Saturday, February 28, 2015

Internet job ads for F&NQ

The Department of Employment internet job ads series has been updated for January. The DoE provide this info as a 3 month average and also indexed to 100 from 2010 to enable better comparisons between regions which is what I have used here:

Unfortunately the regions in this series don't correlate with the ABS labour force survey. The 'Far North Queensland' region here also annexes Townsville into FNQ. Pete Faulkner has recently commented on some divergence in the ABS labour stats at Conus: Trend Unemployment rates improve but Cairns and Townsville is a “Tale of Two Cities”

The data does also provide a breakdown into employment classifications indexed here for F&NQ:

Data may require further analysis and manipulation for useful commentary.

Monday, February 23, 2015

Insurance: The case of the TIO revisited

Ever since NQ insurance premiums became in issue with a failure in the strata insurance market in 2011 the pet shop parrots have been spruiking the virtues of the TIO in Darwin.

This led to the somewhat embarrassing incident at the parliamentary inquiry in Cairns where it turned out neither the Insurance Council or the politicians had any idea that the TIO was not regulated by APRA and that the Australian Government was effectively the underwriter of last resort if anything went wrong.

The TIO always claimed an objective to comply with APRA standards anyway but that probably shouldn't be taken for granted given the standard of governance in the NT. Despite some economic prosperity in recent years the NT is effectively a basket case failed state propped up by Canberra. This was noted today on the recent TIO privatisation:
Former TIO CEO Richard Harding told the meeting TIO had $30 billion of insured assets, of which 80% were in greater Darwin. It could not diversify its risk because of government ownership and was competing against national insurers with access to global markets.
TIO had to spend about 30% of its premium dollars on $700 million of reinsurance that would cover a one-in-250-year event. Cyclone Tracy, which devastated Darwin in 1974, was a one-in-600 or 700-year event, so another storm of that size would mean costs falling onto the Government.
Cyclone Tracy often pops up by people trying to equate risk between the NT and NQ. You only have to go to the Bureau of Meteorology to find the NT northern region does indeed have lower cyclone risk relative to the eastern region. The insurance cost of Cyclone Tracy in 2011 dollars was $4 billion.

There were good reasons why state governments abandoned exposure to private insurance risks concentrated within their state as the concentration and value of privately insured property grew. I continue to be perplexed by the number of people confidently spruiking unsubstantiated anecdotal 'evidence' and simple solutions to something complex and poorly understood.

The role particularly of reinsurance, capital and prudential standards were totally lost on the parliamentary committee which simply didn't have the expertise or support to properly address the issue in their inquiry. Information on costs submitted by the Insurance Council to the parliamentary inquiry was that reinsurance comprised about 6% of the premium on a national basis which is way less than the TIO at 30%.

Anyway, Bill Shorten was in town last week and proclaimed that NQ property insurance was a market failure. Never mind that it was he who was actually the responsible minister at the time in 2012 who responded thus when the first inquiry by the Australian Government Actuary instigated by Bill himself found there was no market failure: Australian Government Actuary Report Investigation into Strata Title Insurance Price Rises in North Queensland

Note: At the time insurance premiums were increasing rapidly between 2010 and 2012 APRA was reviewing and implementing revised standards around insurance concentration risk capital at a time when global reinsurance markets were stressed. This was the Suncorp experience in the 2011 reinsurance market: Suncorp burnt by reinsurers.

Previous post: Reinsurance and FNQ

Saturday, February 21, 2015

Does Cairns Airport pay tax?

While in company reporting season mode it is noted that the results for NQ Airports can be found embedded in the results of Auckland International Airport which holds a 24.5% stake. The assets of NQ Airports are the Cairns Airport and the smaller Mackay Airport.

This the extract from the half year to December 31 2014 released by AIA this week:

The last column is percentage change from the previous corresponding half. While the profit after tax bottom line has jumped by 20.8% that is based on a revenue increase of a more modest 3.2% which was mostly attributed to domestic growth at Cairns.
The bottom line profit is also a relatively small percentage of the EBITDAFI so we need to go back to the more detailed 2014 annual report for a look at the components in here:

I wasn't sure what EBITDAFI was. It sounded more like a former Libyan finance minister. However the confusing FI relates to fair value adjustments and investments in associates. Depreciation, Amortisation and Interest then take a big whack out of EBITDA to get to the bottom line profit E.
The tax expense here in FY2014 for NQ Airports is actually a benefit. That doesn't necessarily mean NQA wont effectively pay tax as it distributes the profit as dividends which may then be taxable in the hands of the holders. 
Some background reading here may be a post from Michael West back in 2013 related to Sydney Airport with some mention of Auckland and NQ Airports:  Sydney Airport and the magical mystery tour.

Thursday, February 19, 2015

Reef bleached by Aquis

Reef Casino has released its full year results for 2014. Distributable profit for the year down 13.4% on revenue down 5.9%. At the time of the distribution announcement in November I posted a chart of recent years profit history with 2014 estimated and adjusted for the Aquis takeover costs of $600k: Reef Casino treads water

The result was still short on 2013 even after allowing for the Aquis costs but more interesting were such as this in today's results commentary:

“The Aquis takeover bid implementation agreement requirements resulted in the management team devoting significant resources for most of the year to assist Aquis in “integration and planning” which otherwise would have been devoted wholly to the day to day operations of the Reef Hotel Casino.”

Commentary that follows then includes some very poor outcomes on casino visitation and table games:

Overall, the Reef Hotel Casino achieved a commendable outcome given the interruptions to day to day operations because of the Aquis takeover bid proposal.

Casino visitations were down 16.1% on last year. Contributing factors included a soft and flat local economy, a competitive local market and the cessation of year round direct flights from China into Cairns.

Electronic gaming machine turnover was up 10.8% on last year and revenues were up 12.5% on last year. Patron support from local, domestic and international markets was strong throughout the year. The Reef Casino achieved a record level of electronic gaming machine turnover and revenue in 2014. Electronic gaming’s strong performance was underpinned by the introduction of new games and machines and a full program of promotions and entertainment.

Table games: Total revenues were down 25.7% on last year mainly due to cessation of year round direct flights from China and a change in the mix of the Chinese tourist market (with a bias towards the lower end of the market). Compared to 2013, premium play revenues were lower in 2014 due to a lower win rate and less activity.

Rooms revenues were 6.2% higher compared to last year, due to good yield management.

Overall, food and beverage revenues held up well and were down just 1.1% on last year reflecting lower casino visitations.

The RCT valuation range in the independent experts report for the Aquis takeover was based on relative EBITDA multiples. An updated comparison based on further analysis of this result relative to other listed casinos (Crown, Echo, Sky City) could be interesting.

Nothing in this result deters my suspicion that the shenanigans around the probity dispute with OLGR last year could well have been a deliberate exit strategy by the Friendly Fung Family (FFF) to back out of the deal and defeat the implementation agreement.

Meanwhile down in Canberra the FFF have called in the painters, extended opening hours to 4am, and hired a rugby team to promote the casino.

Lunar new year phases Airport

Cairns Airport turned in a negative month in January with Domestic + International (ex transits) passengers down 3.4% on the previous year. However the Chinese lunar new year may play some role falling last year at the end of January and this year I think almost as late in the lunar cycle as it can fall in February. So we will have to wait for next month to really assess any impact here.

There is a comment that closure of Skytrans also marginally impacted domestic traffic.
Meanwhile there appears to have been some problem with the monthly overseas arrivals and departures data from the ABS. Apparently these have been delayed by "passenger card processing issues" at Dep't of Immigration. There is a release today for last September and contingency plans to catch up over coming months.

Wednesday, February 18, 2015

Tax Review in South Australia

South Australia has started a review of state taxation with a discussion paper which covers tax issues relevant to most states including Queensland: Tax Review in South Australia

Debate and discussion on state tax reform and revenue has been squibbed by both sides in Queensland. Revenue measures got a run in the initial interim Costello audit report for the ex- government then was put back in its box and was seen nowhere in the final report or since. Perhaps this is an approach the new government could look at?

Tuesday, February 17, 2015

Master Builders Gapwatch

I always have fun with the Queensland Master Builders state of industry conditions report. Most particularly the forecasting capability of members and whether they will ever close the gap between their forecast for the coming quarter and the subsequent actual outcome in the residential building conditions index. The gap converged the previous quarter but has now widened again slightly.

More interesting was that the forecast for the coming quarter declined to the lowest index level since the September 2013 quarter forecast. Quite possibly a state election during the month may have had some influence on survey results.

This is not the way QMB do their graphs but I prefer my method given the poor historical correlation between the actual and forecasts. Perhaps the two lines could converge and cross over yet?


The survey results for the Queensland economy and outlook have also been trending down since the September quarter 2013. There is some variation between the regions and in FNQ it was noted that trading conditions had finally resurfaced into positive territory on the index although the outlook for the coming March quarter was more subdued.


Sunday, February 15, 2015

Building Approvals for December

Building approvals recovery in CRC appears to have lost some momentum towards the end of last year with December data released last week Regional building approvals dip

An encouraging sign has been increased although patchy activity in the smaller unit sector with 14 dwelling unit approvals in Woree. This actually makes Woree the unit hotspot this year! I'm not sure when and how final approvals for the Aspial project will come through in the data which may make a mess of any attempted analysis.

The SA2 region split between Cairns North and Cairns South:

However also noted with those unit approvals at Woree was that they also dominated Cairns South so when stripped out it was the house sector in the southern corridor which was particularly weak. The most recent CairnsWatch report had noted increasing land prices was related to activity at the Northern Beaches.

As previously noted with house building activity dominated by the North this will also likely skew the median to that area and away from the cheaper land to the South.

Cairns SA4 broken down by SA3 region data:

Wednesday, February 4, 2015

Katter makes sense! Opposes populism! World stops!

An interesting opinion piece in the Townsville Bulletin today: LNP doesn't have the goods for government
Labor’s four pages of election costings and its plan to pay down debt were dubious, but the party at least presented some kind of plan of paying for its promises – without leasing assets – prior to the election. This means Labor’s $100 million pledge over four years to fund Townsville’s super stadium can be met.
Mr Katter yesterday called on Labor to abandon its commitment for the stadium, saying the money should be spent on “productive infrastructure”, not “populist infrastructure”. He said he was concerned about the ongoing liability for taxpayers.
Some of these concerns may be valid: Stadiums Queensland – which manages the State’s biggest stadiums including Suncorp and 1300 SMILES – records multi-million-dollar losses every year, which are underwritten by the government. However, as the Townsville’s stadium’s feasibility study made clear, the flow-on effects to the community are significant: the project is estimated to generate more than 570 new jobs and $81 million in value added activity in construction, and an incremental annual contribution of 31 new jobs and $2.6 million in value added activity.
No matter how valid Mr Katter’s points are about the need for infrastructure in north-west Queensland vis-à-vis a stadium, he shouldn’t force Labor to abandon its biggest infrastructure commitment.

The "significant" annual flow-on effect of 31 new jobs and $2.6 million in value added activity sounds rather trivial to me for a feasibility study based on a $150 million stadium. Could it be that down in Townsville some are now a bit worried about the future of their "super stadium"?

It isn't clear how $100 million over four years will fund a $150 million stadium anyway? In a list of infrastructure funding priorities for any incoming state government this 'promise' should be somewhere closer to the bottom and on the endangered list to be taken out the back and shot.

Monday, February 2, 2015

Great moments in local democracy

Cairns Post:
The member for Cairns has officially resigned from council, leaving his Division 3 seat vacant.
Council is now calling for nominations for the position.
Mr Pyne suspects council will avoid the expense of a by-election by choosing to appoint an applicant.
“A man named Ian Hodge polled second (to Mr Pyne in 2012) and he ran on the Mayor’s unity ticket,” said Mr Pyne.
“But what happens will be a call for all the councillors to make.”

However his Facebook page appears to indicate that Ian is currently resident in Port Moresby:


Ian is also understood to be involved in the Cairns Game Fishing Club which is believed to have received a generous donation from the Friendly Fung Family.

What was that I said in a previous post about electoral reform again? The Local Government Act could well do with some substantial reform.

Sunday, February 1, 2015

Where did you vote in Cairns?

ECQ booth details seem to indicate that 45% of votes cast in Cairns (ex absentee and postal etc) were at the showground pre-poll centre. Barron River 25%. Is that right or have I misunderstood something? Nope that's correct. Cairns topped the state and possibly an all time state record I would guess.

Cairns; Barron River