheppard in Stirring the Pot | 4:03 pm 8 February 2008

When investing in a share you are investing in a business. A business is an opportunity run by management with your capital.

But how do you judge the quality of management? It is easy to judge the numbers but hard to judge the resilience, integrity and determination of people, particularly if you never eye ball them.

You have one opportunity a year to do this and it is the annual general meeting. Once the prepared speeches are done, the response of management to shareholder questioning gives a wonderful opportunity for insight into these people who have the responsibility for the prudent and rewarding use of your capital.

Over the next 18 months, shareholders are likely to see reversals in profit performance and it may even flow though into reduced dividends. Mr Market, as imperfect as ever, is anticipating this and as a result share prices have fallen.

But the real entertainment, and the chance for insight, will come as our managers seek to explain the situation to shareholders.

The explanations will fall into these broad categories:

1. “The profit is down, and we know the mistakes we made. We have changed the way we do things to evolve our practices to adjust to the changed environment.”

2. Some will go a step further and analyse the mistake for the benefit of shareholders and will also advise the lessons learned.

3. A few, but not many, might actually admit that conditions are difficult but may still report improved earnings. Of this group, some might admit that it was luck more than good management. Others might share a little of the decisions they made to make their own luck, of course taking care not to give away operational secrets.

4. Some will seek to blame others for the earnings reversal. “It is all the fault of the economy and in due course earnings will improve.”

Those that adopt the fourth approach are useless tossers who should not be left in charge of running a bath. Their management style is reactive, they take what is given to them and if you are lucky make the best of it. They don’t try to alter their environment and or even anticipate it.

Businesses run by such people will never perform long term without luck, and luck favours those who make it. Hopefully the board will recognise this and move the management team on, replacing it with a more dynamic approach. But generally boards recruit people that are similar in temperament to them so don’t hold your breath waiting for the board to react.

Generally “blame others” management only gets moved on when the business is at or near the precipice. Such managers should not be provided by shareholders with the custody of the wealth of others, so sell. A difficult business with an inspirational manger will outperform a business with favourable economics and a tosser running it.

Those that prosper in recession, and are self aware enough to admit when it is luck, give shareholders the confidence to know that they will in future make their own luck. These are safe guys to back.

Those that are honest enough to admit their mistakes and tell you what they have learned are okay too. They are learning, and honest. Honesty is a really good start. If, however, as the years unfold they descend into a pattern of making new and distressing mistakes each year, they are honest fools and should also be avoided.

So in picking a recession proof investment, look for simple businesses run by honest, hard working people who over time will make their own luck and beat the market.

We have 160 listed companies, and not many fall into this category. And in reality you won’t know which do unless you analysis the history, review critically the prospects and understand the underlying strength of management. Sounds like a lot of work. Well it is to a point. But if you keep your focus and apply the work to five or 10 good businesses, and don’t waste your time on trying to adopt portfolio theory with hundreds of separate investments, it is not too hard, and what’s more it is fun.

In the words of Warren Buffett: “Modern finance theory teaches students to do average” with my addendum “less costs.” Just as you don’t want your mangers to do average, why would you aspire to it?

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