Rod Duke admits 2008 - 2010 Recession the worst

In a Share Investor Q & A out tomorrow morning on Rod Duke, CEO of Briscoe Group Ltd [BGR.NZX], Rod gives some very interesting answers to my questions to him. We cover aspects of his business life, retailing in general and the Briscoe Group specifically and some other topics thus far not broached by other interviewers.

One answer that really interested me was the answer to the following question:

SI - Is this the worst recession you have experienced in terms of retail and/or personally?

RD - Yes, Yes

Dumb that I didn't ask him if he thought it was over but revealing in the sense that here is a man at the cutting edge of retailing in New Zealand, with years of experience in retail and in business and he says that this is the worst ever recession he has experienced. This would include the decade of low growth in the 1990s, the aftermath of the 1987 stockmarket crash and the oil lead recessions of the early and late 1970s.

Pretty big call to say that the period 2008 - 2010 (I think we will experience a longer term of recession) is the worst of economic times since the depression (I know others have said this but Rod has been very direct and succinct while others on the economic coal-face like him have often waivered in their opinions) but that how Rod has called it and he is old enough to know.

Rod even quotes Warren Buffett at one stage!

My favourite Share Investor Q & A thus far and he completed it in a couple of days. Shame his mate Ian has been dragging the chain.

Sorry Ian just kidding!


Disc I own BGR shares in the Share Investor Portfolio


Share Investor Q & As

Briscoe Group CEO Rod Duke
Ryman CFO Gordon Macleod
Ecoya's Geoff Ross
Xero's Rod Drury
Mainfreight MD Don Braid
Burger Fuel Director Josef Roberts
Sky City CEO, Nigel Morrison


Briscoe Group @ Share Investor

Share Investor Q & A: Put Questions to Briscoe Group CEO Rod Duke
Long Term View: Briscoe Group Ltd
Briscoe's Cash worth looking at
Whats on Rod Duke's shopping list?
Why did you buy that stock? [Briscoe Group]
Rod Duke's Pumpkin Patch gets bigger

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c Share Investor 2010

Ecoya Ltd: Trilogy Purchase Dumps on small shareholders

I seem to have developed an even more keen sense of moral outrage than I usually do and have expressed it over the last few months but there is just so much dodgy stuff out there when it comes to business, financial markets and investing in general.

The rushed purchase last week and subsequent capital raising of Trilogy Skincare by Ecoya Ltd [ECO.NZX] raises some questions about shareholder rights and the responsibility of the NZX as the regulator of the New Zealand stockmarket to protect those shareholder rights.

In a statement to the market yesterday Ecoya management gave the reasons why they "had to act swiftly" and applied and received a wavier from the NZX to make the purchase of Trilogy without obtaining shareholder approval:

"The Proposed Acquisition needs to be executed swiftly as ECO is part of a competitive bid process. If ECO is required to obtain a shareholder vote in respect of the Proposed Acquisition, there is very real likelihood that this would compromise ECO’s position in the competitive bid process, by making ECO’s proposed deal a less competitive option for the vendor."

All well and good but smaller shareholders in ECO didn't have the opportunity to say yey or nay to the deal and the NZX, once again, allowed ECO management and big shareholders in ECO to have rights above the small investor.

Ecoya management say the deal will be good for the company and provide a good platform for growth where Trilogy has markets and Ecoya doesn't but shouldn't it be put to a vote so the owners of this business can have their say?

I think so!

Why bother being a shareholder in a company if you don't feel you have some sort of ownership in the company, albeit a small one.

That is part of the rights of being a shareholder and half of the fun of owning a share in a public company.

If Ecoya management want to run the business in this way why the hell did they go public at all. Complete control of this public company would have been more appropriate if they didn't list.

I asked CEO Geoff Ross in a Share Investor Q & A in July 2010 why he listed such a small company instead of raising private capital and he gave the following reasons:

"We chose to list on the NZX because even though a small raise, it provided a good structure for our capital requirements – a fair valuation and the warrants to raise further capital as our business grows. Being a listed company also gives a credibility when operating in international markets. You are taken with a degree of seriousness when dealing with large clients such as department stores and also your key suppliers".

All credible reasons but how about looking after the shareholder by adhering to NZX shareholder rights?


Ecoya Ltd @ Share Investor

Share Investor Q & A: Ecoya's Geoff Ross
Share Investor Q & A: Questions for Ecoya's Geoff Ross
Ecoya 2010 Full Year Profit: More of the same to come?
Ecoya IPO lights only one end of the candle
Ecoya IPO: A Closer Look
Ecoya Prospectus Requires free registration
Ecoya.co.nz

Discuss ECO @ Share Investor Forum


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c Share Investor 2010

Allied Farmers: Hanover & Allied close mates

It is funny what you find when you are googling. While searching Allied Farmers Ltd [ALF.NZX] after their late night profit announcement for 2010 out last Friday, I came across this little gem published in April 2007 on the IRG website:

Allied Farmers (ALF) is being transformed from a livestock and rural services company into a major player in finance. Initially its finance arm aimed to service farmers requiring finance in their farming activity. But with the agreement this week to acquire 100% of the shares in Nationwide Finance for $33m, Allied becomes a major player in the field. Nationwide Finance Limited, part of the Hanover Group, is a diversified finance company providing property and commercial finance. It has total assets of approximately $160m, which will be added to Allied’s current finance subsidiary, Allied Prime Finance to give it scale needed to operate successfully in the finance industry. Finance should offset some of the risks inherent in livestock trading and other rural activities.

The thing is, after the receivership of Allied Nationwide Finance (it changed it name to this after the 2007 purchase and its folding into Allied Prime, Allied's own finance company) on the 23 August 2010, it doesn't appear that many knew that Nationwide had a previous connection to Hanover. The much written about purchase of the failed Hanover Groups assets late in 2009 by Allied Farmers seem to have swallowed all the detail in its wake.

Allied Farmers soon retiring CEO Rob Alloway seems to have had a cosy relationship with directors at Hanover over a number of years and you cant tell me that the fate of Nationwide wasn't obvious before Rob and his fellow directors at Allied Farmers bought Hanover's whole kit and caboodle last December.

In 2004 Deborah Hill Cone wrote a very good piece on Hanover as a whole. In it she describes not only the dubious nature of the majority of Hanover's financial health (it had a credit rating below BBB, junk bond status) lending (inter-party stuff) but specifically on Nationwide Finance:

"... related party transactions and Nationwide Finance's reveal a further $13.8 million.

I initially understood that the December purchase (and the previous months of negotiation) was the first connection to Hanover with Allied Farmers but to find that their relationship goes back almost 3 years before that gets me thinking about all the back slapping and secret deals that must have gone on over the years.

Mr Alloway has mislead Hanover investors (and has done so subsequently several times) and his own Allied Farmers investors pre Hanover over the value of Hanover assets and his long term involvement with Hanover makes the December purchase look even murkier.

Is it a case of mates helping out mates?

Allied Farmers @ Share Investor

Long Term View: Allied Farmers Ltd
Allied Farmers: Rights Issue Decision
Allied Farmers: Prosecutions should be on the cards
Allied Farmers Fraud passes with little fanfare
Allied Farmers: What's it Worth?
Hanover, Allied Farmers deal more of the same

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c Share Investor 2010

Warehouse Group Ltd: 2010 Full Year Profit Analysis

The Warehouse Group Ltd [WHS.NZX] 2010 full year profit result of $83.2 million million was expected. It compares with the 2009 full year profit of $85.2 million.

Profit was down more than 20% on flat revenue figures of $1.67 billion, down around 3% on 2009. Much of the revenue decrease is due to the dropping of the grocery offering by the company. A good result in these tough economic conditions but nothing there to indicate increased numbers are coming any time soon.

The most important point I think of the result is that the company managed to increase margins by 0.1% in a retail environment of seemingly perpetual sales. Management have done well to maintain margins in this tough retail environment. As their competitors have dumped stock on the market just to release cash. This is a good indicator that management are taking the recession seriously.


Key Points

Revenue of $1,672.695 million versus $1,720.755 million in 2009, a decrease of 2.8 %

Operating profit of $124.049 million versus $124.952 million in 2009, a decrease of 0.7 %

EBIT of $126.575 million versus $116.128 million in 2009, an increase of 9.0 %

Profit pre tax of $119.166 million versus $109.291 million in 2009, an increase of 9.0 %

Net profit of $60.185 million versus $76.782 million in 2009, a decrease of 21.6 %* - Adjusted figures for abnormals and the change in depreciation and tax charges imposed by Government in 2010.

Margins increased by 0.1% to 7.4%.

Earnings per share of 19.5 cents per share versus 24.9 cents per share in 2009, a decrease of 21.7 %

Final Dividend: 8.5 cps and Special Dividend: 5.0 cps.

Looking ahead to 2011 WHS management are unable to accurately forecast any key indicators but safe to say they don't see a vast improvement on 2010. They are indicating they will give a better indication of 2011 full year performance in March 2011.

I don't see much, if any improvement in 2011 apart from savings in business costs. The Christmas trading period, while important to every retailer and especially to the Warehouse is going to be all important this year.

Keep your eyes peeled for the 2010 half year result for Briscoe Group Ltd [BGR.NZX] out latter today for comparison.


* The Interview with WHS CEO Ian Morrice has been delayed due to time spent by him organising his Christchurch WHS crew during the earthquake.


Disclosure: I own WHS shares in the Share Investor Portfolio.

WHS 2010 Profit Detail

2010 Full Year Results Documents
Warehouse Group 2010 Profit Presentation
AUDIO: Warehouse Group 2010 Profit Presentation & Questions


The Warehouse Group @ Share Investor

Share Investor Q & A: The Warehouse' Ian Morrice 
Share Investor Q & A: Questions to The Warehouse' Ian Morrice
Long Term View: The Warehouse Group Ltd
Share Investor Short: Warehouse Group yield worth a look
The Warehouse Group: 2010 Interim Profit Review
The Warehouse: Big Brands, Big Opportunities
Warehouse strike opportunity to buy
Long Term Play: The Warehouse Group
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Woolworths supermarket consolidation an indicator of a move on the Warehouse?
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Long vs Short: The Warehouse Group
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The case for The Warehouse without a buyer
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MARKETWATCH: The Warehouse
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WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

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c Share Investor 2010