••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••Retail ••• SHAReMARKeT INTellIGeNCe / FAMIlY MoNeY / INVeSTMeNT PRoPeRTY / M0NeY MARKeT / CuRReNCIeS NZ $ (Includes GST) 4.95 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• P O Box 20034, Bishopdale, Christchurch. www.headliner.co.nz for 24/7 Markets News 15 MAY 2014 VoluMe 35 No 16 No spend-up Well upbeat Cold spell WA riding in Budget for NZOG lifts sales new wave page 2 page 3 page 4 page 5 Tale of two Xero is now an Budgets American story This week’s Budget will underscore just how far New Zealand has come in the recovery from the great global financial of five years ago. Theoretically the higher the Kiwi dollar By restraining new capital spending and clamping down on state flies the less the potential for increased departmental programmes that had ballooned under Labour, Finance activity by US investors in Xero shares. Minister Bill English is poised to return the books to a positive state. For the sake of a dry academic argu- A modest fiscal surplus anywhere in the world is downright ment, and those who believe solely in remarkable. either equity fundamentals or technicals Two major shock events (the GFC and the Canterbury earth- as the key drivers of value investing, can quakes) have dominated the six years of the Key Government. This choose to disagree, but the high currency Budget will be quite a milestone in signaling survival from the first is blunting purchasing in NZ equities. In trauma; the second is going to be a multi-decade recovery, so again new spending will be on a leash. this sense, on an expectation that the new The overall position is we’ve put in good foundations and the currency peak is just that, XRO could roof is in place but we’re not quite at the point of splashing out. The become as much the target of the carry- pick-up is evident in jobs growth but it is patchy, great for those in trading speculator as the Kiwi dollar. construction, not so flash in service sectors like retail or media. The currency is riding high partly BNZ chief economist Tony Alexander notes that the latest job because investment in our stable numbers were ahead 3.7% or 83,000 from a year ago which is the economy is attractive, and partly because strongest annual pace of jobs growth since late-2004. “The unem- the US greenback is being mauled. ployment rate held steady at 6% but this is because confidence Some investors in XRO may choose to about finding a job is so high that the participation rate has risen to a record 69.3%. disregard the cost of currency. XERo foUNdER Rod dURy hAS pRodUCEd A flURRy “The employment rate has recovered now to a healthy 65.1% XRO shares are now cycling around NZ$30, rather of NEw AffiliATioNS. from 64.7% in the December quarter, 63.7% a year ago, and now sits than NZ$40. An overseas buyer of 10,000 XRO ords and above the average for the past ten years of 64.6%. The fact that jobs paying US$258,000 while the Kiwi is valued at US$0.86, growth is strong bodes well for retail spending growth and demand would pay US$240,000 were NZD priced at US$0.80. CURRENT STATUS for housing, tourism services etc in the coming year. But from an Times that by three and the difference is $774k / $720k, Xero is now the leading accounting software provider in inflation point of view one still cannot say that there is evidence of or $54k. In the US $54k will buy you this year’s new New Zealand and the leading online accounting soft- accelerating wages growth.” Cadillac XTS sedan. ware in Australia and the UK, with annualised Meanwhile, the Australian Federal Budget (due as this issue was The 4-week trading band is now $28-$34. The 100 printing) reflects the situation the ‘lucky country’ is in. In the run-up subscriptions of $29m, $41m and $14m respectively. to Treasurer Hockley’s Budget analysts expected modest fiscal tight- day moving average has flattened. Xero is turning its focus on the important US market. ening. Up until the end of February the underlying budget deficit Meanwhile, none of this seems to be affecting sales. Just going into the US market allowed Xero to raise an was 1.5% of GDP. And the only real option was to attempt to trim The share price might have started to sweat but the additional $180m of capital in October 2013. To look this deficit, through a tightening of policy settings. business is not out of puff. more American there have been board appointments of That will be felt by most households; expected were reductions Somewhere in this time frame, XRO released details New York-based Chris Liddell as chairman and San in benefits and tax increases including a 1% debt levy on high- of operating revenue of $70.1m for FY14, up 83% from Francisco-based Bill Veghte as a director and Peter income earners and increased fuel excises. last year’s $38.4m result. Karpas as CEO North America. “The good news for households is that the debt levy will not be With monthly committed subscriptions growing to There has been a flurry of new relationships, not all imposed on middle-income earners, and that the Audit Commission’s $7.8m, the recurring revenue model means that Xero recommendation to cut minimum wages has been ruled out for in the US. now,” said First NZ Capital. “But the clear message about long-term has started FY15 strongly with $93m in annualised First up (on 31.3.14) was a strategic alliance with fiscal austerity is likely to weigh on consumer confidence, as house- subscriptions (an 81% increase on the $51.5m for the KPMG in the UK. The alliance sees Xero’s online holds re-assess their ‘permanent’ income.” pcp). accounting platform playing a central role in the forma- The analysts added that the tightening is untimely. “Our earlier The net loss for 2H14 is anticipated to be close to tion of a new KPMG division, which will provide select forecast of 2% real GDP growth assumes that the government stimu- 1H14 resulting in a full year loss of approximately online accounting and tax services to small and medium lates to offset the impact of the mining capex cliff. It appears that $35m, compared to $14.4m last year. sized enterprises using the cloud. Interested businesses the government will not only fail to stimulate, but will also probably The strong New Zealand dollar also adversely are able to sign up to the services from this May. It was move the budget in the opposite direction. impacts reported operating revenue given 66% of this a big coup. But wait, there’s more . KPMG itself has “This means that there is downside risk to our growth forecast, revenue is denominated in foreign currencies. On a even before considering the hidden tightening that is coming a programme of strategic partnerships aimed at through via the elevated exchange rate, tighter bank lending stand- constant currency basis Xero grew operating revenue by supporting the SME sector. ards and the rising cost of living. We expect to see more RBA rate 92% in the period. On the same day a technical integration occurred cuts to at least make up for the stimulus the government is not Recruiting senior management for growth and filling between XRO and Square, Inc., a US company with a delivering.” out global teams was a key focus and Xero added a suite of business tools aimed at making commerce easy. further 376 employees. Continuedonpage4 Pick up for Kirkcaldie & Stains The Wellington department store operator Kirkcaldie & country and online shopping from overseas providers con- Stains found its anniversary year in 2013 overshadowed by tinues to register double digit growth. the difficulties posed by the drawn out tail to the domestic Kirks said they have a considerable number of initiatives retail recession. It was gratifying then to see that the grand directed to boost sales planned for 2H14. old retailer has posted a significantly improved six-month “They are rebuilding their women’s fashion section. They result for the period ended 28.2.14 for both the retail and now have 25 New Zealand brands and are looking at property operations. expanding the international offer with a number of UK The group posted a pre-tax profit of $791,000 (after-tax brands following the success of the exclusive in Wellington profit: $563,000) which compares to a pre-tax loss of Miss Selfridge concept. A new concession, Sportscraft, opened $741,000 (after-tax loss: $531,000) during the pcp. on 16.4.14, exclusive to Kirkcaldie & Stains in the Wellington The retail operations reported a pre-tax profit of region. $231,000, a $458,000 improvement on the 2013 pre-tax loss In June this year, Kirks will launch a furniture store in of $227,000. The improvement was directly attributable to Thorndon Quay, ‘Kirkcaldie & Stains interiors on Thorndon’, the on-going cost reduction programme with expenses down aimed at generating incremental revenue while leveraging 7.4% and a 1% increase in the final margin. back office support. It appears the shadow of the quiet retail mood in the It will also give Kirks the opportunity to reorganise and capital continues. Kirks’ retail operations continue to face expand the offer in the main store and create a more revenue challenges with sales 4.7% down on last year; the comfortable shopping environment. Kirks will launch a KiRKAldiE & STAiNS lAUNChES NEw SAlES Wellington region is still lagging behind the rest of the Continuedonpage3 iNiTiATivES foR 2014.