Friday, April 29, 2011

CEC Negative Net Assets $27.6 Million

Announcement just out this evening at 5.44pm ASX release is here!

The guts of the announcement, beyond the typical spiel on floods, cyclones, and pestilence et al for being unable to produce half-yearly accounts is as follows:

CEG considers it appropriate to inform the market that the accounts when released will include the following material events:
      - Impairment of all or much of the Deferred Tax Asset (‘DTA’). The DTA amounts to around $32 million.
      - Material losses on realisation of assets and trading of around $14.7 million after tax.
      - Impairment of intangible assets, goodwill, of around $9 million, to a value of zero.
      - Following the above impairments the accounts would show Negative Net Assets of around $27.6 million.
However we will have to wait for further details as "following consultation with the auditors unfortunately lodgement will not occur until on or before Wednesday 4th May 2011." 

The announcement also incudes "CEG advises that Roy Lavis is the new Company Secretary for the Group." There is no explanation of what may have happened to the old Company Secretary?

Note: Negative net assets does not necessarily mean insolvency. In Australia cash flow is the primary test and s95 of the Corporations Act defines solvency as A person is solvent if, and only if, the person is able to pay all the persons debts, as and when they become due and payable

Tom's Pubs

Corporate activity around the remnants of Tom Hedley's pub fund, and it's associated links with lessee NLG, where Tom's 20% interest is still locked up with receivers, as does more than 50% of the pub fund, remains .... ongoing?!

Due diligence has been extended apparently on a deal with the private Laundy pubs. It's now almost two years since Tom's corporate collapse and subsequent bankruptcy. We await an outcome as we do with an expected update by close of business today on CEC.


Rate cuts for Port Douglas?

New land valuations are released next week, May 3, for all Local Guvmint areas in Queensland. The Valuer-General has released a snapshot of the 2011 valuation and the specific commentary on Cairns is as follows:

"An overall increase of 2.3 per cent in residential land in the Cairn regional local government area has been recorded since the last revaluation of this region in 2008. The economy is gradually improving, with confidence returning to the tourism industry and a large reduction in unemployment. However, it is taking a long time for these improvements to filter through the property market in general.

The Cairns residential property market throughout 2010 has remained at the bottom of the property market cycle, experiencing slow demand but remaining steady.

The Port Douglas market has experienced a downturn in the order of 30 per cent due in part to an oversupply of accommodation and the downturn in the tourism sector."

Of course, what matters for Council rates is differential valuation movements, so that decline in PD could potentially translate into rate cuts even though rates generally are set to rise by at least 5%. There may be a silver lining from the amalgamation.

However, if someone pays less, someone else must pay more which is where Council rates policy with respect to different categories could become politically interesting. This years valuations were delayed to assess the impacts of floods but it is understood Councils have already been supplied with preliminary data to allow rates modelling for the upcoming budget.

Tuesday, April 26, 2011

rates debates

The parrot commentariat at the Journal of Ignorance has gone off over this posting from the Editor-at-Loose on Rate Squeeze: Council battles rising deficit as Budget day nears

To be fair, on the quality spectrum, this is one of the more reasonable efforts from 'Loose', with just a few oddities, unlike the bizarre comments. A key aspect of all discussion on rates seems to be their supposed relationship to the CPI. The Editor-at-Loose summarised this as: "The average fee rise approved by councillors at a meeting on Wednesday is nearly double the underlying Consumer Price Index annual rate, expected to come in at about 2.2 percent when the latest figures are released tomorrow (Wednesday)"

These underlying measures on the latest results were disturbingly high in the last quarter. However, these are not that relevant to Council costs and rates. The Council is not, as such, a consumer. It is more like a producer and there is also a separate PPI (producer price index). The PPI has generally been above the CPI.

Indeed, a characteristic of the CPI for a decade or more has been an inflation divergence between tradables and non-tradables. The offsetting CPI falls are in such as flat screen TV's and shoes. I am not sure anyone has yet accused the Mayor of building an Imelda Marcos style shoe collection, however transferring spending from roads to Val's shoes is the only way Council could hope to match the CPI.

There has recently been a State Guvmint cap on developer charges which is somewhat controversial. I have no idea on what any potential impact on Cairns may be with this. I also note a recent report from an Infrastructure Charges Taskforce. This report recommended linking Council infrastructure charges to the ABS PPI for roads and bridges in Queensland. This PPI has not been below 5% since 2003. Curiously, subsequent media reports seem to indicate the Bligh Guvmint has linked any increase in capped charges to CPI? Oh dear!

The key point on CPI and Council rates is that the rates are a component themselves of CPI, not an outcome, and it makes no logical sense to link the two so closely. This is not to say that Council costs should not be a community concern. It is conceptually feasible for Council rates to increase faster than CPI over an extended period without changing the CPI itself.

Monday, April 25, 2011

Experimental Estimates of Gross Regional Product

Kitchenslut admits to some weird habits, and that many would be confused that holiday reading could include Experimental Estimates of Gross Regional Product. This study from the Office of Economic and Statistical Research, within Qld Treasury, is a bit dated being based on data to FY2006/2006. However it offers some interesting information.

It was published in 2008 with estimates of  Gross Value Added (GVA) for regional Queensland. When it comes to industry composition for the Far North the study concludes:

"Table 14 shows the industry composition of the Far North economy based on current price
estimates of GVA. The composition of nominal GVA is more evenly spread among the 18
industries than is the case in other regions of Queensland "

What's that? The Far North is the most diversified region in Queensland already? Even more than SEQ? Yes, that is the Far North and while not restricted to just Cairns, thats the way we should think of it, as a regional centre. Yes, I can make qualifications that other industry segments may be dependant on tourism but the point that we are already more diversified than we think should not be lost.

It may be dated but a quick look through some other data in this study should be of interest. The study is based on data between 2000/2001 and 2005/2006. What was the weakest growth component on GVA during this period in the Far North? It was "accomodation, cafes, and restaurants". This was not just weak within FNQ but relative to the rest of Queensland. What was the compensating strongest growth component? It was ALL "construction". The Far North was a relatively low growth economic region during this period.

glass half full news

Yes! Yes! I know all these links are from the Cairns Post. I will try to put a brief comment against each later as some could be qualified, but the point should be that there are some positive things out there. Change and structural adjustment will happen. With many of these the best thing the pet-shop-parrots could do would be to just get out of the way, but then they wouldn't be able to later claim credit for creating something from hot air!

Marine college




Shangri-La and Sheraton Mirage

and finally ...... drum roll .......

Good weather

Sunday, April 24, 2011

The Banana Republic of Cairns

Leigh Dall'Osto has a thoughtful post at Cairns matters on "Demolition of the Construction Industry". There is much in here to comment on and I'm not sure I will agree with Leigh on conclusions and policy solutions. I have already laboured the point in previous posts that this is not something specific to Cairns.

What is more specific to Cairns is the impact of corporate failures, unpaid creditors, bad debts, at least relative to other regions, which is discussed by Leigh, and economically significant. This is a genuine problem to which I don't pretend a solution. However it should occur to people that this problem is actually partly because we adopted an insular local culture. Local is good, and local heroes good?

Had our local construction industry been more diversified, with more financially strong national players present, this wouldn't have become such a problem. Tradies would have been paid. I am at risk of diverting into economic wonkishness here, and didn't want to make it a long post, but something to come back to.

With the benefit of hindsight, how did our local building industry become so outsized anyway, and what lessons does this offer for policy decisions? If we want to pretend we can be our own tiny Banana Republic then that is what we will become?

However, if you want everything to be local you also accept all the risk. If you insist on local ownership/equity then development funds must be debt. The Far North did brilliantly out of Chris Skase splurging on the Mirage in Port Douglas, and then going bust. We need investment from beyond the region rather than the mentality that if we keep everything local here we will be better off.

Note: I used the word 'diverfied' purposely above in a different context as the current obsession with 'economic diversity' in Cairns has now fallen into the category of 'pet-shop-parrot-policy'. Paul Keating famously referred to walking into any pet shop in the 1980's and the parrot would be talking micro-economic reform. The Cairns parrots are squwarking madly on diversity which is the biggest danger of all .......

The Queensland Recession?

Is Queensland heading for recession is a question asked by Delusional Economics. "Queensland’s economy is in serious trouble." There are some themes here relevant to the Far North and again back up the view that our own regional downturn is not something specifically isolated to Cairns as seems to be the perception of many, but widespread in non-resource Queensland.

The following chart on dwelling approvals is very telling on the disparity between Queensland and Victoria over recent years. That disparity also reflects the split between these States in last years Federal election results.

The typically breathless veteran Robert Gottliebsen also makes some similar points at Businessspectator, and both these correlate with the previously posted comments from Bernard Salt. Just a quick post for now on this as it's too beautiful a Sunday to be typing at a computer but there are several issues and comments here to come back to ........

Friday, April 22, 2011

Queensland Economy Watch

Queensland Economy Watch is a blog stumbled on today with some interesting commentary frm Gene Tunny, an economic consultant from Brisbane. Click on the Cairns category in the sidebar for posts directly related to Cairns.

Following our recent post on the comments by Arthur Sinodinos on the role of Guvmint and the Arts in attracting talented people and building vibrant cities with global reach, it was interesting to see Tunny's post "Cairns, a tropical bohemia?" and the comment "Nonetheless, promoting Cairns as such may be a winning strategy for the Cairns Regional Council. It’s well known that attracting the bohemians is great for economic growth: Bohemia and economic geography"

The link is a paper that may be worth a look for outspoken opponents of the proposed Cultural Entertainment Precinct?

Salt in the wounds!

Prominent demographer Bernard Salt has a column in The Australian on interstate migration and the Queensland malaise.

"WHAT on earth is happening in Queensland? New figures released by the Australian Bureau of Statistics show that net interstate migration to the sunshine state during the September quarter was down 40 per cent on the corresponding quarter the previous year."

There are some interesting themes here which fit with the KS Global Economics view that the economic downturn afflicting Cairns is not something peculiar to our region, but also reflected widely in the non-resource Queensland economy. This should have implications for any appropriate policy response as suggested in Salt's conclusion.

"The bottom line is that I cannot see anything on the horizon to offer a turnaround view of migration to Queensland within six months, and probably up to a year.

Perhaps because of this gloomy outlook, it is important for business and government to consider the long view: Queensland is the Australian embodiment of the global demographic phenomenon known as sunbelt drift, which we know as sea change.

This trend isn't about to peter out any time soon, and especially with the imminent retirement of the baby-boomer generation.

And while this may be so, the question that remains for many in business is whether they can survive the pain while they wait for demographic rains to arrive."

Salt has also recently posted on the impact of disasters on population including reference to the Far North and previosu experience with Cyclone Larry.

Thursday, April 21, 2011

no further advances

CEC have not found anything further to include in the list of reasons for being unable to produce an audited set of accounts now four  months after the end of the half yearly reporting period. This follows the addition of 'legal advices sought' at the previous announncement on April 8.

I'm sort of disappointed by this. I had a vision that maybe Roy had been bitten on the bum by a dengue mozzie and that pestilence would be added to the list.

Further to recent announcements, CEC Group Limited (ASX: CEG) wishes to inform the market that it will not be lodging its Appendix 4D today, and expects to lodge on or before Friday 29th April 2011.
Aside from the recent events such as cyclone Yasi and flooding that had disrupted completion of the accounts and audit, there remain material and complex accounting issues to be determined and legal advices have been sought.
The company is making every effort to complete the Appendix 4D and audit in an expedient manner and remains conscious of its continuous disclosure obligations. The company will provide further guidance to the market on or before 29th April 2011.

Non-Lodgment of the Appendix 4D for the six months ended 31st December 2010

Tuesday, April 19, 2011

Old Blighty's new NBN thinking

"And given their approach might only eventually cost British taxpayers about $250 per household – compared to estimations of up to $4,000 for each Australian household – hopefully we’re way ahead with our predominantly taxpayer-funded national network that stretches across both cities and rural areas alike. If not, Bob Katter might be wishing he’d called Tokyo about his very own North Queensland Broadband Network much earlier."

- from BusinessSpectator

Friday, April 15, 2011

March Unemployment

"THE Far North's workforce has started to claw its way out of Queensland's summer of sorrow, with the number of unemployed falling by 4000 people." - Cairns Post

Woopee! Well, not quite. You see while the number of unemployed people fell in the statistically volatile ABS regional stats, the number of employed people also fell slightly by 500. What changed was just that the participation rate fell. Presumably the 4,000 stayed home and didn't actively look for work in the wet weather so weren't counted as unemployed. Trend growth in the total number employed is what we should be looking for.

Again, a significant feature of unemployment spikes in Cairns is that it is male unemployment. If you watched Alan Kohler on ABC news last week after the national release, he referred to a national trend the opposite of this, with male unemployment falling below female. KitchenSlut Global Economics is not a pessimist and willing to fearlessly predict strong improvement in these stats through the course of this year absent any additional black swans and including any CEC collapse!?

Thursday, April 14, 2011

What Hillbilly Said

Hillbilly has launched a scathing assault on the barricades of the CEC fortress!

I understand many in the local small business community are no longer as supportive of the CEC reputation as they once may have been ......

Katter's Krude

Well it seems like a decent headline for a sugar posting! In the midst of the debacle of the Cairns Recession asset valuations of a key local industry, sugar, have been going ballistic. This is a chart of Maryborough Sugar Factory, which as part of industry consolidation has most of it's assets here in FNQ. MSF has a large FNQ shareholder base via it's previous merger with Mulgrave Mill although the largest shareholder is a Thai company sitting just below the 20% takeover threshold.
Cairns businessman and solicitor Brett Moller is a director of MSF and has done well out of the escalation of sugar assets in the last year with his personal holding in MSF now worth more than $300k (publically available on director's disclosure). Brett is also a critic of the RBA on interest rates typically displaying why he is a lawyer, and not an economist.

There remains a tale around the manouvres for Tully Mill in recent months which has not been adequately told locally and has some interest. Unlike some, KS is not averse to foreign ownership. The Nationals have recently weighed in on foreign ownership and food security, demanding scrutiny.

Why I am not a participant in current pessimism is that Cairns is well positioned for many global trends, particularly in agriculture. Specifically on sugar, however, this posting at the excellent University based Conversation website should be of interest. Well, no, as most have known for some time the ethanol industry promoted by Mad Bob Katter doesn't stack up so well environmentally or economically and is creating global problems. I doubt however that Mad Bob will ever back down?

Saturday, April 9, 2011

CEC: answers and questions!

CEC announcement released to ASX at 5.55PM Friday night. There are as many questions as there are answers in here but my morning coffee fix in our crumbling CBD awaits for now!

Going ....... going .......

CEG Principal Financier Debt and Financial Position

Further to the company’s announcements on 27 January 2011, 31 January 2011 and 1 March 2011 the facility agreement that CEG has with its principal financier expired on 31 January 2011, and remains outside agreed terms on current finance terms of the present facilities.

CEG further advises that its interest rate hedge (ISDA Master Agreement) has now been terminated by its principal financier, on the basis of an alleged default, namely that CEG has "sought or become subject to the appointment of a receiver". CEG has not sought the appointment of a receiver, and to the best of the directors knowledge no receiver has been appointed.

Again, CEG advises that it continues to strive to carry out major transactions and achieve either the full payout of the principal financier, refinancing of the principal financiers debt or alternatively negotiate a level of debt pursuant to new facilities that the principal financier is comfortable to continue in the long term.

However, it is acknowledged that CEG has a limited time available to achieve these transactions, despite CEG having reduced the debt to the principal financier from approximately $168 million to approximately $64 million in an unfavourable economic environment. In that economic environment the principal financier has continued to penalise the company with high interest charges and continued repayment demands. These factors have severely damaged the businesses of the company and in turn severely damaged the capacity of the company to meet those high interest charges and debt reduction targets.

The adverse effect, together with the economic conditions in FNQ on CEG’s business has seen the collection of debtors has been slow, impacting on cash flow. This has led to a number of creditors being paid outside due terms, and several creditors have commenced recovery action. Trade creditors are demanding payment of overdue debts and have commenced recovery action against CEC Group Ltd:

In particular the debt outstanding to the Australian Tax Office by the holding company is in excess of $2.38 million as at March 2011 and the Queensland Office of State Revenue has obtained judgement against CEG in February 2011 for $1.115 million. Employee superannuation contributions remain outstanding from October 2009 and PAYG remittances remain outstanding form January 2010. On 31 January 2011 a creditor demanded a replacement property lease guarantee totaling $412,450 within 14 days, and on 1 March 2011 a creditor obtained a judgement against CEC Group Ltd for $200,000.

ASIC has been provided with correspondence from 13 creditors to CEC Group Ltd dated between 11 January and 16 February 2011 demanding payment of overdue debts totaling $125,991. On 15 February 200I a creditor demanded payment of a loan totaling $3,832,726 guaranteed by CEC Group Ltd this loan is secured by a first mortgage on large property. The creditor served a Statutory Demand on the company for $180,018 on 22 December 2010 for interest on the loan that was unsatisfied as at 15 February 2011 the company is engaged in discussions with the creditor while the property is being marketed for sale.

The Directors are presently considering how best to address these issues.

The Far North Queensland (‘FNQ’) region where CEG operates has been subject to recent natural disasters and has high unemployment rates. The directors of CEC Group Limited will continue to fight for the survival of the businesses of CEG cognizant that this in the best interests of the stakeholders including shareholders, creditors, employees and indeed the FNQ region.

Friday, April 8, 2011

Kairns Kultural Vision: Arthur v Phil

"Governments should stop treating the arts as a luxury or entertainment and more as economic activities. Such industries are a magnet for talented people from across the world. They are integral to creating vibrant businesses and communities with global reach." - Arthur Sinodinos, formerly Chief of Staff and highly regarded adviser to John Howard, writing in The Australian.

"This monument to stupidity will NOT bring one extra person to this crime ridden grotty CBD all it will do is give the scum that infest our CBD that you refuse to take any action against to use as a public toilet and abuse and harass anyone who goes there. This Council will be remembered for its stupidity and arrogance nothing else."  - Phil of Mt Sheridan, ignorant redneck nobody, commenting at the Cairns Post.

Update: A possible innovative solution to Phil's expressed concern about urine in the CBD?

Wednesday, April 6, 2011

why subsidise tin mining?

The Cairns Post has reported that local tin miner  Consolidated Tin has secured a $150,000 Queensland Government grant for additional exploration at Mt Garnet. It's sort of great that a local project gets Guvmint support but in the middle of a mining boom and with the Qld budget under pressure why does it need support? Tin has doubled in the last year and more than trebled in the last 5 so why does this project need Guvmint support at all? I note other beneficiaries of this scheme include Xstrata one of the worlds largest mining groups. The principal beneficiaries will actually be the drilling contractors.

Monday, April 4, 2011

NBN regional employment

For anyone who missed it there were some goings on last week on the NBN construction with the tender process being circumvented because the tenderers had been “unable to provide acceptable terms and prices following four rounds of pricing negotiations”.

More significantly for FNQ was the following posted by Peter Martin:

 Mr Taylor said it was most unlikely the construction process would achieve the government’s stated aim of employing locals in the regions the NBN went through.

“You can’t pull somebody out of a pub and get them to build the NBN. They won’t know enough to begin. You are dealing with electricity, you need to understand it.”

Sunday, April 3, 2011

street art tourism?

With tourism and the Cairns CBD both contentious subjects a post at The Conversation on the conflict between Melbourne's thriving street art culture and Guvmint policy should be of interest.

"Australia prides itself on its attractiveness to tourists, but for many, to the eternal frustration of Melbourne, visiting Australia is synonymous with the Great Barrier Reef and Sydney Opera House.
It may then come as a surprise to learn that Melbourne is the only Australian destination to feature in the top 10 lists of a number of international travel websites. What is it about Melbourne that is so alluring to visitors? The answer is Melbourne’s street art."

Saturday, April 2, 2011

loosely misdirected

The typically misdirected Editor-at-Loose pontificates in the Weekend Post on cycleways. Ditching bike helmet laws provides a new perspective and direction on bicycle safety and transport.

Somehow the Editor-at-Loose manages to conclude a column around cycleways with another call for his misdircted pet-shop-parrot-policy to "bring state departments and public servants to Cairns".

I'm not sure on the connection between cycleways and public servants but such is the rich heritage of Australian political debate from the time of federation: “Gentlemen, if you vote for the Bill you will found a great and glorious nation under the bright Southern Cross, and meat will be cheaper; and you will live to see the Australian race dominate the Southern seas, and you will have a market for both potatoes and apples…” - Tasmanian delegate to federation convention.

The Banana Republic of Cairns would appear to have become a parody of this heritage?

Friday, April 1, 2011

Saga? Soap Opera? or April Fool?

ASX announcements by CEC Group of reasons for the serial non-lodgment of half yearly accounts to 31 December 2010:

February 28:  "Recent events such as cyclone Yasi and flooding have disrupted completion of the accounts and audit."

March 14: "Recent events such as cyclone Yasi and flooding had disrupted completion of the accounts and audit and there remain material accounting issues to be determined."

April 1:  "Aside from the recent events such as cyclone Yasi and flooding that had disrupted completion of the accounts and audit, there remain material and complex accounting issues to be determined."

Any suggestions for a further advance on cyclones, floods, material, & now complex?

CEC remains suspended from trading on ASX since Feb 28. Presumably they continue "not to incur any further liabilities" as per the 18 March announcement?