Friday, June 27, 2014

De-amalgamated Douglas Shire

The budget for the de-amalgamated Douglas Shire was presented today with a rate rise of 5.2%: Moderate rate increase for Douglas Shire.
“This budget is based on sound financial sustainability principles and employs a strategy to return Council’s operating result to a balanced budget within the shortest possible time.
However there appears to be a not insignificant deficit with operating expenditure at $38.78m well in excess of operating revenue at $33.71m. This compares with a balanced budget for the remaining Cairns Regional Council which hiked rates by 1.5%. So it leaves a Douglas resident with a comparable cost disadvantage of more than 3% on council rates relative to Cairns.

Douglas claim the increase is significantly less than the increase predicted by QTC. I don't claim any expertise in council budget accounting but would have thought a comparison would depend on any assumptions implicit in the QTC forecasts? A balanced budget would require a rate increase more in line with their numbers.

The budget outlook provided over the next two years indicates a reduced deficit but this is based on further rate increases of 5.2% p.a. while the depreciation expense is held unchanged? In 2016/2017 the operating deficit will still be more than 7% of revenue!

Funding for depreciation is one of the more significant council operating expenses at 25% of the budget for Douglas and 33% for Cairns. There appears to be some anticipation of financial engineering on this to assist the deficit:
“With depreciation a significant operating expense, Council is working with the State Government to devise new methods which lessen the burden on ratepayers to fund it and we should start to see the results of this in our next Budget.”
I will await further details on that with some interest and in the meantime withhold judgement on the sustainability of Douglas finances and the validity of the QTC analysis.

Update: Pete Faulkner has also posted comments and analysis at the new Conus website: De-amalgamated council budget

Thursday, June 26, 2014

A quick look at the Gold Coast casino consortium

As a diversion from Aquis I decided to have a look at the Consortium given the nod for the Gold Coast casino licence. This is the ASF Consortium led by ASF Group which is an ASX listed company (ASX:AFA) and describes itself thus:
ASF is unique among ASX-listed public companies in Australia. It is a Sino-Australian investment and trading house which focuses principally on the identification, incubation and realization of opportunities in areas of synergy between China and Australia including resources, property, infrastructure, travel and financial services sectors.
ASF Group listed on the ASX in 2007. The principal investment focus has been resources. Since listing ASF has raised a total of more than $70 million in equity. At December 31, 2013, it reported accumulated losses of more than $50 million and net assets of just $17 million.

That position was after the 2013 annual accounts scored a going concern qualification from the auditor. It subsequently raised more than $13 million in equity in the half year to December 31 though share placements, a 1-for-2 rights issue, and exercise of a convertible loan from a company called Star Diamond Developments Limited.

Star Diamond has provided funds under a convertible loan facility a number of times with interest "payable at the rate of 1% per month, accrued monthly." At June 30 last year, prior to any equity conversions, the outstanding exposure to Star Diamond had accumulated to $9.77 million.

Despite an apparent appetite for capital ASF has also been undertaking a share buy-back to "enhance shareholder value" although this is not large. The stock is thinly traded with Chinese names prominent among the top 20 holders.

This hardly seems like a company with the financial strength or background to undertake a $7.5 billion project, but never mind there are others in the consortium.

With major casino operators all pursuing expansion plans elsewhere around the world, including our indigenous Crown and Echo scrapping over the new Brisbane development, the names behind the two regional proposals stand out as something of an odd duo.

No wonder it has been suggested both should look for further partners!

Monday, June 23, 2014

Council budget: rate increases by suburb

Cairns Regional Council budget was released this morning: Special Meeting - 23 June 2014.  The rate in the dollar for residential land has increased by 1.5%.  However that doesn't take account of valuation changes where as previously posted there was some disparity between suburbs.

While valuations for most suburbs remained unchanged there was a group where valuations increased, particularly Edge Hill and Whitfield. Valuations increased in Gordonvale however the median remained below the minimum rate level so the 1.5% increase applies also. There will be an equal number of properties above and below the median valuation.

So here are the rate increases by suburb based on the changes in median land value for each suburb from the Valuer-General:

Note that this is only the general rate component and not service charges such as garbage and sewerage where a 1.5% increase will apply to all residential properties. That will reduce the percentage increase in total rates and fees for the suburbs with higher general rates increases.
Don't start me on why Cairns continues to resist averaging over three years to smooth volatility in valuations. Almost all other comparable councils do so and that methodology also applies to state land tax.
I hope to get around to posting some more graphs and data particularly related to strata in coming days. 

Flat first half for Reef Casino

Reef Casino has provided guidance on the distributable profit for the first half with a reduced distribution to unit holders:

Based on our current estimate, the distributable profit* for the first half year from 1 January 2014 to 30 June 2014 is approximately $4.3 million. This estimate is after deducting project costs of the Aquis transaction of about $440K and a net doubtful debt provision of about $260K. Therefore, on a “like for like” basis, the estimated distributable profit for the first half year 2014 is similar to that of last year.
The distributable profit for the equivalent period last year was $5 million. So pending a final result it looks like this year may just match that after adjusting for the one-off abnormals. Not a particularly good result after strong growth in 2013. It was noted that commentary from management at the recent AGM was less than effusive.

The doubtful debt provision is also interesting?


Saturday, June 21, 2014

Aquis EIS emerges from the circus tent

Friday afternoon and the Aquis EIS has finally emerged from the Coordinator-General and is open for public submissions until August 5th: Aquis Resort at the Greta Barrier Reef Project

I haven't had a look yet but the Cairns Chamber also has up a supportive web page with links including a number of fact sheets. The Economic Benefits fact sheet contains some curious passages such as:

At peak operations (2030) the project will create a total of more than 53,000 full time equivalent jobs in FNQ representing an 42% increase against the baseline. This is made up of 3,750 direct employees and 2,825 direct employees.
Que? It is to be hoped the full EIS is somewhat more professional and comprehensible, or at least literate and numerate!

Cairns Post: Project refined with sports stadium removed; $52 billion cash boost from Aquis.

Friday, June 20, 2014

BNE: Gateway to Cairns

May traffic numbers for Cairns Airport are not yet posted however the big three capital airports have all reported strong growth in international traffic: Numbers up at Australia's big airports
Melbourne Airport's international traffic rose by 11 per cent in May versus the same month last year, ahead of Brisbane Airport with 7 per cent growth and Sydney Airport with 5.6 per cent growth from a larger base than its rivals.
"The strong growth of the Japanese market in May shows that people are taking advantage of Jetstar's Melbourne-Japan service which commenced in late April," Melbourne Airport chief executive Chris Woodruff said. "International passenger growth in May was also boosted by two global conferences, the World Congress of Cardiology and the International Congress of World Federation of Haemophilia, both held at the Melbourne Convention Bureau."
The tourism exchange event in Cairns even gets a mention for boosting international traffic at Brisbane Airport:
In Brisbane, the Australian Tourism Exchange in Cairns helped boost international traffic as did the World Congress of Audiology.
Domestic numbers were not so good although Brisbane Airport did report growth still on the Cairns route:
At Brisbane Airport, domestic traffic fell by 1.7 per cent from the prior May, which was a greater rate than the 0.9 per cent decline in domestic capacity at the airport. Despite that, the airport said domestic city pairs showing growth in May included the three busiest routes of Sydney, Melbourne and Cairns as well as Roma, Hobart and Gladstone.
Perhaps there should be a big sign at the entrance to Brisbane Airport: Gateway to Cairns?

Thursday, June 19, 2014

Cairns: City of Amazons

It was a data deluge day from the ABS today with updated stats on population, ownership of agricultural land, and the regional labour force lottery results. The original raw employment lottery result from the ABS in Cairns for May was unambiguously good.

The unemployment rate was down, the number of unemployed was down, the participation rate and number employed bounced to reverse the previous weak trend. All fantastic and optimistic and perhaps surprising but..... I have a problem which is this:

Yes! The positive data was driven by the most extreme anomally in more than 15 years on male v female employment with the number of females employed in May almost matching males. This is somewhat unusual and just doesn't look right. For perspective on these stats there were many more women who entered employment in May than the entire number unemployed the previous month, more than double.
Throw away your copy of  '50 Shades of Grey' as Cairns is obviously a city of dominant female Amazons! If the Brotherhood of St Laurence do a projection then the female unemployment rate should be below zero in no time!
Note: Conus appears to have taken leave so will await appropriate trend analysis. The more broad the data the more reliable rather than segments which frequently come with sample size warnings. I think I will wait until next months data.
Update: Although noted at Macrobusiness was that female employment nationally had much stronger growth than male employment over the past year: Where the jobs are

Monday, June 16, 2014

Property Pain & Gain

RP Data have released a Pain & Gain Report. This report analyses the proportion of properties sold for a profit or loss in the March quarter 2014. Regional Queensland stands out for a higher proportion of properties sold at a loss:

Across the broad regions of Australia, the most significant proportion of loss-making re-sales are being recorded within the Regional Queensland marketplace (23.2%) and in Regional Tasmania (19.0%). The weakness in Queensland is mostly reflective of the previously weak conditions across the lifestyle markets and the growing weakness across regions linked to the resources sector. It is important to note that across lifestyle areas the proportion of loss making sales is reducing as we start to see some low levels of value growth return to these housing markets.
From a regional perspective the largest proportion of loss-making re-sales were located in the following regions:  Wide Bay (Qld) (30.6%)  Townsville (Qld) (28.5%)  Cairns (Qld) (28.2%)  Gold Coast (Qld) (25.6%)  Mackay (Qld) (23.3%)  Sunshine Coast (Qld) (23.2%)  Richmond-Tweed (NSW) (22.3%)  West and North West (Tas) (20.2%)  Wheat Belt (WA) (19.9%)  South-East (SA) (19.8%)
While specific numbers are not provided there is a graph in the report differentiating units and houses. Cairns, Townsville and Mackay stand out with loss making unit sales for the quarter above 40% of total sales.
I think most people may also be surprised to find Townsville slightly above Cairns on that scale. Queensland Economy Watch recently posted some concern on a weaker economic outlook for Townsville:  North Qld struggling to recover – Cairns looking slightly better, but not Townsville yet.

Friday, June 13, 2014

Aquis: meanwhile inside the circus tent

My local RSL on the Cairns Esplanade may have been more modernly refurbished recently but retains the quaint practice in Cairns of providing free hardcopies of the Courier-Mail for members and visitors. There was an interesting item noted in today's CityBeat column:

THE constant references in the media to “new casinos” in Cairns and on the Gold Coast has the senior staffers in Deputy Premier Jeff Seeney’s office in a spin.
Not only have casino licences not been granted to the successful tenderers of new “integrated resort developments” at the sites, the word from George Street is developers Aquis and ASF Consortium are probably unlikely to get a licence without a suitable “partner”.
A "suitable partner"? Now what could that mean? What's that skip?

All is revealed at 0.55:

Note: CityBeat is currently being edited by @johnsmccarthy who is well worth a follow on twitter for regional Queensland news and analysis.

Thursday, June 12, 2014

Consumer confidence and tourism

A Grogonomics post at Guardian Australia from ex Cairns resident Greg Jericho (aka @grogsgamut) is worth a look: Are Australians taking a break from overseas travel.
Australians’ consumer confidence may be down, but thus far our love of travelling overseas continues to grow. Held up by the high dollar, Australians continue to holiday overseas. The falling confidence may however be having an impact. The growth of Australians going overseas is lower now than it has been at any time since the GFC.
The growth of Australians holidaying overseas certainly has come off the boil from the heady days of 2010-2011, when the dollar was worth up to $US1.09 and the annual number of Australians going overseas grew by between 10%-20%.
Indeed for the first time this century, the number of international tourists coming to Australia is growing faster than is the number of Australians leaving these shores.
There are some good graphs and commentary there related to the recent post here at Loose Change on Tourism and the exchange rate.
Since 2000, and the Sydney Olympics, the importance of tourism in the economy has steadily declined. It is perhaps the industry most affected by the high dollar. And given just under 5% of all Australian workers are employed in tourism, it’s an industry where our travel choice has a direct impact.
It would be ironic if falling consumer confidence causes more Australians to holiday at home rather than abroad, and thus actually help the economy.
Consumer sentiment surveys have been weaker recently and particularly since the Federal budget in May. Flight Centre issued a profit warning this week: Consumer slowdown in May forces Flight Centre to trim growth goal
Flight Centre managing director Graham Turner said trading conditions for domestic leisure slowed eight weeks ago and the timing of an upturn was impossible to predict.
“This slowdown in (Australian leisure business) growth was most evident in May and corresponded with the widely reported decline in consumer confidence in Australia,” Mr Turner said.
“While demand often rebounds quickly after a short-term downturn in the leisure market, conditions are uncertain and it is obviously impossible to predict the time frame for recovery.”
It will be interesting in coming months to watch any impact on tourism and travel trends associated with the weakness in consumer confidence and people stay closer to home. It also looks like the capacity war between Qantas and Virgin may be coming to an end with suggestions of higher average airfares ahead.

Previous posts: The Oprah Winfrey tourism recession

Wednesday, June 11, 2014

How to lie with statistics: the case of female hurricanes

I have flagrantly plagiarised the headline there from an excellent post by Paul Fritjers at Club Troppo; How to lie with statistics: the case of female hurricanes
I just came across an article in PNAS (the Proceedings of the National Academy of Sciences) with the catchy title ‘Female Hurricanes are deadlier than male hurricanes’. It is doing the rounds in the international media, with the explicit conclusion that our society suffers from gender bias because it does not sufficiently urge precautions when a hurricane gets a female name. Intrigued, and skeptic from the outset, I made the effort of looking up the article and take a closer look at the statistical analysis. I can safely say that the editor and the referees were asleep for this one as they let through a real shocker. The short of the story is that female hurricanes are no deadlier than male ones. Below, I pick the statistics of this paper apart.

He does indeed pick the statistics apart most notably because hurricanes in the USA have become less deadly over time and all hurricanes were given female names prior to 1978. When adjusted for this the results become insignificant. This study includes hurricanes back to 1950.

The authors rationalise that their flawed statistical difference is gender related because people think female names sound nicer so are more complacent for those hurricanes. Perhaps the death rate in the USA is itself a surprise compared to our own cyclonic experiences. (Note: Katrina was excluded as an outlier. No doubt if it had been named Hurricane Jim Bob all would have been saved.)

In Australia this story has been picked up by both News Ltd and the ABC.  I'm not aware that the Cairns Post has yet picked it up but I suspect Nick Dalton could really do something with this!

Thursday, June 5, 2014

Overseas arrivals and departures

Trend growth in international arrivals continued in April and is now 10.4% higher than April 2013: ABS Overseas arrivals and departures. The continued recovery from China is also encouraging after the regulatory related blip in the second half of last year saw trend growth falter.

Departures by Australians were also at a new record as Macrobusiness is always keen to report: Bogan exodus hits record.
The International Visitor Survey for the March quarter from Tourism Research Australia was also released and Conus has raised some queries about the strength of the Queensland and FNQ data with declines in market share and expenditure measures: International visitors survey shows Queensland lagging
I have updated a previously posted graph from the ABS data of state where most time spent for departing visitors. The share for Queensland here still doesn't show any indication of a turnaround in the declining trend. The typical seasonal improvement starting in April (unadjusted data) remains still below the previous year.
Update: Yes, it looks like the predominant story of Victoria eating our lunch remains. Although a breakdown of category such as business, holiday, etc would be beneficial:
Update 2: Gene Tunny at Queensland Economy Watch has also posted: Tourism & Events Qld deserved funding cut – no turnaround in share of international visitors

Tuesday, June 3, 2014

Tony Fung: Past business deals and the BVI

Some interesting links floated in last night featuring some business dealings from the past by our Aquis Tony Fung including again some links to the British Virgin Islands tax haven: The ghost of CT3
This is the story of how the undisclosed owner of two BVI companies made a profit of US$84.8m, or 70%, by buying an interest in Container Terminal 3 at a 45% discount to a contemporary valuation and selling it a year later to New World Infrastructure(NWI). The bulk of this stake was sold by Yu Ming Investments Ltd, then known as SHK Hong Kong Industries. As always, we start with the background....
David Webb at Webb-Site has long been a good source of interesting information on Hong Kong business and while some time ago in 1999 some interesting involvement from Tony Fung and his then HK listed Yu Ming Investments:

The Yu Ming Sale: 
On 9th November 1995, just 23 days after the valuations were published, Yu Ming and others entered into agreements with two anonymous BVI companies called Peak Success Ltd and Enrich Ltd in respect of the sale of a 49.5% interest in RCL. The bulk of this stake, 35.5% of RCL, was sold by Yu Ming. As practitioners will know, one of the great things about BVI companies is that it is impossible to access their share registers without their consent, so they are a dead-end in investigation terms. They can also have bearer shares, with no registered owner.
RCL had 200 shares in issue and Yu Ming sold 71 shares (35.5%) to Peak Success. For each share there was also a shareholder's loan to RCL, but as this is the same for each share, we can simplify the process by treating the entire consideration as being paid "per share" (probably to reduce stamp duty, Peak Success bought the shares while Enrich bought the shareholder loans). Yu Ming also was a sub-participant in a loan to RCL through a financial institution which amounted to about US$271k at 7-Nov-95.
The price which Peak Success and Enrich paid Yu Ming was about US$86.87m. Deducting the small loan sub-participation amount, this reduces to US$86.60m (then HK$669.8m) or US$1.220m per share.
But wait a minute - three weeks earlier, the same interests had been professionally valued at the equivalent of US$2.233m per share. So Yu Ming sold its stake for at a 45% discount to the valuation. Yu Ming was the largest but not the only shareholder of RCL to sell its stake in RCL; other shareholders holding 28 shares, or 14%, also sold on the same terms, giving the buyer a total of 99 shares, or 49.5%. The only shareholder who didn't sell was Sunnet Investment, which as we have noted, was related to New World. Perhaps they didn't like the terms.
That of course made us wonder why New World didn't buy the 49.5% stake instead. As the owner of 41.5%, it would be the natural buyer to increase its stake to 91%. The price paid by Peak Success and Enrich was a total of US$120.8m (HK$933.9m) and the discount to valuation amounted to US$100.3m (HK$775.9m).
Interests in Yu Ming: 
The sale of RCL was a "Major Transaction" for Yu Ming, (the proceeds represented 65% of its net assets at 30-Sep-95) but because it was not a connected transaction, Yu Ming was able to obtain written approval from more than 50% (in fact, 58.03%) of its shareholders and thereby avoid a general meeting. The shareholders at the time included Sun Hung Kai & Co. (through various subsidiaries, holding 22.95%), China Poly Group (the People's Liberation Army arm, holding 11.39%) and Tony Fung Wing Cheung (11.39%), who was then, and is now, the Chairman of Yu Ming. Together with Norman Ho (0.96%) these added up to 50.31%, so assuming they consented, another 7.72% of shareholders gave their consent.
At 30-Jun-95, about 4 months before the transaction, the substantial shareholder list had also included Gold Triple Ltd (10.33%) in which both Sun Hung Kai & Co. and New World Development were interested (meaning they owned at least one third of it each- the name suggests a third owner). NWD also had an 8.64% interest in Yu Ming via a company called Concord Associates Ltd, while Tony Fung held no shares at all. Henry Cheng, Peter Cheng and Alexander Chow Yu Chun (all from NWD) were directors of Yu Ming until 18-Sep-95, less than two months before the transaction. Mr. Chow has recently (16-Jun-99) been reappointed to Yu Ming, this time as an "Independent Non-Executive Director".
In the intervening period prior to the RCL sale, Gold Triple and NWD had disappeared from the substantial shareholder list (meaning they were interested in less than 10%) and Tony Fung had increased his holding from zero to 11.39%. Bringing you up to more recent times, as of 31-Dec-98, Mr. Fung had increased his interest to 34.58% of Yu Ming, just below the 35% takeover threshold.
Since the agreement for the sale by Yu Ming of its RCL shares was "in the ordinary course of business", the circular to shareholders describing the transaction did not list the agreement under "material contracts" and therefore it was not included in the documents which were put on display. That's a loophole the Stock Exchange should close.

The conclusion from Webb-Site:
Independent shareholders of NWI must wonder why the company didn't act on the apparent opportunity in 1995, and get the stake at a 45% discount to valuation. Equally, independent shareholders of Yu Ming must wonder why they didn't get the benefit of the 70% premium paid a year later. Meanwhile, the ghost(s) of CT3 are happily counting their US$85m profits.

Update: City Beat at the Courier-Mail also has an interesting post on Aquis that is unlikely to appear at the Cairns Post: "HAS failed Gold Coast businessman Michael King been secretly working behind the scenes as a key consultant on the proposed $8 billion Aquis mega-resort for Cairns?"


Monday, June 2, 2014

Building approval foundations slow to form

Building approvals from the ABS today have been regarded as disappointing, including here in FNQ: Building approvals pulled weaker by units; FNQ also weaker

House approvals in April slipped back to 40 in Cairns LGA. Cairns LGA numbers still include Douglas where there were 5. There was a small upward revision in the Conus Trend for Cairns LGA to 53. The 'value of non-residential building approvals' was also sharply lower in April after a couple of quite strong months and such volatility here should be expected. These numbers in residential housing remain about half of Townsville where the trend continues to weaken.

The lumpy units sector influential in approvals stats elsewhere remains stubbornly absent in Cairns although rumoured prospects of renewed activity continue to accumulate. A curious aspect of the most recent CairnsWatch was a divergence between house and unit rentals with the unit trend vacancy rate increasing to 3.0%. This doesn't seem consistent either with typical seasonal trends or the absence of any new supply in the sector.

The trend for approvals in Cairns to be skewed heavily to the north also remains strongly intact. Another feature of CairnsWatch reports has been an upward trend in vacant land prices, which shouldn't necessarily be seen as a positive. As median prices there is a suspicion here that the skewing of activity to the north could influence this trend with land valuations on the north typically higher than south.

These are the current median residential land valuations by suburb from the Valuer-General:

The Qld Government Statistician has also recently updated their residential land development activity profiles. The stock of approved lots here in Cairns has been slowly declining to 5,059 in the December quarter 2013, with a significant number of previous lot approvals continuing to lapse. This still looks to be an adequate supply of approved lots relative to demand.

Conus: Building approvals pulled weaker by units; FNQ also weaker
Macrobusiness: Dwelling approvals fall sharply again