Archive | Gainz

Migrant inflow slide continues

New Zealand’s net migrant inflow continued to slide in September as more non-citizens left the country.

The net outcome for September compared to September last year was a decline of 555 – 11, 015 arrivals (11,121 last year), 4752 exits (4303), a net inflow of 6263 (6818).

For the September year compared to the previous 12 months, the inflow was 128,982 (131,598), exits 66,249 (60,612), net inflow 62,733 (70,986). The peak inflow was 72,402 in the 12 months to July last year.

The trans-Tasman tide, positive last year has turned outward: for the month, a net 204 exits (155 arrivals); for the year, a net 1575 exits (66 the previous year, a net inflow of 1965 2 years ago).

For the fourth year, there was still a net inflow of NZ citizens returning in September – 2542 in, 2528 out, a net gain of 14 (351 in September last year), but over 12 months the flow remains outward, though still low compared to an exit rate of nearly 40,000 6 years ago. For the last 12 months, 31714 NZ citizens returned, 34,481 left for a net loss of 2767.

The inflow of non-citizens remains close to 100,000/year – up 20,000 on arrivals 4 years ago, but the exits have risen by 10,000 over those 4 years. For the last 12 months, arrivals were 97,268 (99,579 the previous 12 months), exits 31,768 (26,956), net inflow 65,500 (72,623).

The shifting flows make a big difference to Auckland. Looking at the last 3 years, arrivals in September have fallen from 5365 to 5283 to 4840, while exits have risen from 1424 to 1734 to 1969. For the year, arrivals have risen from 53,844 to 59,618 then declined to 56,886, while exits rose from 32,768 to 36,404 then declined to 31,417.

The net outcome for Auckland for the month has been a decline from 3941 to 3549 to 2871, and for the year a rise from 32,768 to 36,404, followed this year by a decline to 31,417.

End of exit cards

From next month, passengers leaving New Zealand will no longer have to complete a departure card. Statistics NZ said yesterday it was developing provisional estimates to maintain timely statistics.

Attribution: Statistics NZ.

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Shareholding deal changes landscape at Steel & Tube

Steel & Tube Holdings Ltd goes to its annual meeting next Thursday with Fletcher Building Ltd no longer bidding for a takeover, and an asset manager replaced by NZ Steel Ltd as a large shareholder.

NZ Steel is owned by BlueScope Steel Ltd, of Australia.

NZ Steel’s $45.8 million acquisition of the 15.3% of Steel & Tube controlled by Milford Asset Management Ltd, at $1.7465/share, means Milford private equity investment director John Johnston is no longer standing for election to the board.

Earlier story:
16 October 2018: Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

Attribution: Company releases.

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PMG wholesale capital fund fully subscribed, childcare fund close

Property Managers Group’s $12 million wholesale capital fund has been fully subscribed a fortnight before closing date, and the group expects its $5.5 million wholesale direct childcare fund to be fully subscribed by closing as well.

Tauranga-based PMG opened both funds in early September, with 31 October closing dates.

PMG investment head & director Daniel Lem said yesterday a limited number of $100,000 parcels in the childcare fund remained available.

PMG launched its childcare fund after investors said they wanted to provide access to quality early childcare education for young New Zealanders from all backgrounds. The fund’s aim is to build a portfolio of new early childcare education properties.

The present capital-raising is for 2 new centres in Hamilton & Pukekohe.

Earlier story:
13 September 2018: Property Managers Group offers 2 wholesale opportunities, gets AA ratings for 2 retail funds

Attribution: Company release.

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Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

Fletcher Building Ltd dropped its on-the-quiet attempt to buy fellow NZX-listed company Steel & Tube Holdings Ltd yesterday, 3 hours after Steel & Tube told the exchange a revised offer still undervalued it.

Remarkably, Fletcher blamed the Steel & Tube board’s lack of support to “progress the proposal in a timely manner”.

5 weeks after Fletcher’s initial confidential approach, the Steel & Tube board decided it needed expert advice on Friday’s revised offer that would take 3-4 weeks to confirm.

Fletcher said they’d had “ample time”.

Again, as it did with its initial offer, Fletcher focused on the short-term timeframe of Steel & Tube’s share price, ignoring the turnaround process Steel & Tube has begun after a $38 million annual loss.

Fletcher initially began talks confidentially with the Steel & Tube board, and also with major shareholders in the target company, on its 10 September proposal to make a non-binding indicative offer of $1.70/share for the whole of Steel & Tube.

12 days after Steel & Tube disclosed that offer & its rejection to the market, Fletcher came again with a $1.90/share price tag plus a 5c/share dividend, with imputation credits.

This time, Steel & Tube told the market:

  1. Its advisors’ (First NZ Capital Ltd) view on Steel & Tube’s intrinsic value was between $1.95-2.36/share, excluding the company’s share of synergies, and
  2. The permitted dividend doesn’t adequately compensate shareholders for the extended timeframe realistically required to seek regulatory approvals.

The Steel & Tube board said of the new offer:

“The revised offer of $1.90/share implies an enterprise value (EV) of $341 million and is only an 8.5x multiple of our long-term sustainable earnings, assessed as 2021 financial year ebit (earnings before interest & tax) of $40 million. Comparatively, excluding the company’s share of synergies, our advisors’ valuation range is an implied EV of $346-414 million.
“However, Steel & Tube advises that in light of the revised offer the board is commissioning an independent expert report which will take 3-4 weeks, and will further consult its legal & financial advisors about the implications of the revised offer. Fletcher Building has been advised of this.”

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson said: “The revised non-binding indicative offer from Fletchers does not prevent higher value approaches from other interested parties. The board will continue to evaluate strategies & actions that deliver the best value to shareholders and is continuing to focus on executing our turn-around strategy.”

In her letter to Fletcher chair Bruce Hassall & chief executive Ross Taylor, Ms Paterson said: “While we understand you may have indications of some support from a couple of our institutional shareholders, the board needs to consider the interests of all shareholders taken as a whole, and the execution risks inherent in the revised non-binding indicative offer.

“Chapman Tripp continues to advise that the proposed acquisition would face challenging issues for clearance under the Commerce Act, due to Fletcher’s vertical presence & significant size in several steel product markets.”

The sulk

Fletcher said in its withdrawal announcement it had pulled its offer “due to lack of support from Steel & Tube’s board to progress the proposal in a timely manner.

“Steel & Tube has announced that it does not support Fletcher Building’s revised proposal, and that it would need a further 3-4 weeks to confirm this view. Fletcher Building has been engaging with Steel & Tube on a proposal for 5 weeks now, which has provided ample time for the board to seek independent valuation advice.

“During that period, Fletcher Building received support for progressing its proposal from major Steel & Tube shareholders Milford Asset Management & Harbour Asset Management.”

Analysing share price movements with a glass eye

Fletcher said its revised proposal “provided a significant premium of more than 50% to Steel & Tube’s pre-announcement 5-day volume-weighted average price”.

Fletcher Building chief executive Ross Taylor.

Fletcher chief executive Ross Taylor said: “Despite offering what we believe was a very attractive offer to Steel & Tube shareholders, our engagement with the Steel & Tube board has been unsuccessful and, as a result, we have withdrawn the acquisition proposal.

“Based on expert advice, Fletcher Building remains confident the transaction would have received Commerce Commission clearance. Steel & Tube’s market share information released on 10 October doesn’t properly take into account the material impact of direct imported products in relevant markets.”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On 3 October, the day of the announcement, the price rose another 22c, and 3c more the next day to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Steel & Tube’s share price dropped to $1.48 a week ago and has since been in a 3c band around that price.

Fletcher’s share price hit a short-term peak of $6.58 on 2 October, the day before Steel & Tube revealed the confidential offer. Since then, the Fletcher price has tumbled to $6.10.

Like Steel & Tube, the Fletcher share price has been hit over the last 2 years by revelations of incompetent management & board control.

On 2 February, 12 days before Fletcher announced an extra $486 million of losses by its Building + Interiors division, accompanied by chair Sir Ralph Norris’s decision to resign, its share price hit a 4-month high of $7.61. It bottomed on 4 April at $5.53 and made it back up to $7.13 on 30 July.

The Fletcher share price had been at $10.19 in November 2016. The company had become aware of deep problems within its vertical construction business over that summer, and the price had dropped to $8.73 by 17 March 2017, the Friday before now-departed chief executive Mark Adamson made the first revelation of the extent of Fletcher’s problems.

Steel & Tube investor updates

Earlier stories:
5 October 2018: The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns

Attribution: Fletcher and Steel & Tube releases, websites, NZX.

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Fulton Hogan drops Huntly quarry from Stevenson purchase, Commerce Commission happy

The Commerce Commission has closed its investigation into roading & infrastructure construction company Fulton Hogan Ltd’s acquisition of Stevenson Group Ltd’s construction materials business, saying its concerns with the transaction have been addressed.

Fulton Hogan agreed to buy Stevenson’s construction materials business in May, intending to take full ownership of Stevenson’s 2 quarries & 4 concrete plants, transport, laboratory services and associated plant & equipment.

Fulton Hogan didn’t seek clearance under the commission’s merger regime, and the commission opened an investigation in June, primarily due to concerns the acquisition could reduce competition for the production & supply of aggregates (granular rocks, gravel or sand typically used in roading & construction) in Auckland & North Waikato. Fulton Hogan & Stevenson both own & operate quarries in Auckland & Huntly.

Commission deputy chair Sue Begg said yesterday Fulton Hogan had since agreed not to acquire Stevenson’s Huntly quarry as part of the transaction and it had now been formally excluded from the purchase.

“The decision to remove the Huntly quarry from the transaction addresses our concerns in this case. We are satisfied that Fulton Hogan’s purchase of Stevenson’s Auckland quarry assets is unlikely to substantially lessen competition, given the presence of other competitors in this market, and we have now closed our investigation.”

Stevenson’s focus has shifted to the development of its Drury quarry & land across to Auckland’s Southern Motorway, where it had 361ha of rural & quarry land rezoned in 2013 for a mix of industrial & business development.

Since then, Kiwi Property Group Ltd has bought 51ha at Drury to create a town centre, and Karaka & Drury Ltd (Charles Ma) has begun work on 2 residential developments at Drury, the first for 68ha and the second for 85ha, set to yield about 2700 homes plus a village centre.

Commerce Commission case register

Earlier stories:
15 June 2018: Commission opens investigation into Fulton Hogan’s Stevenson acquisition
31 October 2016: Work starts on 3 striking special housing area projects
24 August 2016: Work set to start after fast approval for Auranga special housing area at Drury
30 August 2013: Drury South industrial area plan change & MUL extension approved
10 September 2017: Second round for Auranga precinct confirms Drury as major growth centre

Attribution: Commission & Fulton Hogan releases.

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Updated: Commission takes Vector to court for failing to curtail power outages, and Vector says rules out of date

Published 10 October 2018, updated 11 October 2018:
The Commerce Commission said it would file civil proceedings in the Auckland High Court on Wednesday seeking financial penalties against electricity lines company Vector Ltd for breaching its network quality standards.

Vector said it was at fault – but believed the regime “no longer reflects reality” (see its response below).

Vector serves over half a million homes & businesses in the greater Auckland region and, as a regulated business, must comply with commission regulations regarding the maximum revenue it can collect and the minimum standards of quality it must deliver. Quality is measured in the duration & frequency of power outages.

The commission said: “As part of its compliance with the regulations, Vector reported that it had breached its quality standards in both the 2015 & 2016 financial years. The commission will file proceedings under the Commerce Act alleging Vector failed to adhere to good industry practice in some aspects of its network management, which resulted in increased outages over that period.

In particular, the commission considers Vector did not meet good industry practice with regard to aspects of its:

  • overall governance of compliance with the quality standards – for example, underestimating the growing risk of non-compliance, and failing to have methods to predict & plan for the effects of increased traffic congestion
  • asset lifecycle management practices
  • approach to managing reliability, such as a consolidated & documented strategic reliability management plan, which would have helped to identify key issues & solution options
  • vegetation management (cutting trees to avoid collisions with power lines), and
  • management & supervision of arrangements with the field service providers whose crews undertake maintenance & fix faults on Vector’s network.

The commission said Vector had co-operated with its investigation and confirmed it wouldn’t contest the proceedings. It has also reported further breaches of its quality standards for 2017 & 2018 that are subject to a separate investigation.

The maximum financial penalty that can be imposed on an electricity lines business for a breach of its price-quality path is $5 million per act or omission. If the court imposes a penalty, section 87A of the Commerce Act allows the commission, or any person who has suffered loss or damage as a result of the breach, to bring a further claim for compensation against the electricity lines company within 12 months of the penalty.

Vector admits erring, but says regime “no longer reflects reality”

Vector acknowledged yesterday it was agreeing to a settlement with the Commerce Commission, following breaches of an electricity network quality standard in 2015 & 2016.

The company said details of the settlement would be heard at a penalty hearing to take place “in due course”.

The company’s chief network officer, Andre Botha, added that Vector believed the quality control regime “no longer reflects reality”.

Like other lines companies, Vector’s prices and service quality are regulated by the Commission using a price-quality path, which means Vector is required to meet certain network quality standards, relative to its own historical performance, and is limited in the amount of revenue it can earn.

Vector’s chief network officer, Andre Botha, said one of the Commerce Commission’s quality standards was the average duration in minutes of network interruptions. The commission found Vector breached this quality standard by 51 minutes in the 2015 regulatory year and 13 minutes in the 2016 regulatory year.

“Vector has noted to the commission the circumstances that it believes contributed to its breach of the service quality standards in 2015 & 2016. These conditions included increased storm frequency & other weather-related impacts, increases in Auckland’s traffic congestion, which have slowed travel times and can prevent maintenance crews from reaching network faults in a timely fashion, and Vector’s decision to prioritise safety of its people by introducing a best-practice policy to avoid working on live lines wherever possible, which can lead to extended outages.

“We understand the disruption these breaches have caused for some Aucklanders and we have been working hard on a range of measures to reduce the impact. However, we also believe the existing regime for quality control no longer reflects the reality of the changed operating environment, particularly in Auckland, and meeting these legacy quality standards will remain a significant challenge for ourselves & others in the industry.

“It is pleasing that we have been able to table these concerns with the Commerce Commission directly and we will continue to work constructively with them to determine new quality standards that will take effect on 1 April 2020 following the next regulatory reset process.”

Attribution: Commission & Vector releases.

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Goodman settles Mt Roskill acquisition

The Goodman Property Trust has settled its $93 million purchase of Foodstuffs (North Island) Ltd’s distribution centre in Mt Roskill.

The 13.1ha property at 58-60 Roma Rd has 36,977m² of warehouse & office space, plus yard & parking areas.

Goodman has acquired the distribution centre on a leaseback arrangement and will refurbish & reconfigure the facilities when Foodstuffs’ lease expires in 2021.

Site coverage of less than 30% & a light industrial zoning offer the longer-term opportunity through intensification of use or redevelopment that Goodman has specialised in.

Earlier story:
12 September 2018: Goodman buys Foodstuffs centre for future intensification

Attribution: Company release.

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Summerset just behind 2017 with retirement unit sales

Retirement village owner, developer & operator Summerset Group Holdings Ltd sold rights to occupy 148 units in the September quarter, 7 behind the previous year at this point.

The company recorded 82 new sales (97 in the September 2017 quarter) & 66 (58) resales.

Summerset achieved total sales of 682 units in 2017 (382 new, 300 resales) and would need 235 sales in the final quarter to match that.

Chief executive Julian Cook said the company was still on track to deliver 450 new units this year, the same as last year.

Attribution: Company release.

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The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On Wednesday, the day of the announcement, the price rose another 22c, and 3c more yesterday to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Both companies have been in serious trouble in the last 2 years, Fletcher Building in its construction division, and especially big-project vertical construction, Steel & Tube turning into a very poorly performing supplier, forecasting a heavy loss in May but clearing its books in August.

Fletcher Building priced its offer at $1.70, a cheeky undervaluation for an entity heading north under its own steam, although Fletcher chief executive Ross Taylor said that – somehow, by being bought out of an enterprise at the start of its journey on a stronger future – the offer was compelling and had the ability to deliver significant value to Steel & Tube shareholders.

That, to me, is arrant nonsense, which is not to say that a large number of Steel & Tube shareholders won’t take today’s money rather than wait for the company to grow on its own account.

Non-binding and Fletcher still wants confidentiality

Fletcher Building proposed acquiring all of Steel & Tube’s shares through a scheme of arrangement. The offer, which Fletcher delivered on 10 September, was non-binding, indicative & confidential. Steel & Tube responded publicly on Wednesday after seeking legal & commercial advice, saying it didn’t support the offer.

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson commented: “The fact that Fletchers has made this indicative offer speaks to our reputation & the strength of our business. Obviously Fletchers sees a lot of value in our business & its future potential as the benefits of our turn-around strategy start to become clear… as do we.”

She said $1.70 “significantly undervalues” Steel & Tube, then turned to practicalities if Fletcher pursued its approach: “The proposed acquisition would need clearance under the Commerce Act, which would take some time to work through due to Fletcher’s vertical presence & significant size in several steel product markets.”

She added: “While the market remains highly competitive, Steel & Tube continues to win new customers, sign large contracts, increase efficiencies & reduce costs.”

Fletcher focuses on short-term comparisons

Fletcher Building concentrated on the short-term comparisons, which showed 35-38% premiums over most recent trading.

Looking further back, Fletcher Building said: “A price of $1.70/share implies a transaction multiple of 12.3x Steel & Tube’s ebit (earnings before interest & tax) guidance for the 2019 financial year. Fletcher Building believes this implied transaction multiple represents compelling value for Steel & Tube shareholders given it is materially above the average trading EV/EBIT multiple over the last 5 years of 9.2x.”

Offer process will continue

Fletcher Building chief executive Ross Taylor.

Fletcher Building chief executive Ross Taylor, who took charge of the company last November, said Fletcher Building preferred to work constructively with Steel & Tube’s board to progress its proposal, and had been in discussions with Steel & Tube & a number of its major shareholders over the last 3 weeks.

“Through this process shareholders, who collectively own more than 20% of all Steel & Tube shares on issue, confirmed their position that the board of Steel & Tube should, in good faith, progress the development of the proposal with Fletcher Building, with a view to it being put to Steel & Tube shareholders.

“Given the strong shareholder support to date, Fletcher Building intends to continue discussions with Steel & Tube shareholders & board, with a view to reaching an acceptable outcome in the immediate future.”

He said the acquisition “is consistent with Fletcher Building’s 5-year strategy announced in June, and fits firmly within its focus on the New Zealand & Australian building products & distribution sectors.

“An acquisition of Steel & Tube is a unique opportunity to create the leading steel distribution business in the New Zealand market. We believe that there is a significant ability to leverage our business model & people across the combined business for the benefit of our customers, employees & shareholders.

“In particular, we believe customers would benefit from an improved service offering & distribution network, broader product range and investment in innovation. We consider there to be potential value creation over time as benefits of the combined operation are realised, providing us with the confidence to present an attractive proposal to Steel & Tube.”

“We believe this is a compelling proposal for Steel & Tube shareholders, representing a significant premium to recent share price trading and broker valuations. If successful, the proposed transaction has the ability to deliver significant value to Steel & Tube shareholders and materially de-risk the turnaround plan that Steel & Tube management are beginning to embark on,” says Mr Taylor.

The proposed transaction would require clearance from the Commerce Commission. Fletcher Building has undertaken a significant amount of work with its economic and legal advisers on combining Fletcher Steel and Steel & Tube.

Fletcher raises nationalism & ‘still competition’ flags

In an argument likely to be needed to convince the Commerce Commission, Mr Taylor said: “Fletcher Building believes that the New Zealand steel industry would remain highly competitive if it acquired Steel & Tube, with a number of well established competitors remaining, in addition to a growing number of offshore suppliers selling directly into the market.

“This work has given Fletcher Building confidence that the transaction would receive the necessary clearance from the Commerce Commission. Approval from the Overseas Investment Office will also be necessary.”

Mr Taylor said – without acknowledging the sharp lift in share price 4 days before Steel & Tube revealed the approach – “discussions with Steel & Tube in relation to the proposal are intended to be progressed confidentially until an agreement can be reached. Until that point, the proposal remains incomplete & is non-binding, and therefore may not result in a transaction occurring. The proposal is not a takeover notice for the purposes of the Takeovers Code. The company will update the market with any material developments as appropriate.”

Earlier Fletcher stories:
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns
21 September 2017: A year on, Fletcher board still has ‘construction nous vacancy’ pencilled in
21 July 2017: Fletcher Building takes axe again to construction earnings, Adamson ousted
20 March 2017: Fletcher Building cuts earnings guidance by $110 million

Earlier Steel & Tube stories:
24 January 2018: Steel & Tube reaffirms guidance based on long list of new positives
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
21 August 2017: Steel & Tube performance dissatisfies new chair

Attribution: Fletcher and Steel & Tube releases.

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Summerset buys at Papamoa

Summerset Group Holdings Ltd has bought an 8ha site at Papamoa Beach for its first Tauranga retirement village. It expects to open the new village in 2020.

The property is 4km east of the Papamoa town centre & 11km from Tauranga’s central business district.

Summerset chief executive Julian Cook said today the area was underserved by villages offering a continuum of care for residents. He said the new village would have about 280 homes, including serviced apartments & 2- & 3-bedroom villas. It would also provide a care centre with resthome & hospital-level care, and a memory care centre proviing one-bedroom apartments for people with dementia.

Mr Cook said total construction investment would exceed $150 million and a construction crew of at least 250.

Summerset is on track to build 450 retirement units this year. It has 23 villages completed or in development & 9 greenfield sites.

Attribution: Company release.

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