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Property shortages push up real estate prices

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Issue 196

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W

elcome to another packed edition of NZ Investor.

We have a report on the 2011 Budget from the CEO of accounting firm Deloitte’s on page 9 that makes for very interesting reading. Murray Jack says the economy isn’t growing as fast as predicted and the cost of the two earthquakes have yet to bite. The bottom line is the country needs to develop more growth, but he says the government’s strategy to do this has yet to be made clear.

Retail technology services business SmartPay’s share price has languished in the penny-dreadful space for some time.

But the company believes its new Australian focus will change all that.

If you have ever used an eftpos card, then you have probably used one of this firm’s systems to pay for goods and services. The firm has been busy of late as tens of thousands of merchants up and down the country have been required to upgrade their eftpos equipment before the end of May. Find out what this means to SmartPay and how it plans to grow its business across the ditch. See page 12.

On the property front, it is still a mixed bag. Popular areas are facing severe stock shortages and prices are fluctuating as a result.

Across New Zealand 4,987 unconditional sales were reported for April as the market came off the traditional March peak. The national median house price eased by $5,000 to $360,000 from March 2011.

Perhaps now the Budget is well behind us, homeowners may feel more comfortable about selling. Read our property section starting on page 27.

Diana Clement checks out the insurance market and offers a few ideas to prevent you from falling foul of the numerous fishhooks insurance firms use to keep everyone honest. Read part one of her two-part feature starting on page 32.

If you have cash to risk on a new venture perhaps you could be part of a team of angel investors that helps entrepreneurs get their dream business up and running.

You’ll need deep pockets though… Read Simon Hendery’s guide to angel investing on page 22.

Ethical investor Dr Robert Howell says it is time for people to pull away from investments linked to coalbased industries and search out environmentally-friendly energy operators. He says a United Nations review has found a large credibility gap between New Zealand’s target for reducing greenhouse gas emissions by 2020 and the measures in place to achieve it. See page 40.

All this, plus much more is inside this edition of NZ Investor.

Thanks for reading.

art H e v e t S

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INVESTOR NEW ZEALAND

New Zealand INVESTOR • June 2011

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Features 3

News and noted

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Budget commentary – by Murray Jack

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10 Bank profits are up 12 Company profile – SmartPay – by Simon Hendery 22 Be an angel – by Simon Hendery 26 More homes needed 28 Steady as she goes – property market review 30 Banks ready to lend

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31 NZ on slippery slope 32 Insurance – by Diana Clement 37 Good as gold – by Michiel Van Ketts 38 How to get rich – by Tony Sagami 40 Keep it clean – by Dr Robert Howell 44 Growing pains – by Dr Amapola Generosa 45 Risks & reward – by Kirk Hope 54 Keep it simple – by David McEwen

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55 Getting the balance 56 Parting shot – by Brent King

Regulars 16 Share report – Terry Kim 17 Sharetalk – Dan Stratful 46 Fundsource tables 48 Fixed term tables

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53 Classifieds

issue 197 of NZ Investor Part two of our insurance feature, looking at health and life insurance.

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52 Trusts, letting go – by Michael Coote

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News round-up...

Genius Telecom subsidiary Gen-I has won a three-year contract from Fletcher Building for the provision of mobile technology services based on Telecom’s XT network.

The deal includes more than 5,500 mobile voice and data connections, and builds on its existing relationship for the provision of fixed line, WAN, mobile and internet services for the construction firm.

The new mobility services, says Gen-I’s CEO Chris Quin, will help Fletcher Building deliver cost savings, and enhance its people’s responsiveness across the group.

Fletcher Building CIO, Paul Knight, says the firm is equipping staff with the technology as it prepares for its work in the rebuilding of Christchurch.

The contract was awarded to Gen-i following a competitive tender process.

Fletcher Building previously operated a dual supplier model for its mobile communications. Fletcher Buildings’ mobile services will be transitioned to Gen-i over the next six months

Cheers!

Frucor Beverages has announced the appointment of Carl Bergstrom as group managing director. Bergstrom replaces Mark Cowsill who retires after 18 years in the role.

Bergstrom has been CEO for Frucor’s New Zealand business since he joined the company in 2000.

Under Bergstrom leadership the New Zealand business has doubled in size and growing the number of employees.

The firm has evolved from a local juice company to an international total-beverage business.

In his role as NZ CEO Bergstrom has

led a number of significant strategic projects such as the acquisition of the Arano and Simply Squeezed juice businesses.

He has overseen the successful expansion of Frucor’s manufacturing operations, increasing capacity to support new product innovation and to meet domestic and international demand.

Before joining Frucor, Carl was General Manager for Carter Holt Harvey Distribution Group and Carters Building Supplies, and held senior executive roles in Carter Holt Harvey’s consumer products division.

Bergstrom was to take up his new position on 1 June.

Whimp warning The Financial Markets Authority (FMA) has ordered Bernard Whimp to include a warning from FMA at the beginning of any unsolicited offer they may make to holders of shares.

The order requires that: • any offer document containing an unsolicited offer by Whimp, a number of limited partnerships associated with Whimp (the Whimp partnerships), or any associated persons must contain, at the beginning of that offer document, a warning statement in the form attached to the order (warning statement); • Whimp and the Whimp partnerships must provide a copy of the order to their associated persons.

“One of FMA’s principal objectives is to ensure New Zealanders have the information and resources they need to make sound investment decisions,” says FMA CEO Sean Hughes.

“This order is intended to ensure any person who receives an offer from Mr

Whimp or his associates to buy their shares or other securities will have the information they need to decide if that offer is in their best financial interests.”

While Whimp has previously made offers to shareholders in NZX listed companies, this warning applies to any future unsolicited offers.

This would include shares or any other securities, such as an investor’s stake in a finance company.

Pillow talk The Commerce Commission has received an application from New Zealand Comfort Group Limited, formerly Sleepyhead Manufacturing Company Limited, seeking clearance to acquire all the assets of Dunlop Living Limited.

New Zealand Comfort Group manufactures and supplies beds and carpet underlay, manufactures foam, which it mostly uses in its Sleepyhead branded beds.

Dunlop Living manufactures and supplies beds, carpet underlay and furniture.

Dunlop Living also manufactures foam for use in its beds and furniture manufacturing business and supplies foam to competing bed and furniture manufacturers.

The clearance application relates to both parties’ involvement in the manufacture and supply of beds, foam and carpet underlay.

In considering the application, the Commission’s role is to determine whether the acquisition has the effect of substantially lessening competition in a market.

A public version of the application is available on the Commission’s website: www.comcom.govt.nz/clearancesregister

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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News

BurgerFuel conquers Iraq

Josef Roberts BurgerFuel Worldwide (NZX:BFW) has sold the master license agreement for the rights to BurgerFuel Iraq. This is the New Zealand company’s fourth new territory in its ‘takeout takeover’ of the Middle East.

BurgerFuel, CEO International Markets, Chris Mason who is based in Dubai says: “We’re moving forward in our plans to establish BurgerFuel in the Middle East by adding Iraq to our other territories in the UAE, Saudi Arabia and Bahrain.

“While Iraq poses new challenges it’s another important region and we

think early establishment will allow time for us to eventually open a number of restaurants there.”

The first BurgerFuel in Iraq will open in Sulaymaniyah, which lies in the Kurdish speaking region of Northern Iraq known as Iraqi Kurdistan.

The area is the only legally defined region within Iraq that has its own separate democratic government for its population of nearly five million people.

The Iraqi consortium who have bought the rights for BurgerFuel Iraq also own 50% of Iraq’s North Bank financial institution as well as 50% of Pepsi Iraq.

With Pepsi being the dominant soft drink in Iraq, the consortium is looking forward to adding BurgerFuel to its stable of successful brands. One of the new principals, Raad Braich, is already familiar with the BurgerFuel brand and adds the Master Franchise agreement for BurgerFuel in Iraq to his interests as a board member of the Iraqi National Business Council.

“We’ve found the Iraq partnership an interesting prospect, with strong and established business partners who approached us already having a good understanding of the BurgerFuel brand as well as the local Iraqi market,” says

Sung to the tune of Jessie J’s hit single - Price Tag ft. B.o.B.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

BurgerFuel’s Josef Roberts.

“We are interested in all global territories and we seek to take advantage of our non American - pure New Zealand positioning, wherever we can.”

Domestic rents drop The average rent in Auckland eased by $13 a week during April compared to March, with the average weekly rent settling at $421.

“The decline from March’s all time high of $434 was anticipated, as demand for property normally quietens in April,” says Peter Thompson, managing director of Barfoot & Thompson.

“April’s average weekly rent was achieved across 674 new property rentals. At $421, April’s average weekly rent is $23 higher than it was 12 months ago.”

Flying high Christchurch Airport has completed stage one of its new terminal building at a cost of $162 million. A major feature of the new terminal is a new

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$15 million state-of-the-art baggage handling system that is 750 metres long.

Stage two of the construction project in under way and will be completed in September 2012.

Stage two involves the demolition of the former domestic terminal, the construction of a new baggage claim area and improvement of aircraft parking areas.

The old terminal at Christchurch Airport opened in 1960, and had 200,000 passengers a year in 2010, Christchurch Airport was a gateway for 6 million travellers.

Feeling better Business sentiment about where the economy will be in a year’s time has risen to its highest level since December 2009 according to a survey of business people carried out by the BNZ. A net 42 per cent of respondents in the bank’s monthly confidence survey are optimistic about the economy compared with 14 per cent in April, -21 per cent in March – immediately post-earthquake, and 34 per cent a year ago.

The results by industry show good sentiment in farming, agricultural servicing, forestry and manufacturing for export, with improvements in sentiment evident for accountants, construction, residential and nonresidential real estate, and even tourism.

However retailing remains extremely weak and lawyers are not seeing much activity improvement as yet.

The results reveal that conditions in the NZ economy remain challenging with tight margins, businesses struggling to pass on cost increases, disruption following the Christchurch earthquake, and some evidence of shortages of skilled staff such as engineers.

There are also listings shortages for residential and non-residential property.

BNZ forecasts strong growth in NZ economy over 2012 but challenging conditions for most firms in the short term.

Rakon wins award Rakon (NZX: RAK) has won the 2011 PwC Hi-Tech Company of the Year at the NZ Hi-Tech Awards and Hi-Tec company of the decade (2000-2010) by New Zealand Trade and Enterprise.

Rakon is the first company in the PwC awards’ 17 year history to twice win the prestigious Company of the Year award and the first company to be honoured with recognition for being the leading company in the industry over the last 10 years.

“It means a lot to us to receive recognition for all the hard work and success we’ve had over the last decade,” says Brent Robinson, Rakon CEO. “We were up against some fantastic companies and it was quite humbling to win.”

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The government should look at recent Australian disasters involving private finance before pushing ahead with a public-private partnership ferry terminal near Blenheim, says the PSA. In Australia, Sydney’s Lane Cove tunnel went into receivership with AU$1.14b of debt. And last month RiverCity Motorways, the company operating Queensland’s first private road toll, became the subject of a AU$700 million class action due to excessively optimistic traffic forecasts. The company’s financial performance has been so bad it went into administration earlier this year, according to press reports.

“The government keeps talking about the benefits of PPPs but what about the risks – the underestimated costs, the expensive management mistakes?” says the PSA’s national secretary, Richard Wagstaff.

“The government needs to come up with a better economic vision for greater efficiency and cost effectiveness than PPPs. All they will do is hide the real costs.”

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Goodman lifts profits A ‘stabilising investment market’ saw specialist industrial and commercial property investor, Goodman Property Trust, lift audited after tax operating profit by $33.9 million to $36.7 million for the financial year ending March 31, 2011.

In announcing the result the Chairman of Goodman (NZ) Limited, Keith Smith, the Trust’s manager, said the Trust’s portfolio at period end had a value of $1.6 billion, down 1.5 per cent over the 12 months.

“The financial result is testimony to the solidity of the Trust’s balance sheet and the effectiveness of our strategy to met the challenges of an economic recession, tighter credit markets and a cyclical downturn in the investment market,” said Mr Smith.

“Net property income increased by 2.4 per cent to $108.7 million, while distributable earnings before interest and tax increased by 1.7 per cent to $101.1 million.”

The Trust reported after tax distributable earnings of $78.0 million or 8.79 cents per unit ($77.5 million, 9.10 cents last year).

It has announced a final quarter distribution of 1.935 cents a unit bringing the full year’s distribution to 7.74 cents (8.50 cents last year).

Chief Executive, John Dakin, said “it has been a particularly eventful year with new leasing, greater investment activity and new capital management initiatives enhancing the business.

“We secured more than $20 million worth of additional annual net income with leasing commitments from new and existing tenants, and maintained the average portfolio occupancy at 96 per cent with the average lease term at 5.6 years.”

Mr Smith said the Trust had completed a three-year comprehensive capital refinancing programme which gave it greater diversity as its sources of funding and more flexibility under the

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terms under which it borrowed.

“At period end the Trust’s net borrowings make up 36.7 per cent of property assets (37 per cent last year) with the level of debt at the lower end of the Board’s target band of 35 per cent to 40 per cent, and significantly below the 50 per cent allowed under the new banking covenants.

“The Board’s capital management initiatives will ultimately contribute to greater capital growth for investors.”

Mr Dakin said while a highly competitive leasing market would limit income growth prospects in the short term, the longer term outlook was “increasingly positive”.

“Improvements in economic activity and investment sentiment will benefit the Trust, and we anticipate the industrial sector in particular will provide steady rental growth.”

The Trust’s distribution guidance for 2012 is between 8.4 and 8.6 cents per unit pre-tax and 7.7 to 7.9 cents a unit after tax. Under its retention policy the cash distributions paid to unit holders will be around 80 per cent of distributable earnings after tax.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

In easy-to-read, non technical language, the book explains what to do in the run-up to retirement and how to transition from the workforce into a happy and prosperous retirement.

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For the under 65’s, there are numerous tips, ideas and solutions so you can be better off today, tomorrow, and get to retirement successfully.

The book is due out June 1 and sells for $40.

Higher dairy and fuel Producer output and input prices rose in the March 2011 quarter, Statistics New Zealand said today. Both indexes were influenced by higher dairy and fuel prices.

The producers price index measures changes in prices received by producers (known as output prices), and changes in the costs of production, excluding labour and depreciation costs (known as input prices).

Key influences on the outputs index, which was up 1.7 percent in the March 2011 quarter, were the: • 8.4 percent rise for dairy cattle farming, reflecting higher farm-gate milk prices • 9.8 percent rise for petroleum and coal product manufacturing, reflecting higher prices for petrol and diesel • 4.6 percent rise for dairy product manufacturing, reflecting higher milk powder prices • 8.5 percent rise for meat and meat

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mARAc non-guARAnteed teRm dePosit

6

12 montHs

.00%

p.a. with interest quarterly. minimum investment $1,000.

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mARAc guARAnteed teRm dePosit

12 montHs

.25%

p.a. with interest quarterly. minimum investment $1,000.

Operating as a divisiOn Of cOmbined building sOciety

All MARAC Deposits are issued

by Combined Building Society.

For our investment statement or further information, please contact us on 0800 26 27 22 or visit www.marac.co.nz combined building society HAs A guARAntee undeR A cRoWn RetAil dePosit guARAntee scHeme, being A guARAntee tHAt eXPiRes on 31 decembeR 2011.

mARAc non-guARAnteed dePosits oFFeRed by combined building society ARe not coVeRed by tHe guARAntee giVen undeR tHe cRoWn RetAil dePosit guARAntee scHeme.

MARAC Guaranteed Deposits are covered by the Crown guarantee, until the guarantee expires on 31 December 2011, subject to the terms and conditions of the guarantee. Once the Crown guarantee expires, no deposits will have the benefit of the guarantee. Further information about the Crown guarantee is available on Treasury’s website at www.treasury.govt.nz. Rates are subject to change. Combined Building Society has a BBB- (Outlook Stable) credit rating from Standard & Poor’s. See our Investment Statement or our website for more details about our credit rating.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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product manufacturing, reflecting higher export prices for beef and lamb • 7.3 percent rise for mining, reflecting higher export prices for crude oil.

Together, price rises for these five industries contributed about 61 percent of the overall 1.7 percent rise in output prices in the March 2011 quarter.

Key influences on the inputs index, which was up 2.2 percent in the March 2011 quarter, were the: • 7.3 percent rise for dairy product manufacturing, reflecting higher farm-gate milk prices • 15.7 percent rise for petroleum and coal product manufacturing, reflecting higher prices for imported crude oil.

Together, the dairy product manufacturing index and the petroleum and coal product manufacturing index contributed about 43 percent of the overall 2.2 percent rise in input prices in the March 2011 quarter.

Output prices increased 4.2 percent overall in the year to the March 2011 quarter, while input prices were up 5.3 percent.

Head: Kiwi income Kiwi Income Property Trust has announced its annual result for the year ended 31 March 2011, delivering a distributable profit of $68.8 million, up $7.7 million or 12.6 per cent on the previous year despite challenging economic conditions. After taking into account an $82.4 million unrealised reduction in the value of the Trust‟s property portfolio and other non-cash adjustments, an after tax loss of $26.4 million was recorded.

Unit Holders will receive a full year cash distribution of 7 cents

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per unit, in line with guidance.

Net rental income for the year was $137.8 million, up $4.1 million or 3.1 per cent on the previous year. This increase was attributable to the Trust’s shopping centre portfolio, with strong performances from Sylvia Park and The Plaza, and a contribution from our latest acquisition LynnMall.

The $82.4 million reduction in portfolio value over the past year was mainly attributable to the impact of the February 2011 earthquake on the trust’s two Christchurch assets.

Independent valuations reflect the uncertainty in Christchurch created by the earthquake, with a $52.1 million reduction in the combined value of Northlands Shopping Centre and PricewaterhouseCoopers Centre.

The Trust outperformed both the NZX Property Gross Index and the NZX 50 Gross Index over the three and five-year periods to 31 March 2011 and has delivered a cumulative average Total Return1 since inception in December 1993 of 9.4 per cent per annum.

Rakon it in Rakon (NZX: RAK) has achieved a significant increase in revenue and earnings for FY11, with revenue up 31% on the prior year to $189 million and EBITDA up 318% to $25 million.

The company has also reported a 257% increase of $13.9 million in net profit after tax to $8.5 million, compared to a loss of $5.4 million in the previous financial year.

Brent Robinson, Rakon Managing Director, attributed the increase to growth across all segments of Rakon’s business.

“Rakon has capitalised on the massive growth in the use of smart wireless devices and data usage across telecommunications networks. With our leading and advanced product range Rakon has increased its market share, not only into the companies that design and manufacture consumer devices, but also into the manufacturers

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of telecommunications infrastructure.” he said.

Mr Robinson said the results continued the improvement that began in the second half of the previous financial year, when the company began its rebound from the impacts of the global economic crisis.

“Rakon has continued to follow its strategy of establishing a globally competitive business with a broad range of technology leading products. During FY11 we have begun to see the benefits emerge and financial returns accrue and we expect this to continue.”

“Our customers and independent analysts forecast that the growth in wireless data over the next 5 years will accelerate rapidly by a factor of 40 times. To manage this networks need to expand and we continue to invest substantially in product development to ensure our products provide breakthroughs in performance and value. The release of the world’s smallest OCXO, the ‘Mercury’ during the current year is an example of this and we have many more products at various stages in the pipeline.”

Rakon has expanded capacity at all of its facilities during FY11 to meet current and future demand and its new facility in Chengdu is on track for official opening in July of this year.

“We have trebled capacity for ultra stable TCXOs used in telecommunications applications by leveraging our equipment and process IP developed in NZ over many years.

We have doubled capacity for OCXOs in India to meet market demand and are currently expanding this capacity again. Our Chengdu facility is also very close to beginning trial production.

The finishing touches on the facility are in progress and equipment has been delivered and will very soon be installed and commissioned. We have a global, diversified and very competitive manufacturing platform” Mr Robinson also commented that integration of the former Temex business acquired in August 2010 had progressed well.

I New Zealand INVESTOR • June 2011 • www.irg.co.nz

“This business has met our expectations in the period since acquisition. We have been and continue to be focussed on ensuring customer needs are met while strengthening our design and manufacturing processes.

We are very pleased with the platform it gives Rakon to further expand business into the space and defence market.”

Commenting on the year ahead Mr Robinson said that he expected Rakon’s overall business to continue growing during FY12.

“Our sales volumes for the first 6 weeks of the new year are well up on the same period in the prior year which gives us confidence that FY12 will build further on the successes of last year.”

Kingfish nets result Specialist New Zealand companies investor Kingfish Limited (NZX: KFL) has announced a profit after tax for the 12 months to March 31, 2011 of $9.74 million. The result – which includes gains in the value of the Kingfish investment portfolio as well as interest and dividend income – builds on the prior year’s $24.45 million gain.

Total shareholder return (TSR), which reflects gains in the Kingfish share price and dividends amounted to 16.3 per cent for the 12 months. The return compares with a 5.3 per cent return on the NZX50 index, the basket of shares representing New Zealand’s top 50 listed companies. NAV per share, adjusted to include dividends, rose 9.8 per cent over the year.

Kingfish chairman James Miller said: “Kingfish has delivered a strong result in 2011. In spite of the very tough market, it has met its objectives to provide investors with a diversified portfolio of well-researched New Zealand companies and deliver a competitive rate of return.”

In accordance with Kingfish’s policy to pay out 2 per cent of its NAV per quarter, the company paid four tax-paid dividends during the year amounting to a total of 8.69 cents per share.

Budget

Budget 2011

The need for growth This year’s Budget needed a clearer articulation of the government’s strategic destination for the country, writes Murray Jack, CEO of Deloitte

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ast year’s budget was full of optimism with the most significant tax changes in 25 years, targeted to provide a platform for productivity and economic growth.

A year and two earthquakes later and the government’s accounts are less rosy.

Last year in our 2010 Budget Overview Deloitte said: “Let’s be clear – if the economy does not reach sustainable growth levels there will be no choice but to peel back entitlements if the country is to remain within prudent levels of debt.”

Well the economy hasn’t grown and won’t grow much for the rest of 2011. Beyond that there are hopes for a rapid growth by past standards – but that is not certain.

So in 2011 we see the first tentative steps to tackling entitlements.

• Working for Families faces a trim for the higher earners with fewer kids.

• Student Loans are no longer as “interest-free” for some and others face curbs.

• KiwiSaver subsidies are trimmed and employers and workers pick up the slack with minimum contributions lifted to three per cent.

Of these most rhetoric will flow around KiwiSaver. The problem, however, is that a scheme that relies for its success on the government contributing a dollar for every dollar saved makes no sense. The quirkiness of this is even more exposed when 45 per cent of the funds in KiwiSaver are invested off-shore. We can fiddle with KiwiSaver as much as we like, but as long as we have a relatively generous universal pension, health care free at the point of delivery, and a largely free education system backed at the tertiary level by interestfree loans we will have to continue to pay people to save.

More serious reform is needed.

But the entitlement changes are hardly frontal assaults on middle-class welfare. Bill English’s austerity budget cannot be remotely compared with Ruth Richardson’s mother of all budgets.

This is because most of the expenditure restraint is forecast to come from public sector administration efficiencies and “reprioritisation”. This is appropriate. The noughties saw a relentless rise in the number of public servants and hence cost with hard to find evidence of productivity gains.

To date the private sector has borne by far the greatest burden of adjustment during the long recession, both in terms of employment and wages. The predicted restraint in

the Budget is sensible.

However, this comes with its risks. The risks don’t relate to cessation of services but to the capabilities within the public sector to drive out costs and re-prioritise expenditure and the speed with which they can do so. The lower spending path of the last two years has helped condition attitudes but this Budget sees a quantum shift in scale and urgency of action.

As a consequence of this strategy there remains a reliance on rebounding economic growth to pull the country out of deficit (forecast to be in 2014/15 - just). The earthquakes complicate prediction here.

Some commentators believe Treasury has significantly underestimated growth and no doubt a positive surprise would be a boost. But there are risks and many of these are on the downside – the global economy is not yet firing on all cylinders, Australia’s two-speed economy is becoming more apparent, and business investment in New Zealand is still anaemic and will remain so until consumer demand recovers.

More positively the government has mainly held its nerve on infrastructure spending. While there are many views on the suitability and priorities of some of the spending there is no argument that overdue investments must be made and that productivity gains for business will follow.

A commitment to partial asset sales is also encouraging.

Forget the ideological battles here. Sales are a pragmatic way of improving the government’s balance sheet, driving better performance, and relieving the taxpayer of the risks of business ownership.

They are also critical to re-energising our capital markets and providing an investment destination for the growing private savings pool. Getting them away in the timeframe envisaged is not a simple matter.

However, the state of the balance sheet and unwillingness to tackle entitlements in more a material way has meant that the Budget has not materially addressed two key areas – savings and investment and welfare reform.

A wish list for business could include lower taxes on investment income, reintroduction of youth rates and improved incentives to train and work. Research, development and innovation could be added to the list.

Overall Bill English has produced a steady-as-she-goes budget. It is sufficiently austere to deal with the fiscal position we are in and will keep the rating agencies at bay - so long as economic growth returns.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Finance Bank profits up Banking

Banks are returning to profit, but the dark days are far from behind them

N

ew Zealand’s banking sector posted a return to profitability in 2010, the KPMG Financial Institutions Performance Survey 2010 shows.

But banks face an uncertain journey to reach safer ground in 2011, warns John Kensington, KPMG acting head of financial services.

“Four factors are weighing heavily on the sector: deleveraging, rural sector debt, general economic uncertainty and the unknown impact of the two Christchurch earthquakes,” says Kensington.

Compounding this uncertainty is the impact of regulatory pressures, particularly the anti-money laundering legislation, financial services regulation and core funding requirements, he says.

“Deleveraging was the big story of 2010,” he says. “Market participants were surprised at the scale of deleveraging.

Households were reducing debt over a long period of time and the deleveraging is multifaceted and occurring at almost every level of the loan book.

“As a result, all of the banks struggled to write new business and meet volume and dollar targets,” says Kensington. “Uncertain economic conditions, the softness of the recovery, and deleveraging means banks will continue to work hard to grow their loan book in the near-term.”

At the same time, banks’ revenue channels are under pressure.

“Net interest margins are again being squeezed, a result

of the retail deposit wars of the first half of last year,” says Kensington. “The impact was more pronounced on the big five banks, who lost 10 basis points and saw their margins reduced to 2.09 per cent in 2010.”

But Kensington notes that banks are actively managing their rural assets, rather than forcing a sale in the current market.

Despite high commodity prices, it will still take many years for the sector to reduce debt to a level deemed satisfactory to its lenders, or the RBNZ. He says the Reserve Bank is considering a capital overlay because of concerns at the level of rural debt, which remains at around $47 billion despite many in the sector reducing their exposure.

Kensington says the biggest uncertainty on the path to recovery for the banking sector, is the as-yet unquantifiable impact of the Christchurch earthquakes.

“All of the banks will suffer some losses, although these have yet to be determined,” he says.

The bigger impact will be the residual effects on the regional and national economies, further delaying recovery and compounding banks’ weak lending growth in the coming year.

All of these elements – deleveraging, high rural debt, stagnant growth, regulation and the Christchurch effect – are still in play and create an environment in which it is challenging for the banks to navigate a path to safer ground.

Despite high commodity prices, it will still take many years for the rural sector to reduce debt to a level deemed satisfactory to its lenders.

Photo / SXC

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Company Profile

Payback time Retail technology services business SmartPay’s share price has languished in the penny-dreadful space but, as SIMON HENDERY reports, the company believes its new Australian focus will change all that

O

n recent nights and weekends there has been some unusual activity happening at Auckland’s Alexander Park raceway.

Taxis have been arriving in large numbers, not to pick up fares, but to join a queue that is effectively a makeshift production line. A swarm of technicians take charge of the vehicles, pulling out old eft-pos (electronic funds transfer-point of sale) equipment, replacing it with new technology and sending the drivers on their way within about half an hour.

This upgrade of Auckland Co-op Taxi’s 800-vehicle fleet is an example of the type of business listed retail technology services company SmartPay is involved in.

Tens of thousands of merchants up and down the country – including taxis – have been required to upgrade their eft-pos equipment before the end of May to meet new security standards. Those that don’t upgrade face being disconnected from the network.

SmartPay’s New Zealand chief executive, Andrew Donaldson, says the upgrade work won’t come to an end on May 31. In the same way that PC users find themselves Managing director Ian Bailey’s focus is now on wider group strategy - with ambitous plans to expand SmartPay’s presence in the Australian market

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

having to regularly update their Windows operating system software to protect against new security threats and improve functionality, retailers face a similar upgrade cycle.

The May 31 deadline affects about 60 per cent of the country’s merchants who need to update to the latest version of the electronic transaction technology. However, the remaining 40 percent will also need to upgrade sometime over the next two or three years as their currently-compliant systems also reach their end-of-life point.

In the same way that its customers have been receiving IT upgrades, SmartPay itself has spent the past couple of years undergoing the corporate equivalent of a technology overhaul – a tough rip-and-replace operation to transform the company into a business capable of dealing with a new market reality.

Donaldson took on the newly-created role of New Zealand CEO in January this year. He joined SmartPay in September 2010 as chief financial officer and his elevation to head up the local operation sees him taking over responsibilities previously handled by managing director Ian Bailey.

Bailey’s focus is now on wider group strategy, specifically the company’s ambitious plans to expand its presence in the Australian market.

Bailey is a veteran of the electronics payment industry with a 25-year background in eft-pos and IT markets. He spent five years as managing director of the Australian subsidiary of technology company Provenco in the 1990s and later founded another payment systems business, Cadmus, which he took from a start-up to a listed company, before leaving in 2007.

Provenco and Cadmus later merged but ran into trouble and, in a further twist, SmartPay ended up buying ProvencoCadmus’s payments division from the company’s receivers in 2009.

SmartPay itself has since struggled with substantial debt and a low share price, but Bailey says the combination of recapitalisation, improved earnings, changing the business model and management structure, and aggressive plans to expand its Australian business all mean a bright future.

“What we’ve got with SmartPay is a pretty good turnaround story and growth story,” he says.

“The company has come from very small beginnings with

Company Profile an $8 million market capitalisation (to a current market cap of about $25 million). It was losing money two years ago. It’s now profitable on an EBITDA (earnings before interest, tax, depreciation and amortisation) level. It has been continuously showing EBITDA growth and profit increases over the past three years.

“It’s in very good shape in the New Zealand market now because we’ve implemented back to the business model which works, and we’ve done that in the face of probably the worst credit meltdown in the past 70 or 80 years, and with very difficult equity markets.”

Bailey says one of the key success factors for the business has been that it operates differently from the likes of ProvencoCadmus, which was primarily in the business of manufacturing and selling the technology ‘boxes’ that merchants require for processing electronic transactions.

SmartPay’s difference, he says, is that its business is “more akin to a Sky Television model”.

“We provide a product to a customer, we put services on that product and we rent it to them, providing an ongoing revenue stream,” he says.

The 2009 acquisition of ProvencoCadmus’s assets was about buying the failed company’s customer base, not its technology, he says.

“We’ve now used that customer base to expand our business. We’re very strong in the New Zealand market and we’re gaining a presence in the Australian market.”

That enhanced Australian presence will be two-fold.

Not only does the company want to grow its share of the electronic merchant services market across the Tasman, it also wants to raise its investor profile, so is planning to complement its NZX listing with a listing on the Australian Stock Exchange.

Plans for the ASX listing include a 10-for-one share consolidation because ASX-listed companies require a minimum share price of 20 cents, well above the 2 cent range the stock has been trading in recently.

The company believes an ASX listing will boost its profile and – more importantly – its share price (see sidebar).

SmartPay • Listed on the NZX (ticker code: SPY) and planning to have a second listing on the ASX by the end of August.

• Provides electronic transaction and other services to retailers and merchants.

• As well as processing electronic payments, SmartPay provides related services such as gift card and loyalty programme processing, in-store “retail radio” point-of-sale visual promotion services.

• Has about 60 percent of the corporate retail market in New Zealand.

• Processes about 65 percent of taxi transactions in New Zealand and about 15 per cent of taxi transactions in Australia.

As far as the growth potential from expanding its presence in the Australian market, Bailey says the company’s existing footprint in that market will help it quickly pick up a larger share of electronic transaction terminals used by Australian merchants.

“We’re in good shape now to approach the Australian market. It’s not green-fields over there for us, we’ve got an existing business that’s been there for some period of time.

We’ve got good staff, we’ve got a good operation and we’ve got a good business model that we know works – so it’s simply now about how we expand that as hard and as fast as we can in the Australian market by organic growth as well as potential acquisitions I our target segments,” he says.

“There are about 600,000 terminals in Australia and we’re not after a very large percentage of market share. If we got five percent of that market we would effectively double the size of business.”

SmartPay’s ambitions are to secure between 15,000 and 30,000 merchants over the next two to three years.

SmartPay in action

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Company Profile

“It’s a model that we already know. It’s a model that’s been very successful in New Zealand and it’s a model that we’ve already got in the Australian marketplace now,” he says.

“Specifically we’re focusing on customers that want something different – they need to have some bespoke software, or they need to have some value added services added to their terminals. That could be anything from loyalty programmes, third-party card processing, some specific market and industry segments – taxies in one of those.

“Because we already have that base in Australia, now it’s simply how we expand that, as opposed to how we set it up.

So we’re in a very good position to move forward.”

Bailey says as well as leveraging the strengths of the company’s existing business in New Zealand and Australia to win new customers, there is also an opportunity to tap the market for businesses that operate on both sides of the Tasman. A large number of the New Zealand corporate customers we have are Australian-based and as such they are looking at how they can consolidate their payment solutions between Australia and New Zealand,” he says.

“We are working with a number of corporates looking at how we might be able to do that for them.”

On both sides of the Tasman, SmartPay will continue to grapple with the double-edged sword associated with being in the technology space, and the ever-changing challenges

brought on by constantly evolving technology.

Donaldson says “contactless” credit cards – which don’t need to be swiped to process transactions – have been slower to arrive in New Zealand than in other countries, in part because this country has a comparatively high level of eft-pos transactions for lower-value purchases.

As with other technology developments, SmartPay keeps an eye on developments and has ongoing research and development initiatives, but for now the situation with contactless cards is: “There’s definitively interest in it but at the moment it’s not generating a lot of value for anyone.”

Another emerging technology is mobile payments, where customers use applications on their mobile phones to complete transactions.

“I don’t think there’s any doubt that in a few years it’s going to be big,” says Donaldson.

“It’s just that the demand’s not there right now. The infrastructure’s not in place for it just yet.”

When that changes, however, and new IT needs to be rolled out, no doubt SmartPay will step up to the mark.

Expect to see those taxis back queuing at Alexander Park for another technology makeover.

Simon Hendery is a freelance business writer.

Email: Simon@ThinkPoints.com

Want a higher share price? Move to Australia SmartPay says its shares are undervalued by New Zealand investors, which is one of the reasons it is planning a dual listing in Australia.

The company expects to be listed on the ASX by the end of August in a move it says “is designed to improve stock liquidity for shareholders, open up the opportunity for the company to be introduced to new shareholders and to provide the company with access to larger scale capital markets which will assist with the planned growth of the company”.

“P/E (share price to earnings) multiples on the ASX for companies such as SmartPay are typically between 10 and 14, while SmartPay remains at around 5 on the NZSX,” says SmartPay chairman Wayne Johnson.

“Making an ASX listing is important to increasing shareholder value. As part of this process we have already met with a number of brokers in Australia who are showing interest in supporting the stock which should result in improved liquidity in the larger Australian market”.

The company’s managing director, Ian Bailey, says SmartPay was caught in a Catch-22 situation familiar to many New Zealand listed companies will small market capitalisation.

Local brokers were not in a position to recommend them to clients because there were no research reports available. At the same time the local broking community didn’t have the resources to research small-cap stocks.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Australian brokers were more interested in small-caps stocks, but have a view that shares in smaller NZX-listed companies are not traded enough to provide the liquidity their clients need.

“That was one of the things that led us to seriously consider an ASX listing, and to look at what it would give in terms of value to our existing shareholders and for the growth of the business in the Australian marketplace,” says Bailey.

“I do find it of great interest that even though we announced sometime ago that we were going to look at the ASX, I’ve still had no contact from anyone at the NZX to say: ‘Hey, tell me about it.’ I would have thought that as an NZX listed entity we would have had at least a phone call to say: ‘What can we do to help you guys.

Maybe that’s a factor of the market at the moment – credit’s being squeezed and the market’s difficult for a number of organizations, not just us.”

Despite the company’s believe that it is being undervalued by New Zealand investors, SmartPay intends staying listed on the local market, at least for now.

“We don’t know what our future holds,” says Bailey.

“At the moment we’ve announced we intent to stay on the NZX because we have a large number of New Zealand based shareholders. If it works out that for shareholder value we shouldn’t be on the NZX then we’ll change that position.”

– Simon Hendery

Westpac market overview Market in Review

Bonds in Review

Since the beginning of May, global investor sentiment has reversed, affecting all major financial asset classes, and the NZD and NZ interest rates have weakened as a result. There is no single catalyst for this global reversal, rather a backdrop of extreme positioning spooked by events in peripheral Europe and concerns China’s economy may slow during the second half of 2011. Hard commodities have fallen sharply, US equities are back at late February and early April levels, and US 10yr treasury yields are testing the mid-March low. The NZD/USD exchange rate has fallen from an early May peak of 0.8120 to 0.7820, and is poised to slip further. It’s too early to suggest the reversal in global sentiment is an unravelling of the larger degree rally since March 2009. A fall below 0.7800, though, would signal another cent or two lower is likely. NZ 2yr swap yields have been anchored between 3.30 and 3.40, with the RBNZ firmly on hold until Q1 2012. Recent economic data in NZ has slightly surprised higher lately, notably housing, spending, and business confidence. Should this trend continue for a few more months, interest rates and the currency would respond higher. Appetite for NZ Government bonds has been very strong, capping longer maturity yields. We attribute the appetite to offshore bond investors diversifying away from G4 currencies into the commodity bloc – AUD, NZD, and CAD.

Late April saw the successful close and pricing of the Genesis Energy Capital Bond.

Demand was very strong with the security pricing at 8.50% and $275,000,000 issued. In early May Rabobank also launched and priced a $100,000,000 retail bond. This senior, unsecured, 7 year bond carries a coupon of 6.25% and a AAA credit rating. Again, investor demand for this issue was very strong. It is clear that there is a lot of appetite for well priced bonds from reputable issuers with retail investors looking to secure enhanced yields in comparison to term deposit rates.

With all the action occurring in the primary market the secondary market has been quiet but flows have seen some improvement as investors take profit on current holdings and use the proceeds to buy into primary market issues. Looking further afield, the European debt crisis has reared its head again with various rumours circulating about a possible Greek debt restructure and its resultant impact on the European debt markets in general. This issue seems to have a long way to play and will continue to have an influence on risk appetite in the region. The NZ Q1 Consumer Price Index printed at 0.8% and 4.5%yr. While this headline number is out of the RBNZ’s targeted medium term band the core underlying components were actually slightly weaker then expected indicating that Inflation is not likely to be a concern in the immediate future.

Imre Speizer, Senior Market Strategist, NZ, Ph: (09) 336 9929

Matt Plowman, Retail Investment Sales, NZ, Ph: (09) 367 3838

New Zealand Economic Forecasts Economic Growth Forecasts % change

March years 2010

2011e

Calendar years

2012f

2013f

2010

2011f

2012f

2013f

GDP (Production) ann avg

-0.7

1.1

2.2

4.8

1.5

1.3

4.6

4.1

Employment

-0.1

1.8

0.9

4.0

1.3

1.7

3.7

2.7

Unemployment Rate % s.a.

6.1

6.6

6.0

4.6

6.7

6.1

4.9

3.8

CPI

2.0

4.5

2.6

3.0

4.0

3.0

2.9

2.7

Current Account Balance % of GDP

-2.4

2.5

-4.6

-5.9

-2.2

0.5

-5.8

-5.8

New Zealand Financial Forecasts OCR

90 Day bill

2 Year Swap

5 Year Swap

10 Year Bond

NZD/USD

NZD/AUD

TWI

Jun-11

2.50

2.70

3.50

3.50

4.60

0.79

0.75

68.7

Sep-11

2.50

2.70

3.80

3.80

5.00

0.80

0.76

70.1

Dec-11

2.50

2.90

4.20

4.20

5.30

0.78

0.76

69.6

Mar-12

3.00

3.30

4.50

4.50

5.50

0.76

0.77

68.6

Jun-12

3.25

3.50

4.70

4.70

5.70

0.76

0.78

69.0

Sep-12

3.50

4.00

5.00

5.00

5.90

0.75

0.78

68.7

NZ interest rates as at 16 May 2011

Cash 30 Days 60 Days 90 Days 2 Year Swap 5 Year Swap

NZ exchange rates as at 16 May 2011

Current

Two weeks ago

One month ago

2.50% 2.60% 2.65% 2.65% 3.32% 4.45%

2.50% 2.59% 2.66% 2.66% 3.37% 4.54%

2.50% 2.56% 2.63% 2.66% 3.46% 4.67%

NZD/USD NZD/EUR NZD/GBP NZD/JPY NZD/AUD TWI

Current

Two weeks ago

One month ago

0.7855 0.5580 0.4857 63.500 0.7441 68.330

0.8090 0.5461 0.4839 65.700 0.7373 68.740

0.7982 0.5534 0.4890 66.350 0.7562 69.190

Our highly experienced Financial Markets team delivers outstanding financial markets outcomes for our clients through superior service, and a willingness to innovate and understand our clients’ needs. In addition to the traditional suite of Financial Markets products – Foreign Exchange, Interest Rate Derivatives, Government and Credit products – we have now have capability in Commodities Carbon and Energy. Our wide reaching business model gives clients access to a high level of global knowledge and the ability to transact in an extensive range of currencies and products across the world.

Dealing Contacts: Geoff Wilson or Matt Plowman 0800 489-222 Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141 (“Westpac”). The information contained in this document does not constitute an offer, or a solicitation of an offer, to subscribe for or purchase any securities or other financial instrument; is not an invitation to invest; is not an offer for finance; does not constitute an offer, inducement or solicitation to enter a legally binding contract; and is not to be construed as an indication or prediction of future results. All opinions, statements and analysis expressed are based on information current at the time of writing from sources which Westpac believes to be authentic and reliable. The information is general and preliminary information only and while Westpac has made every effort to ensure that information is free from error, Westpac does not warrant the accuracy, adequacy or completeness of the information – Information current as at 16 May 2011. The information may contain material provided directly by third parties and while such material is published with necessary permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. This information has been prepared without taking account of any particular investor’s objectives, financial situation or needs. Because of this, potential investors should, before acting on this information, consider its appropriateness having regard to its own objectives, financial situation and needs. Westpac strongly recommends that investors seek independent advice before acting on the information. Certain types of transactions give rise to substantial risk and are not suitable for all investors, including those involving futures, options and high yield securities. Except where contrary to New Zealand law, Westpac intends by this notice to exclude liability for the information, statements, opinions and analysis. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac is incorporated in Australia with limited liability. You can get a copy of Westpac’s current disclosure statement for the New Zealand branch of Westpac Banking Corporation and a copy of the investment statement or product disclosure statement (as applicable) for any securities for which an investment statement or product disclosure statement is required, free of charge, by calling 0800 489-222.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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ShareReport

May 2011 Share Market Report by Terry Kim Sanford’s chairman, Bruce Cole, has died after a short illness.

Cole was elected chairman in 2006. During Cole’s board tenure, the company’s shareholder value had grown from $50 million to more than $500 million and annual dividends had grown from $3 million to more than $20 million.

Nuplex downgraded its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast for FY11, $2 million to $6 million lower than previously forecast, and restructured its senior management team.

Air New Zealand has dropped a legal challenge to Auckland International Airport’s purchase of a stake in Queenstown Airport.

DNZ Property Fund has offered a merger alternative to Argosy Property Trust’s plan to internalise its management contract, but Argosy rejected it and asked DNZ for a written proposal.

Rubicon has pulled a US$82m-92m IPO in the US for its 33 per cent owned ArborGen, a forestry biotech company, given unfavourable market timing.

Tapware manufacturer Methven says the failure of its biggest UK customer, Focus, would take as much as $1.7 million off its full-year profit and result in a $400,000 impairment. Focus accounted for 5 per cent of the total revenue for Methven in 2010.

SkyCity says James Burrell will take over as chief financial officer from July 1. Burrell is a chartered accountant from the UK. The Christchurch Casino (50 per cent share) is due to re-open on May 26.

The outlook for SkyCity’s credit rating has been changed to stable from positive by Standard & Poors.

Nuplex has downgraded its annual earnings forecast, on senior management restructuring charges and rising raw material costs. Nuplex now expects annual net profit of between $62 million and $65 million from between $68 million NZX50 andNZX50 $75 million.

Investment holding company Guinness Peat Group says Blake Nixon will be resigning from his role as an executive director, effective from the end of June.

PGG Wrightson, which is controlled by Agria Corp, has acquired Australia’s Southedge Seeds, a tropical seed company.

This acquisition follows the purchase of South Australia’s Keith Seeds in November last year.

BHP Billiton has moved closer to getting its US$1.1 trillion ($1.04 trillion) Olympic Dam copper, uranium and gold deposit in South Australia. It is now up to government to approve or disapprove.

National Australia Bank faces as much as a $140 million hit to earnings in the UK after being caught up in a lending insurance scandal.

Woodside Petroleum’s incoming chief executive, Peter Coleman says he will not deviate from the company’s aggressive gas strategy.

Qantas is to set up a premium airline in Malaysia to widen its network in Asia. Qantas was also hit with record $6.5m fine in NZ for price-fixing in an air cargo cartel case.

Drilling services provider Boart Longyear expects a 35 per cent year-on-tyear rise EBITDA in FY11 as small miners increase their exploration spending to cash in on booming commodity prices.

Bluescope Steel predicts a $50 million second-half loss after being hammered by the strong AUD, falling domestic demand and lower international steel prices.

West Australian gold miner St Barbara has made a $349 million merger proposal to Catalpa Resources to combine the two companies to form a leading Australian mid-tier gold company.

Retailers David Jones and Myer Holdings have both reported falls in third-quarter like-for-like sales of 3.1 per cent, indicating a continuing tough retail environment.

Food, laundry and cleaning services provider Spotless Group has rejected a full takeover bid from an unnamed private equity group, believing that it does not reflect the fundamental value ASX ALL ASX ORDS ALL ORDS of the company.

Chemicals and fertilisers maker Incitec Pivot recorded a 22 per cent year-on-year rise in net profit after tax before one-off items to $178.6 million for 1H11.

NZX50

ASX ALL ORDS 2140

2140

1 Apr 20111-Apr 17 May 20112011 - 17 May 2011

2100

source: www.findata.co.nz source: www.findata.co.nz Apr

Contact us Sharon Fang DAN STRATFUL

DDI EMAIL DDI EMAIL

May

May

2080

09 304 0235 sharon.fang@irg.co.nz 09 304 0232 dan.stratful@irg.co.nz

A free disclosure statement is available upon request

16

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5100

5000

5000

4900

4900

4800

4800

4700

4700

1 Apr 20111-Apr 17 May 20112011 - 17 May 2011 2120

Apr

5100

New Zealand INVESTOR • June 2011 • www.irg.co.nz

2120

2100

2080

Apr

Apr

Terry Kim NICK O’BOYLE

May

DDI EMAIL DDI EMAIL

FREEPHONE 0800 474 669

May

09 304 0223 terry.kim@irg.co.nz 09 304 0233 nick.oboyle@irg.co.nz

ShareTalk with Dan Stratful

ShareTalk

Origin Energy Contact Finance No.2

Sims Metal Management

Contact Energy

Sims Metal Management (ASX: SGM) is the world’s largest non-ferrous and ferrous metals and electronics recycler, and has over 250 locations across five continents. The company was established in 1917 and gained an ASX listing through the merger with another ASX listed company Consolidated Metal Products.

Contact Energy (NZX: CEN) provides electricity, natural gas and LPG to New Zealanders and generates around 24 per cent of New Zealand’s total annual electricity. CEN is raising approximately NZ$350 million in new capital via a 1 for 9 pro rata entitlement offer to existing shareholders at $5.05 per share.

Origin Energy Contact Finance No.2 (NZDX: OCFHA) is a wholly owned New Zealand based subsidiary of Australia’s Origin Energy. OCFHA are preference shares aimed at income investors and were issued in October 2007. OCFHA re-sets its dividend rate annually in October based on the sum of the then one-year swap interest rate and OCFHA’s margin of 1.5 per cent.

22

5

4.8

68c

77c

EPS (cps)

24.7c

24c

EPS (cps)

PE Ratio

26.8

23.7

PE Ratio

24.4

25.1

PE Ratio

Dividend (cps)

33c

40c

Dividend (cps)

25c

25c

Dividend (cps)

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

Nov 10

Financial Year

EPS (cps)

Sep 10

Jul 10

6/2010A 6/2011F

Aug 10

Apr 11

May 11

Dec 01

Oct 10

Financial Year

Jun 10

$0.75/$0.60

May 10

3.8 Year Rolling High/Low

Jan 11

$6.29/$5.44 Feb 11

17 Year Rolling High/Low Nov 10

$127 million

Sep 10

6/2010A 6/2011F

Financial Year

4 Capitalisation Market

Jul 10

$22.36/$15.23

$3.77 billion

Aug 10

$3.71 billion

Year Rolling High/Low

$0.62

18 Market Capitalisation

Jun 10

Market Capitalisation

ADVICE: YIELD buy

4.4

Price4.2

$6.04

Apr 11

19 Price

$18.25

May 10

Price

4.6

ADVICE: ACCEPT OFFER

20

Mar 11

ADVICE: Growth buy

May 11

21

1/2011A 1/2012F n/a

n/a

n/a

n/a

4.92c

4.5c

12-month Chart to 17/05/11

12-month Chart to 17/05/11 6.2

5

1.3

21

6

4.8

1.2

20

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19

5.6

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No4chart available

1.1

4.4 1.0

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0.9

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0.35

Feb11 11 May

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7

0.3

6

0.25 0.2

New Zealand INVESTOR • June 2011 • www.irg.co.nz

I

17

May 11

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0.35

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0.45

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5.2

1.2

Aug 10 Jul 10

5.4

0.5

1.4

Jun 10

5.6

OCFHA is one of a range of annual reset preference shares whose price has fallen sharply in response to lower interest rates.

Lower interest rates means the annual dividend rate on OCFHA becomes unacceptable to most investors so they sell out of them, and chase higher yields elsewhere, leaving the investors still holding the shares with a ghastly capital loss. However, the unit price may have fallen too far and now represents value buying. At 62c per unit, the yield on OCFHA is 7.26 per cent p.a. and this yield assumes that the annual dividend rate for OCFHA is reset in October 2011 at 4.5 per centp.a. based on a one-year swap interest rate of 3 per cent p.a in October 2011 and OCFHA’s margin of 1.5 per cent. The annual reset in October could be lower than the current 4.92 per cent p.a. as interest rates have fallen since the last reset in October 2010. While the forecast return of 7.26 per cent p.a. in the first year is acceptable, it is the returns in future years that could be worth waiting for. Future dividend rates should begin to be reset higher as interest rates rise. This provides a rising annual dividend rate, rising income stream and a recovering unit price.

5

1.3

1.5

Jul 10 Jun 10

6

5.8

CEN’s has been through a tough few years, and its strategy for growth is to invest in a range of future generation options including geothermal, gas, wind and hydro. Lower-cost geothermal projects such as Te Mihi are one such example, and the project cost of Te Mihi is expected to be about $623 million. CEN’s 52 per cent major shareholder Origin Energy has given its full support to the offer and will take up its full entitlement, and the capital raised during the offer will partly fund the Te Mihi project. CEN also has consents for two other important new generation projects including the 250 MW Tauhara 2 geothermal project (near Taupo) and the 156 MW Waitahora wind project (Wairarpa region). The Tauhara 2 project in particular is expected to be CEN’s next major investment after Te Mihi. CEN believes that geothermal energy is the most price competitive source of new electricity generation for New Zealand, with the benefit that geothermal is the only form of renewable generation that does not depend on the weather. The entitlement offer has the support of majority shareholder Origin Energy, is not overly dilutive, and appears reasonably priced.

May 10

6.2

3.8

Jun 10 May 10

SGM updated the market with its earnings expectations for the nine months ending 31 March 2011, and the results were buoyant.

Sales revenue for the nine months was up 23 per cent to $6.2 billion and EBITDA increased 38 per cent to $295 million. Net profit surged 74 per cent to $123 million and underlying net profit (adjusted for atypical items) was $109 million. All-important EPS for the nine-month period increased 62 per cent to 60 cents. SGM reported scrap intake and shipments of 10.5 million tonnes and 9.9 million tones during the period, up 9 per cent and 8 per cent respectively. SGM pinned the positive result on a stronger contribution from its North American metals business during the third quarter, as the American economy continued to recover, while Australasia and Europe also showed continued strength.

Sims Recycling Solutions also reported a strong nine-month performance. SGM’s improved results are attributable to improving scrap metal prices in most of its geographic regions in addition to rising demand from steelmakers. SGM’s margins are beginning to improve as scrap metal prices improve, and the company has good exposure to a resurgent US economy.

4

May 10

Apr 11

May 11

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

Nov 10

Sep 10

Jul 10

Aug 10

Jun 10

May 10

4.2

ShareTalk

22

5

21

4.8 4.6

20

4.4 19

PE Ratio

13.5

13.2

PE Ratio

Dividend (cps)

30c

31c

Dividend (cps)

n/a

n/a

n/a

n/a

8.5%pa 8.5%pa

0.35 0.3

0.25 0.2

9

8

7

6

Feb 11

Mar 11

Jan 11

Dec 01

Nov 10

Oct 10

Sep 10

Aug 10

Jul 10

Jun 10

May 10

Apr 11

May 11

Feb 11

Mar 11

Jan 11

Dec 01

Nov 10

Oct 10

Sep 10

Aug 10

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Jun 10

5

Apr 11

May 11

Mar 11

Jan 11

Dec 01

Feb 11

May 11

Apr 11

Mar 11

Jan 11

Feb 11

Feb 11

Mar 11

Apr 11

Mar 11

Apr 11

May Jan11 11

Feb 11

Apr Dec11 01

Feb Oct11 10

Aug 10

Jul 10

Jun 10

Apr 11

Sep May10 10

Jan 11

Dec 01

Oct 10

Nov 10

Sep 10

Jul 10

Aug 10

Jun 10

May 10

Mar 11

Jan 11

Feb 11

Dec 01

0.2

May 11

Jan 11

Feb 11

Dec 01 May 11

Nov 10 Apr 11

Oct 10 Mar 11

Sep 10 Feb 11

Aug 10 Jan 11

Jul 10 Dec 01

Jun 10 Nov 10

May 10 Oct 10

Mar 11

0.4

2.5

New Zealand INVESTOR • June 2011 • www.irg.co.nz

BFW’s Middle Eastern expansion plans took a twist when the company announced an interesting move to expand its operations into Iraq. In typical BFW saucy style, the announcement to the stock exchange was accompanied by a picture of two beautiful young women driving through the Iraqi desert badlands in a BFW jeep. The move into Iraq comes on the back of encouraging progress in the Middle Eastern region, particularly the Dubai store at Jumeirah Beach. For the six months ending 30 September 2010 BFW reported total unaudited system sales in NZ up 1 per cent to $13.4 million, while Australian unaudited system sales fell 6.6 per cent to NZ$1.1 million. Total unaudited worldwide system sales for the six months (including Middle East) increased 13 per cent to $16.3 million and an unaudited loss of $219,022 was reported, an improvement on the $296,000 loss made in the previous corresponding period. During the six-month period BFW focused predominantly on its New Zealand and the Middle Eastern markets. BFW’s mission is to provide wholesome gourmet burgers served fresh from its funky stores.

May 11

0.4

5

Apr 11

0.5

0.45

0.2

0.6

3

Oct 10

May 11

Apr 11

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Dec 01

Nov 10

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Aug 10

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0.8

6 5.5

0.8

3.5

Nov 10

0.9

0.3 0.25

1

4

Sep 10

1.0

7 6.5

1.2

4.5

Jul 10

1.1

Aug 10

1.2

5

Jun 10

1.3

GEN’s retail bond offer to the public has been well-received, due in part to the perception that the bonds are safe because GEN is a SOE, and also because the electricity industry is generally viewed as a defensive industry. Due to heavy demand, GEN has issued the full $225 million, plus $50 million in oversubscriptions.

The funds will partly be used to acquire two South Island hydro power stations, Tekapo A and B, which is expected to add significant renewable generation capacity.

The bond is a complex instrument - an unsecured, subordinated, redeemable, cumulative bond and ranks behind other bonds GEN has issued in the past. GEN’s bond should trade at a premium to face value initially, due to hot demand and its attractive interest rate, and the yield on the bond should quickly drop. Although the bonds have a final maturity date of 2041, bondholders have the option of exiting the investment by selling the bonds on the secondary market. Financially, GEN’s 5-year performance looks steady, however it did report a loss in 2009 after the inclusion of a $261 million revaluation loss, as asset values around the world fell in response to the GFC.

0.4 0.35

May May10 11

No chart available

May 10

Apr 11

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Mar 11

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Dec 01

Oct 10

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Aug 10

Jun 10

DJS has good brand power, public affection and a track record of profitability, and despite the closure and reopening of stores over the years, it has moved with the times and is currently reporting record results. In the six months ended 29 January 2011 DJS reported net profit of $105.7 million up 5.2 per cent.

This was the highest first half net profit result delivered by the company since relisting on the ASX in 1995. The interim dividend was also a record at 13 cents per share and was supported by DJS’s strong cash flows and robust balance sheet that sees long-term net debt of less than $100 million and low gearing of 8.9 per cent. As a retailer offering top end goods, DJS may see a dampening of consumer demand later in 2011 and into 2012 as interest rates rise in Australia, but the company is conservatively run, reporting steady results. DJS has reaffirmed its growth in net profit of between 5 per cent - 10 per cent for the full 2010-11 year, however it does expect profit to be at the lower end of this range. While offering low growth, its reliable and generous dividends may appeal to income investors.

Sep 10

1 Aug 10

0.9 Jul 10

3.8

Jun 10

2

May 10

1.0

May 10

n/a

Mar Nov11 10

4

Jan Sep11 10

1.3

Dec Aug01 10

5

Nov Jul10 10

1.4

Oct Jun10 10

8 7.5

4

Jun 10

Dec 01

n/a

0.5

3

May 10

Oct 10

n/a

0c

0.45

1.2

4.2

May 10

Nov 10

n/a

4.4

Apr 11

Nov 10

PE Ratio Dividend (cps)

6

1.5

4.6

May 11

Oct 10

-1c

Apr 11

5

Apr 11

3/2010A 3/2011F

12-month Chart to 17/05/11

4.8

May 11

Sep 10

Financial Year

$0.50/$0.30

EPS (cps)

12-month Chart to 17/05/11

Apr 11

Aug 10

May 10

6/2010A 6/2011F

EPS (cps)

$26.7 million

0.8

May 11

Apr 11

Mar 11

Financial Year

Feb 11

Year Rolling High/Low

Jan 11

$1.00/$1.00

34.5c

May 11

Sep 10

$0.50

0.9

Year Rolling High/Low

33.5c

I

Jul 10

ADVICE: SELL

1.0

Price Market Capitalisation

EPS (cps)

18

Aug 10

Jun 10

May 10

Apr 11

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

Nov 10

Sep 10

Jul 10

May 11

1.1

$275 million

Dec 01

5.2

7/2010A 7/2011F

Financial Year

1.2

Market Capitalisation Nov 10

$5.29/$4.10

1.3

$1.00

Oct 10

Year Rolling High/Low

5.4

Jul 10

$2.37 billion

Price

Jun 10

Market Capitalisation

(NZAX: BFW) was established in 1995 with its Ponsonby store in Auckland. BFW grew over the ensuing years to include stores in New Zealand, Australia and The Middle East and in July 2007 it listed its shares on the NZAX. BFW has announced further expansion into the Middle East with the sale of its Master License agreement for the rights to BurgerFuel Iraq.

ADVICE: ACCEPT OFFER

5.6

$4.55

4

3.8

Jul 10

6

May 10

Price

Burger Fuel Worldwide

Jun 10

6.2

5.8

ADVICE: HOLD

4.2

Genesis Energy (GEN) is a state owned enterprise (SOE) which resulted from the April 1999 split of the Electricity Corporation of New Zealand (ECNZ) into three state-owned enterprises – Genesis Energy, Mighty River Power and Meridian Energy.

GEN supplies 19 per cent of New Zealand’s electricity.

Sep 10

David Jones (ASX: DJS) is Australia’s oldest department store and was established in 1838 with the opening of its George Street store in Sydney. DJS has experienced growth in store numbers over the last 90 years and as a mature business, it anticipates only 5 new stores to be opened over the next 5 years.

Genesis Energy Bond Offer Aug 10

May 10

17

Aug 10

David Jones

Jun 10

18

ShareTalk

6

5 4.8

8 7.5

5

4.6

7

4

4.4

6.5 3

4.2

6

PE Ratio

17.4

14.8

PE Ratio

14.4

12.1

Dividend (cps)

9.5c

11c

Dividend (cps)

7.8c

9c

12-month Chart to 17/05/11 5

8

4.5

7.5

0.5

46c

49.5c

PE Ratio

17.8

16.5

Dividend (cps)

69.5c

22c

12-month Chart to 17/05/11 9

1.2

1

4 0.35

May 11

Apr 11

Feb 11

Mar 11

May 11

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0.4

Apr May11 11

May 11

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Dec Jan01 11

Nov Dec10 01

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May Jun10 10

0.2 May 10

May 11

May Apr1111

Apr Mar1111

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Jan Dec11 01 Apr 11

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5

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5

0.4

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6

6

0.6

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7

7

0.8

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8

1

8

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9

May 10

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0.2

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2.5

1.2

9

Sep 10 Oct 10

3

0.25

IPL appears well placed supplying two key industries with a positive outlook mining and agriculture. But the company carries a large amount of net debt which stands at $1.35 billion at the close of the first half ending 31 March 2011. During the first half IPL reported revenue from ordinary activities up 15 per cent to $1.42 billion and net profit jumped 25 per cent to $165.6 million. The first half result largely reflected improved global fertiliser prices, an improved performance from the North American Explosives business, adverse weather events in Australia and a higher AUD. Despite this IPL provided guidance that its earnings will be biased towards the second half of the year due to the seasonality of the Australian agriculture markets and the North American and Asia Pacific explosives markets. IPL is best viewed as a growth share due to its low dividend payout ratio policy that is between 20 per cent - 40 per cent of net profit. The company has recovered from its large capital raising in late 2008, but remains debt heavy - not suitable for conservative investors. Its Moranbah Ammonium Nitrate Project in Queensland is 75 per cent complete (expected beneficial operation by mid 2012).

Aug 10 Sep 10

3.5

0.3

5

Jul 10 Aug 10

0.4 0.35

5

May 10

4

Jun 10

Apr 11

May 10 11 May

Mar 11

Feb1111 May

May 11 Jan1111 Apr

Apr 11 Dec1101 Mar

Mar 11 Nov1110 Feb

Feb 11 Oct1110 Jan

Jan 11 Sep0110 Dec

Dec 01 Aug1010 Nov

Nov 10 Jul1010 Oct

ANG saw improved business conditions in the first half of 2010-11 and a good set of financial results were reported in the first half. Total revenue increased 38 per cent to $93.3 million, EBIT also rose 38 per cent to $15.2 million and net profit increased 31 per cent to $10.7 million. The interim dividend increased to 3c per share from 2c.

EPS rose 24 per cent to 15.1c. The first half net profit benefited from very low interest costs on ANG’s USD denominated debt however there were also benefits from a full six months contribution from its Chilean operations, and new revenue streams from recent acquisitions. ANG is not as large as some mining services firms, and looks to have more growth yet to come. Its mining company customers are placing orders with ANG that ensures a steady stream of work, and ANG expects conditions in the mining services sector to remain positive for the 2010-11 year and beyond. The company is fielding an increased number of enquiries and tenders and growing workloads across most operations of the group, and earnings in second half of the current year are expected to benefit from acquisitions completed in the first half.

4.5

0.45

5.5

2.5

5

0.5

6

3

0.2 Oct 10 Jun1010 Sep

Jul 10

6

0.25

Sep 10 May1010 Aug

Aug 10

Jun 10

Jul 10

May 10

1

Jun 10

May 10

2

0.8

7 0.6

0.3 0.9

0.8

6.5 3.5

Jun 10 Jul 10

3

Jun May 10 Sep10 10

4

1.0

7

May 10 Jun 10

1.1

May 10

Jun 10 Jun 10

6/2010A 6/2011F

EPS (cps)

May 11

May 11 Apr 11

Apr 11 Mar 11

Mar 11 Feb 11

Feb 11 Jan 11

Jan 11 Dec 01

Dec 01 Nov 10

0.2

$8.49/$5.41

8 0.4

May 10

Apr 11

May 11

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

Sep 10

Jul 10

Nov 10 Nov 10 Oct 10

Oct 10 Sep 10

Sep 10 Aug 10

Aug 10 Jul 10

Financial Year

12-month Chart to 17/05/11

0.45

Jul 10 Jun 10

Jun 10 May 10

May 10

Apr 11

32c

0.4

$593 million

2.5

May 11

Mar 11

May 11 Feb 11

Apr 11 Jan 11

Mar 11 Dec 01

Feb 11 Nov 10

Jan 11 Oct 10

Dec 01 Sep 10

27c

6

Aug 10

Jun 10

May 10

Apr 11

May 11

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

5 Year Rolling High/Low

9/2010A 9/2011F

0.6

$8.18

3

$4.72/$2.54

Financial Year

0.8

ADVICE: HOLD

1 Year Rolling High/Low

EPS (cps)

5

6.5

Market Capitalisation 5.5

33c

1.2

7

3.5

$6.31 billion

28c

1

7.5

4

Price6

EPS (cps)

1.3

4.5

2 Market Capitalisation

Oct 10 Jul 10

6/2010A 6/2011F

Jul 10

Jun 10

May 10

Apr 11

May 11

May 11

Mar 11

0.8

Apr 11

Mar 11

Jan 11

Feb 11

Feb 11

Dec 01

Jan 11

Dec 01

Oct 10

Nov 10

Nov 10

Sep 10

Oct 10

$5.08/$2.55

Sep 10

Year Rolling High/Low

1.2

8

$3.88

Sep 10 Jun 10

0.9

$350 million

Financial Year

Nov 10

Jul 10

3 Price

Market Capitalisation Jul 10

Aug 10

Jun 10

Jul 10

May 10

3.8

Jun 10

May 10

4

Aug 10

4.2

$4.88

Aug 10 May 10

Price

5

ADVICE: hold

4 1.0

Nov 10 Aug 10

ADVICE: GROWTH buy

4.4

5

ARB Corporation (ASX: ARP) is Australia’s largest designer, manufacturer and distributor of 4x4 and light commercial vehicle accessories. Founded in 1975, and listed on the ASX in 1987, ARP has an export network that covers over 100 countries around the world. Its manufacturing plants are located in Victoria, Australia and Thailand.

5

1.1

5.5

1

6

1.2

4.6

ARB Corporation

Incitec Pivot (ASX: IPL) is Australia’s largest supplier of fertilisers, supplying fertilisers to the agricultural and horticultural markets including cotton, dairy, sugar and grain industries. In June 2008 it acquired explosives company Dyno Nobel that provides commercial explosives products and blasting services to the mining industry.

1.3

4.8

Aug 10

Jun 10

May 10

Apr 11

May 11

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Jan 11

Feb 11

Dec 01

Oct 10

Nov 10

Sep 10

Jul 10

Aug 10

May 10

Jun 10

Austin Engineering (ASX: ANG) undertakes engineering and fabrication of products for the mining, aluminium and industrial sectors and its services include manufacturing, repair and support services. Formed in 1982 the company listed on the ASX in 2004 ands has since made a series of acquisitions to accelerate growth.

5

2

Incitec Pivot

3.8

Sep 10

Austin Engineering 4

ARP’s sales revenue has seen a compounded annual growth rate (CAGR) of 14.5 per cent over the past 10 years while its net profit CAGR over the same period has been equally impressive at 19.6 per cent. As both an exporter and importer of finished goods ARP has had to contend with a high AUD recently, which has improved its overall margins and profitability, as imported components and products from Asia and the US are cheaper to source. The strong AUD has provided ARP with a major benefit, and for the half year ending 31 December 2010 it achieved a net profit of $18 million, up 17.4 per cent as sales increased 17.2 per cent to $129 million. ARP finished the first half with a net cash balance of $17.5 million and no debt. Sales for the 9 months ending 31 March 2011 increased 14.8 per cent over the same period last year as ARP experienced growth in most of its Australian and international operations. ARP regards product development and R&D as a key component in maintaining its long-term competitive advantage, and R&D expenditure increased during the 9 months as new products were regularly released to the market. ARP expects to achieve reasonable growth for the year ending 30 June 2011.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

I

19

ShareTalk

Tanami Gold (ASX: TAM) owns the Western Tanami Operations in northern Western Australia and the recently acquired Central Tanami Project nearby. The Western Tanami Operations comprise two mining centres and these operations achieved record gold production of 47,960 ounces in the 2009-10 financial year.

7

ADVICE: SPECULATIVE BUY

$380 million

Price 6 5.5 Market Capitalisation

1

Year Rolling High/Low

$7.80/$5.95

5 Year Rolling High/Low

$216.6 million $1.22/$0.51 Apr 11

Jan 11

Oct 10

Nov 10

Financial Year

Sep 10

Jul 10

Aug 10

6/2010A 6/2011F

$0.83

Jun 10

Apr 11

May 11

Mar 11

Jan 11

Feb 11

Dec 01

Oct 10

Financial Year

Nov 10

Sep 10

Aug 10

Jul 10

$7.32

May 10

Market Capitalisation Jun 10

Price

2

May 10

3

May 11

6.5

Mar 11

ADVICE: hold

4

8

7.5

6/2010A 6/2011F

EPS (cps)

47c

46.4c

EPS (cps)

n/a

6c

PE Ratio

15.5

15.7

PE Ratio

n/a

13.8

Dividend (cps)

31c

31c

Dividend (cps)

0c

0c

12-month Chart to 17/05/11

12-month Chart to 17/05/11

8

5

1.2

7.5

4.5

1

7 4

0.8 6.5

EBO has provided little news to the market since the release of its interim results ending 31 December 2010. The sale off its scientific business provided shareholders with a one-off special dividend but its share price has since traded sideways, consolidating its position, after the company’s excellent financial results. EBO’s interim results showed more good progress with EBITDA from continuing operations climbing 9.7 per cent to $20.7 million, and net profit from continuing operations increasing 12.6 per cent to $11.4 million. The overall interim net profit was $19.8 million after including the one-off gain on the sale of the scientific business. EBO reported a very good operational performance from its Healthcare businesses, ongoing efficiency gains from its investment in new technology and record sales and earnings from the Pacific Islands business. The Pacific Islands results was driven by a major upgrade programme for EBO’s X-Ray and Ultrasound equipment. EBO’s shares have performed well for shareholders and dividends have been steadily increasing reflecting its ongoing growth. Looking at EBO’s interim profit, full year profit should be at least match the previous year’s result.

1.2

9

1

8

7

6

0.8

0.6

0.4

May 11

20

I

May 11

Apr 11 May 11

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Dec 01 Jan 11

Nov 10 Dec 01

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5

May 10

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0.2

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May 1111 Apr

Apr 1111 Mar

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Feb 1111 Jan

Jan 1101 Dec

Dec 0110 Nov

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0.2 AugJul 1010

0.4

5 Jul 1010 Jun

5.5

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3

2.5

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0.6

6

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Apr 11

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Mar 11

3.5

With a rising gold price investors are scrambling for ways to access the precious metal, and one way is to buy shares in a gold mining company. TAM is a junior producer that brings with it higher risk and the shares pay no dividends, while M&A activity in the gold sector could be a bonus. TAM reported gold production of 19,147 ounces for the half year ending 31 December 2010, which was sourced mainly from the Coyote mine.

For the quarter ending 31 March 2011 TAM reported gold production of 7,005 ounces and it also reported an increase in total gold resources for both Western and Central Tanami to 21.3 million tonnes at 3.0g/t for 2 million ounces gold. Gold sales for the quarter totalled 7,595 ounces at an average received price of A$1,388 per ounce, while TAM’s operations were also impacted by heavy rainfall during the quarter. TAM’s shares are highly speculative, but if the company ramps up its production and achieves analysts’ profit forecasts, the shares are currently trading on a PE ratio of 2x 2014’s forecast earnings.

Achieving analysts’ forecast profit targets is highly dependant on TAM’s achieving exploration success.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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21

Start-ups

Where Investing angels fear Want to invest in a start-up? It can be exciting and rewarding, but as SIMON HENDERY reports, being an “angel investor” takes certain skills and comes with unique responsibilities

W

hen IT developer and entrepreneur Milos Pejovic needed to raise capital to launch his new software company, Summa, he eventually found himself in front of a group in Auckland known as the Ice Angels.

This “club” of experienced investors put Pejovic, and his business plan, under the spotlight during a process that lasted longer than he would have liked.

“It was disruptive [but] it’s good to go through that process,” he says.

“It validated the business model.”

More importantly, it resulted in an injection of funds into the business, which provides “business intelligence” – software to analyse sales data – for the retail and hospitality sector.

Summa has used its latest round of angel investment to launch into the Australian market, so far with encouraging results.

Pejovic says part of Summa’s early success can be attributed to getting “smart money” into the company, in the form of the angel investors who have brought with them experience from a range of business disciplines, experiences, and professional contacts and networks.

One of Summa’s angels is businessman Brian Casey, who is chairman of the company’s board of directors, and is also chair of the Ice Angels group.

Casey agrees with Pejovic that the start-up is benefiting from the experience of its investors.

“We’ve got a really good board in terms of accounting, marketing, technical experience and international business experience,” Casey says.

“So we all put our skills in to give our backing to Milos.”

Angels

wings by http://nightgraue.deviantart.com

Successful angels don’t need to be hands-on business gurus, however. Many play a more passive role once they’ve decided to take a punt on a new business venture. Casey says he has shareholdings in other start-up venture that involve him having little in the way of week-by-week involvement.

According to the New Zealand Young Company Finance Report, angel investors ploughed more than $53 million into New Zealand start-up business ventures during 2010, up from $51million in 2009.

The report says there is a trend of increasing co-operation between groups of angel – of which there are about 15 around the country.

Of the investments made last year, 47 percent were “syndicated deals” involving different groups of investors. Back in 2006 only 27 percent of the $22 million worth of angel deals recorded were syndicated.

Of last year’s deals, 38 percent were structured as convertible loans to the start-up businesses, 43 percent as ordinary shares, and 19 per cent as preference shares.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Start-ups

to tread

10 reasons to become an angel Angels, as the name suggests, can be business saviours. Many prominent New Zealand businesses today thrive because they received the benefit of angel investment in their early days.

However, supporters of the concept of angel investment argue the rewards go both ways. Here are 10 reasons for becoming an angel.

1. Make money Angel investing can deliver superior investment returns.

2. Give something back Who can become an angel?

Colin McKinnon, the executive director of the Angel Association, says there is a perception that angel investors are Dragon’s Den types but the reality is that angels have a full range of background and life experience.

McKinnon says about a third of angel deals are done through the “formal” structure provided by the networks or clubs, with the other two-thirds being the likes of friends, family putting money into a business, or investors who prefer to work on their own.

An angel, or group of angels, will typically invest between $50,000 to $2 million into a company, and if the investment is made collaboratively as part of an angel club, each angel will generally contribute at least $25,000.

According to the NZ Young Company Finance Report, angel investors ploughed more than $53 million into start-upS in 2010 That’s not to say if you have $25,000 in life savings in the bank you should be considering launching a career as an angel investor.

“One of the key issues for any investor is to get diversity in your portfolio and it’s exactly the same for angel investors,” says McKinnon.

“People who are experienced in this space would only ever invest up to about 10 percent of their total investment portfolio [into start-ups].”

A sensible angel will also look for diversity within their angel investment portfolio – in other words they would not put all their angel money eggs into one start-up basket. Investing in about 10 different companies spreads risk.

“Somebody starting out and looking at angel investing should do like we all do – a fair bit of research to start with – and they have to understand that they need to build a portfolio in order to spread their risk,” he says.

“To build a portfolio they’re going to have a minimum investment of $25,000 in any one investment. So they

Angels have the chance to mentor entrepreneurs. Having founded and grown companies themselves, many angels have empathy for the extent to which entrepreneurs personally have to grow to lead their companies and to accomplish their visions. Angels often feel that if they had had similar coaching when they were building their own companies they would have reached greater heights or avoided some of their mistakes.

3. Deal flow Get early access to high potential deals.

4. Contribute to New Zealand Inc. Through the nurturing of our next big companies, supported by the capital and business acumen of angels.

5. Involvement without immersion Angels enjoy the adrenaline rush of emerging company volatility, but without the 80-hour weeks and the burden of ultimate responsibility for the company; Angels do not want to be full time venture capitalists. They want the flexibility of investing without the pressures of raising funds, managing investors’ expectations and optimising Internal Rates of Return (IRR).

6. Excitement, fun, passion Since most angels no longer have to work to support themselves, they invest because they enjoy investing in start-ups, and know that they can contribute their experience. And Angel investing is genuinely exciting.

7. Be part of a network/club/team Angels enjoy maintaining or building their personal networks with similarly interested people while helping the companies.

8. Keep up with trends Keep abreast of rapidly evolving technologies or markets and understand the potential opportunities.

9. Benefit all New Zealanders Some angels take great pride in the fact that the products developed by the companies in which they invest save lives, make people’s lives better or benefit the wider New Zealand economy.

10. Avoid retirement Get off the golf course and relive your glory days, back your ability to pick and nurture winners, and re-use your hard won wisdom. Angels keep their minds sharp through dealing with the business issues faced by the companies and gain all the benefits of the intellectual challenge.

Source: The Business of Angel Investing in New Zealand: A Guide Published by the New Zealand Venture Investment Fund.

On the web: www.nzvif.co.nz

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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23

Start-ups

need at least a quarter of a million dollars to invest in this and not have to worry about it if it never comes back.”

Applying the rule that no more than 10 percent of an investment portfolio should be in angel-style “alternative assets” implies that an angel should have total investments of $2.5 million.

“Those people who are parts of clubs or angel networks are some of the most experienced investors around and they’ve got involved with those networks because they realise that even though they may be very experienced corporate executives, when it comes to starting and growing young companies there is actually a lot they don’t know,” McKinnon says.

“That’s why we encourage people to join clubs – to learn how to do it properly. There’s a little bit of a kiwi approach that ‘I can do it on my own’ but experience would tend to suggest that those people who do it with others are more successful on the long run.”

He agrees with Casey that there is room for both the hands-on and hands-off style of angel.

“There are a whole range of angel behaviours, so someone who has something to offer to the company may end up on the board of the company,” he says.

“They may certainly be very close to the company advising them on their own area of expertise. Some of these people may have owned technology companies in the past for example so they have something to offer, through to those who are much more passive [for example] their mates may have invested in the company and they’re quite happy to tip some of their own money in, and they’re quite happy for other people to manage it and they’re just interested in the results.”

Networking Casey says he has enjoyed the networking opportunities offered up by a group like Ice Angels.

“You can go off and try and find a little company to buy or find a start-up to put some seed capital in and try and mentor and so on, but generally if you do that it will take up all your time and you’ll be limited to one or two that you could do on that basis,” he says.

“But the work that the Icehouse (the business incubator linked to the Ice Angels) and Ice Angels do means you get pre-screened deals and you get a chance to look at those, have pitches made, follow up meetings, being part of a due diligence team, where the work is shared around people who have various abilities and knowledge that is useful.

“At the end of that process you come up with a suggestion to the club. Interested parties then get together and negotiate the terms of the deal, and then raise the money.”

In the case of his investment into Summa, Casey was one of two Ice Angels who did the initial due diligence on the 24

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

business on behalf of the wider group.

“It’s a good, robust process, and you also have a great deal of fun doing this because you meet generally young people with tonnes of energy, they want to get ahead, they’re very, very bright – that’s a fantastic space to be in,” he says.

Hands-on In the case of angel investors who want to take a more hands-on approach to the businesses they are investing in, Casey says there are ways to manage that involvement, and the engagement the investor has with the company’s CEO, that will be in the best interest of the business.

Angels should only put their hands into aspects of the business where they have the experience or expertise to add value, he says.

“One of the things angel investors can do to enhance the value and growth of their companies is to keep on doing research in the background and having a good discourse with the CEO of the company,” he says.

“Generally these CEOs aren’t blessed with tonnes of resources so time is something that angel investors can give back, either with research or ideas or contacts they may have in the markets where you would envisage our product or service being provided in the near future.”

On the other side of the fence, Pejovic also has suggestions about what makes an effective relationship between investor and start-up CEO. “One thing that has worked well for us has been having open communication channels between myself and the investors. That’s critical in any start-up,” he says.

Pejovic says one aspect of Summa’s capital-raising through the Ice Angels has been that the deal involved a requirement for the company to provide its investors with relatively detailed quarterly financial reports, not dissimilar to the requirements placed on a listed public company. This provides a good discipline for him as CEO, he says. Another important aspect of the relationship between management and investors is that board meetings are held monthly.

“Make sure you keep your investors up to date,” Pejovic says.

“One of the most common issues with any start-up is that the founder becomes too bogged down with operational stuff and doesn’t have time to step back, put his strategic hat on and see the big picture,” he says.

“As a result they usually don’t update the other shareholders or directors with the information they need. It’s very important that you keep talking to your external investors because they keep reminding you about that strategic view and the big picture.”

Simon Hendery is a freelance business writer.

Email: Simon@ThinkPoints.com

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

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25

Housing

Homes

Thousands of new homes needed The head of a leading real estate firm says plans are afoot for more ‘compact’ homes to meet predicted housing shortfalls

M

oves to restrain the residential spread of greater Auckland within existing metropolitan limits will require a substantial shift in mindset of the city’s future population, according to a senior real estate industry professional.

Auckland City Council’s Auckland Unleashed discussion paper promotes a number of far-thinking proposals and planning guidelines for residential property expansion throughout the region. The document is currently being reviewed by dozens of Auckland-based community groups, residents associations, research analysts and property developers.

The plan highlights that estimates of Auckland’s housing shortfall over the next 20 years vary markedly between 12,000 and 90,000 dwellings.

Bayleys Real Estate managing director Mike Bayley believes the shortfall to be somewhere around the 50,000 – 60,000 mark for new dwellings.

Bayley says the style and design of new dwellings had already been established over the past 20 years – such as high-rise inner city apartment blocks, low rise terraced units in city-fringe suburbs or lifestyle blocks in the country.

“A common word that resonates throughout the Auckland plan is ‘compact’. That would tend to indicate the council is looking at intensifying residential land use as much as possible – going up rather than out,” he says.

“The next step, as outlined in the report, is to look at what locations best suit residential housing intensification,

Housing is set to become more ‘compact’ under Auckland Council’s plan for the next generation of inhabitants

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

redefining minimum land build sizes in the suburbs, and protecting the lifestyle blocks of those in country locations.

“More compact mid-rise apartment block style developments around the 140 square metre size for example would fit well around transportation hubs – such as Birkenhead, Milford, Browns Bay, Henderson, Te Atatu, Three Kings, Greenlane, Onehunga, Dannemora/FlatBush, and Glen Innes.

“The likes of Kingsland, Ellerslie and Mairangi Bay – already witnessing apartment developments – would see this trend continue.

“Concurrently, all of these areas are well served by existing infrastructure services - such as schools, shops, and social amenities - so there is minimal investment required to facilitate supporting higher population numbers.

“The thing all of these centres have in common is that they are developing their own ‘village’ style retail hearts.

For example, we are seeing the return to ‘local’ standalone butchers, cafes, florists, gourmet food stores, and of course the likes of banks. There is a strong return to local community retailing for convenience or recreational shopping.”

Bayley says the intensification of CBD fringe sites should not be confused with the stereotypical 50 – 70 square metre sized dwellings constructed around Auckland’s central commercial precincts – with one and two bedroom apartment tower blocks.

“These smaller inner-city dwellings have a place in the market – offering first-time property buyers a first step up on

Housing the home ownership ladder,” he says. “They are also attractive to investors who know they will always have a letting-market of students and young urban professionals wanting to live close to the centre of the city – with all the attractions that style of living offers.

“At the other end of the spectrum, I think that in the likes of Ponsonby, Mt Eden, Newmarket, Parnell, and Takapuna, we could well see the evolution of high-end terraced style residences – something along the lines of 400-500 square metre individual homes over three to four storeys each, or four to five story residences split between two homes.

“There are a number of these style developments evident already in these areas. However, I believe their prevalence will continue to grow in the short to medium-term as suitable sites are identified and built on, before eventually becoming too scarce as to make such developments commercially viable.”

Bayley says those homeowners and prospective buyers with an affinity toward the traditional Kiwi ‘quarter acre section’, or larger Victorian-style landholdings with gardens and greenery, would still be catered for in the Auckland of the future.

“There will always be buyers for larger homes who want big lawns and mature trees – and market forces will dictate that these holdings remain intact. What will happen though is those properties will become increasingly sought after as the population grows, and as a consequence, they will

continue to retain their ‘top end’ market values,” he says “Areas like Titirangi, Remuera, Devonport and the Eastern suburbs along the waterfront already have the reputation for having mature vegetation on substantial sections, with homes of distinction. There are no reasons to see why that reputation will change and move to infill housing.”

Bayley says he is heartened to see the council plan questioning uncontrolled land-size intensification in rural areas to protect the ‘green-environment’ nature and commercial production levels around townships such as Clevedon, Pukekohe, Huapai, Kumeu, Helensville.

“Lifestyle blocks should remain as the lungs of the city,” he says. “On the whole, lifestyle block land ownership works well in conjunction with its neighbours on productive rural land.

“However, there is scope for tasteful, high-end, small section size, residential developments in rural or outlying pockets that would allow people the affordable opportunity of enjoying the country lifestyle, but on smaller landholdings compared to lifestyle blocks.

“From a social perspective, city dwellers will always have a need to easily access the rolling hillside environment which the city’s greenbelt provides, and this is another reason to protect the special nature of these greater areas,” says Bayley.

“This underpins the council’s identification of horticulture, agriculture, and environmental tourism as long-term commercial opportunities in these areas.”

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www.mcmahoncommercial.co.nz New Zealand INVESTOR • June 2011 • www.irg.co.nz

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27

Property Trends

Steady as she goes It’s a mixed bag across the country, but the overall picture is one of longer selling times and a steadying of property prices

T

he national housing market recorded a lift in volumes during the month of April, with the seasonally adjusted number of sales up three per cent compared to March, according to figures from the Real Estate Institute (REINZ).

Across New Zealand 4,987 unconditional sales were reported for April as the market came off the traditional March peak.

The national median house price eased by $5,000 to $360,000 from March 2011, but was up $4,000 compared to April 2010.

“The April results reflect a steady market across New Zealand with signs of a lift in prices in the South Island, and Auckland prices still solid with limited supply,” says REINZ chief executive Helen O’Sullivan.

“Volumes across the country were stronger than we expected on a seasonally adjusted basis, with only Manawatu / Whanganui and Wellington showing negative volume movements. The results reflect some cautious optimism with no great outbreak of smiles but certainly fewer frowns.”

The Auckland region recorded a new all time high median house price in April of $479,500. Prices in the South Island also showed some strength in April 2011 compared with the previous month, with Otago recording a 9.3 per cent increase, Central Otago Lakes 8.2 per cent and Canterbury/Westland 6.9 per cent.

On a seasonally adjusted basis Central Otago Lakes and Otago recorded the strongest lifts in volumes in April compared to March 2011, although the 72 per cent lift in Canterbury/Westland’s volumes reflected both the extraordinarily low March and an easing of previous difficulties in obtaining insurance in this market.

“Auckland continues to lead the overall market in terms of price, with prices rising 2 per cent compared to March and up 2 per cent compared to April 2010. The Auckland region’s days to sell also dropped in April, down to 34 days, with the region continuing to lead the national statistics in terms of days to sell, reflecting the continued tightening conditions in the Auckland market.”

The national median ‘days to sell’ (measuring the number of days from listing date to unconditional date) eased from 41 days in March 2011 to 43 days in April 2011, compared with 40 days in April 2010. Auckland recorded the shortest days to sell at 34 days, reflecting the shortage of listings in this market, with Hawkes Bay next shortest at 41 days.

Across the country all regions other than Wellington, Southland and Nelson/Marlborough recorded a decrease in days to sell. Northland remained the region with the longest number of days to sell at 73 days; however, this is a 21-day improvement over the March 2011 measure of 94 days.

Jono Ingerson of QV.co.nz says property values have been

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

relatively stable for several months.

“Values are now 1.9 percent lower than the same time last year, and 5.8 percent below the market peak of late 2007,” he says.

“The levelling of nationwide values was initially due to a flattening of values in the Auckland market, but there are now increasing signs of values stabilising in many other areas also.

“In the Auckland area values have moved within a narrow band for most of the last 18 months. In recent months values have been slightly variable, but there is little evidence at this stage of values moving significantly up or down. Currently values in Auckland are 0.5 percent below the same time last year.”

He says property values in Hamilton are 3.5 percent below the same time last year, but that in recent months values appear to be flattening off.

According to data from QV, Tauranga values are 1.7 percent below last year, but also appear to be flattening in recent months. The Wellington area is 3.4 percent below last year, with most of this drop coming in 2010, while over the past six months values have been moving within a narrow band.

Values in Dunedin have dropped more over the past year than the other main centres, but may also be stabilising in recent months.

“There was an increase in sales activity in March and the first half of April, but this appears to have dropped away following the Easter and school holiday break. Sales activity typically tends to slow from now through until spring,” says Ingerson.

“Market sentiment remains patchy with some areas lacking quality listings to satisfy buyer demand, while other areas have little buyer demand despite plenty of houses for sale.

In general properties with desirable attributes, or those that represent good value, are still selling well.

“There has been a significant slowdown is sales activity in Christchurch since the February earthquake, and this lack of sales means that we have not generated an index for Christchurch. Local valuers in Christchurch are seeing plenty of interest in quality properties in relatively unaffected areas, and prices have been generally holding. There is still a great deal of uncertainty in the market, particularly driven by concerns over job security.”

Looking at the rural sector, data from REINZ shows there was a strong lift in rural sales across the country in April.

Overall, there were 290 farm sales in the three months to end of April compared with 190 sales in the three months to March 2011 and 267 sales in the three months to April 2010.

For the month of April alone there were 152 sales, the largest number in a single month since July 2008.

Property Trends

Farms Included in sales for the month of April were 24 dairy farms at an average sale value of $29,153 per hectare and $34 per kg of milk solids (MS). There was considerable variability in these numbers with the values ranging from $19 per kg of MS in Manawatu to $55 per kg of MS in Taranaki.

The average farm size was 177 hectares with a range of 52 hectares in Waikato to 559 hectares in Northland.

Grazing properties accounted for the largest number of sales with 48.3 per cent share of all sales over the three months.

Dairy properties accounted for 17.9 per cent, finishing properties 13.1 per cent and horticulture properties 9.7 per cent.

These four property types accounted for 89 per cent of all sales during the three months ended April 2011.

For the three months ended April 2011 the average sales price per hectare for dairy farms was $30,879 (52 properties) compared to $32,533 for the three months ended March 2011 (35 properties), and $34,941 (40 properties) for the three months ended April 2010. The average dairy farm size for the three months ended April 2011 was 113 hectares.

For the three months ended April 2011 the average sales price per hectare for finishing farms was $10,470 (38 properties) compared to $10,497 for the three months ended March 2011 (28 properties), and $12,660 (35 properties) for the three months ended April 2010. The average finishing farm size for the three months ended March 2011 was 150 hectares.

For the three months ended April 2011 the average sales price per hectare for grazing farms was $13,772 (140 properties) compared to $13,220 for the three months ended March

Annual Property Value Change/ Average Sales Price in New Zealand May 2010 to May 2011 Auckland Region -0.5%/$535,161

New Zealand Average -1.9%/$405,310

Whangarei -5.2%/$335,855

Hamilton -3.5%/$339,039

Tauranga -1.7%/$399,358

New Plymouth -4.5%/$324,678

Rotorua -1%/$269,989

Palmerston North -3.7%/$284,833

Napier -2.4%/$339,178

Christchurch N/A

Hastings -1.4%/$316,968 Wellington Region -3.4%/$468,675 Nelson -0.7%/$356,389

Queenstown -1.3%/$579,840

Invercargill -3.9%/$207,602

Source: QV.co.nz

Most of the increase in sales occurred in the South Island with Canterbury, Otago and Southland accounting for half the national increase in sales. There was a significant increase in sales of dairy support blocks in the South Island as farmers positioned themselves for winter grazing.

All regions, apart from Wellington, recorded an increase in sales between March and April. No regions reported a decrease in sales between March and April.

The number of farm sales for the year ended April 2011 was 918, up from 869 for the year ended March 2011 and higher than the 909 sales recorded for the year ended April 2010.

“There has been something of a turnaround in farm sales during April particularly with grazing and dairy support properties in the South Island,” says REINZ rural market spokesman Peter McDonald. “We have been noting rising confidence in the rural sector for some months now and along with higher commodity prices, this is now translating into greater confidence in buying farms, particularly in the dairy support sector.

“We are also seeing good levels of interest in rural properties coming from investors and it would seem that finance is becoming a little easier to obtain,” says McDonald. “The rural property market has been very quiet for the past two years but it is too early to tell whether this lift in activity is merely ‘catching up’ or the beginning of a more sustained trend in farm transactions.”

Dunedin -4.2%/$272,735

2011 (86 properties), and $14,116 (123 properties) for the three months ended April 2010. The average grazing farm size for the three months ended April 2011 was 97 hectares.

For the three months ended April 2011 the average sales price per hectare for horticulture farms was $130,806 (28 properties) compared to $128,077 for the three months ended March 2011 (20 properties), and $118,750 (37 properties) for the three months ended April 2010. The average horticulture farm size for the three months ended April 2011 was 5 hectares.

Lifestyle The lifestyle property market also saw a strong lift in volume in the three months to April 2011 although the median price eased back a little. All regions apart from West Coast saw an increase in sales, with Auckland recording the strongest increase. No regions saw a decrease in sales for April 2011.

The national median price was $450,000 for the three months to April 2011, down $5,000 compared to the three months to March 2011, and up $10,000 compared to the three months ended April 2010. Total sales completed for the three months to April 2011 were 1,135, up 189 (20.0 per cent) compared to the three months ended March 2011, but only down 32 (2.7 per cent) compared to the three months ended April 2010.

McDonald says: “The pattern with the lifestyle properties is consistent with the residential statistics released earlier this week, with an easing in prices compared to March but a lift in prices when compared to April last year.

“However, volumes across the board are stronger than we would have expected for April.”

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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29

Housing

Mortgages

Homes harder to get Banks are keen to lend and are offering discounts to would-be home-owners, but homes in the Auckland region remain the highest in the country

H

igher house prices in central Auckland worsened affordability in New Zealand’s biggest city to its worst level in six months in April, the Roost Home Loan Affordability report shows.

But affordability improved in most other areas, including Wellington, where affordability in the Kapiti Coast and Porirua was significantly better. Invercargill took back the title of the most affordable city in New Zealand from Wanganui, while Queenstown and central Auckland were again the least affordable.

Prices remain more buoyant in central Auckland and some of the coastal and mountain resort areas, reinforcing signs this year of a two-speed housing market where reduced supply and inward migration are boosting activity in the central suburbs of the biggest cities, while provincial and fringe city areas remain subdued.

First home buyer affordability worsened slightly in April because of a rise in cheaper house prices, but remains near its best levels in seven years because of low interest rates.

Bank executives have commented over the last month they are keen to resume lending growth. Roost mortgage brokers report some banks are offering discounted rates and establishment fees to some borrowers to encourage home lending.

“Banks are eager to lend and are able on occasion to go the extra step to make a loan happen,” says Rhonda Maxwell, spokeswoman for mortgage broking group Roost Home Loans.

Banks are offering loan to value ratios of up to 90 and 95 per cent and are discounting establishment and legal fees in competitive situations, Maxwell said.

“First home buyers are seeing the best loan affordability ratios in seven years, particularly in areas where house prices are off their peaks,” says Maxwell A young couple earning the median wage could afford to buy a first quartile priced house in April, with 21.4 per cent of their disposable income required to service an 80 per cent mortgage. This is up from 21.3 per cent in March and down from a June 2007 high of 35.1 per cent.

The national median house price fell to $360,000 from a record high $365,000 in March. The first quartile house price rose to $252,332 from NZ$250,000 in March. Prices outside of central Auckland, Auckland, Hamilton and the central Otago Lakes district were flat to lower.

The Roost Home Loan Affordability report measures affordability nationally and regionally for individual income earners and households, taking into account median house prices, interest rates and incomes.

The Roost Home Loan Affordability measure for all of

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New Zealand showed the proportion of a single median after tax income needed to service an 80 per cent mortgage on a median was 53.1 per cent in April from 54.0 per cent in March.

This was slightly worse than the 52.7 per cent seen in January, which was the best level since April 2004. The worst level of affordability was 83.4 per cent seen at the peak of the house price boom in March 2008 when 2 year mortgage rates were close to 10 per cent.

Affordability has been improving since December 2009 as house prices have flattened out and interest rates have fallen, the monthly measure calculated by interest.co.nz in association with Roost found.

Most home owners are still on fixed mortgages, but more new borrowers are choosing to float, given floating rates at around 5.75 per cent are cheaper than average longer term fixed rates at around 6.2 per cent. The Home Loan Affordability reports are now using the floating rate as most mortgages are now floating rather than fixed.

Affordability is difficult in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single median income, but homebuyers in smaller provincial cities will find home ownership much more affordable.

Households with two incomes are also in a stronger position, particularly those bidding for homes priced in the lower quartile.

Affordability for households with more than one income improved slightly because of the fall in interest rates. This measure of a ‘standard typical household’ found the proportion of after tax income needed to service the mortgage on a median house was 34.9 per cent at the end of April from 35.6 per cent in March.

This measure assumes one median male income, half a median female income aged 30-35 and a 5 year old child that receives Working-for-Families benefits. Any level over 40 per cent is considered unaffordable for a household, whereas any level closer to 30 per cent has coincided with increased buyer demand in the past.

The survey’s measure of a ‘standard first-home-buyer household’ found the proportion of after tax income needed to service the mortgage on a first quartile home fell to 21.4 per cent in April from 21.3 per cent in March.

This measure assumes a first home buyer household includes a median male income and a median female income aged 25-29 with no children. Any level over 30 per cent is considered unaffordable in the longer term for such a household, while any level closer to 20 per cent is seen as attractive and coinciding with strong demand.

Competitiveness

Slippery slope New Zealand’s global competitiveness continues to slide, according to the just released IMD World Competitiveness Yearbook

T

his year New Zealand slipped one place to rank 21st, out of 59 economies. In 2010, New Zealand slipped five places, from 15th to 20th.

Our ranking against Australia has, however, improved. Australia slipped four places this year from 5th to 9th.

There is obviously still a significant trans Tasman gap.

America clawed its way back to share first place with Hong Kong as the world’s two most competitive economies.

In 2010 the US slipped, for the first time, to 3rd place. Singapore has dropped from its top spot in 2010 to third as Hong Kong and the US moved past it.

The recovery of financial markets has pushed the US back to the top with Hong Kong, “slightly ahead of Singapore”, says professor Stephane Garelli, director of the IMD’s World Competitiveness Centre. “Sweden jumps to 4th place (from 6th last year) highlighting the competiveness of the Nordic model. Germany climbed six places from 16th to 10th, thanks to buoyant exports and a more flexible labour market.”

New Zealand’s performance slipped across all four competitive measures.

Its economic performance fell from 31 to 33, business efficiency dropped two places from 22 to 24, Government efficiency fell three places, from five to eight and the country’s infrastructure performance dropped one place to rank 23rd.

The cumulative result was a one-point drop in the country’s overall competitiveness performance.

The survey this year grew with the addition one new country, the United Arab Emirates that came in at 28th.

“The world of competitiveness is becoming more national,” says Garelli.

“World Competitiveness 2.0 is char-

acterised by a greater self-reliance of countries. It increasingly emphasises re-industrialisation, exports and a more critical look at delocalisation.

“This trend is triggered by the rise in commodity and transport prices and higher labour costs in emerging economies. National champions are favoured everywhere and borders resurface – again,” he says.

The 2011 IMD World Competitiveness Yearbook ranks countries on their ability to create and sustain enterprise competitiveness. The New Zealand data, compiled in partnership with the New Zealand Institute of Management, is disappointing but perhaps not surprising, according to NZIM Northern chief executive Kevin Gaunt, the Institute’s spokesperson on the survey.

IMD and NZIM identified five challenges facing New Zealand in 2011.

The first, recovery from the high costs (about $15 billion) of Canterbury’s February earthquake, is still having a significant impact on the country’s slow recovering economy.

The other four challenges, three of which remain the same as last year, included the need to: • Initiate long term growth by improving access to capital and world markets.

• Encourage savings, create incentives and boost productivity through taxation reform.

• Build a nationwide ultra-fast broadband network to underpin growth.

• Address education gaps and skills shortages in a limited population environment.

IMD this year ranked 59 economies on more than 300 criteria grouped into its four competitiveness factors of economic performance, government efficiency, business efficiency and infrastructure.

“Sadly, New Zealand’s international

competitiveness continues to decline,” says Gaunt. “We may have improved three places against Australia but that was not of our making – rather it was because their performance has slipped by a greater margin than ours.

“New Zealand’s business leadership still needs to get its collective head around the global changes that are taking place and to realise that there are trading opportunities out there, particularly in Asian markets.

“We must be more disciplined and committed in our approach to finding and developing them.

“The big issues for New Zealand are still our mediocre economic performance, our inability to attract investment funds, our corporate tax rates, unemployment legislation, the brain drain and the high cost of some communication services, such as mobile technology, is also an ongoing concern for New Zealand.

“Our senior managers still lack the kind of international experience they need to compete globally. And we still need to export more.

“Unfortunately, we seem disinclined to help our managers grow their global understanding and experiences. Enhancing New Zealand’s global competitiveness lies in a significantly changed mindset.

“Organisational leaders and the government need to develop more positive attitudes toward better and more sustained management, education and training, starting at the secondary school level and continuing through trade training.

“And the relationship between enhanced productivity and economic performance is linked directly to greater management capability. We now have the research – in last year’s Management Matters study - to verify that. What remains is to act on the findings of that research.”

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Insurance

How to survive the unknown

Cover

Diana Clement delves into the world of insurance to explain why we need it and how to avoid having a claim dismissed

I

nsurance is a simple concept. A company agrees to provide a guarantee of compensation for a specified loss in return for a premium.

The majority of people don’t suffer losses, meaning their money is lumped together and used to pay out claims for the people who do suffer losses (and make a successful claim).

Insurance company actuaries work out how likely a loss is to occur and calculates premiums to cover the potential losses, administration, and make a profit at the end.

The people and organisations that take out insurance do it as a form of risk management. It’s a hedge against something they can’t afford to happen. That might be their house burning down, or their business being interrupted.

Typically, insuring against risks is part of an overall financial plan – whether it’s a DIY one, or a plan written by a financial or insurance adviser.

Most people have insurance covering their houses, contents and motor vehicles. A disaster involving any one of these can be financially devastating.

People also need to cover their life and health. But we’ll talk about that next month.

History of insurance The concept of insurance dates back to ancient times and was used as far back as the 3rd century BC by Mediterranean merchants. They would pay a premium to lenders to cancel the loan if the shipment was stolen or lost at sea.

Fast-forward to the 21st century and there are many eventualities the average person would be ruined by if they occurred.

That may include your house being shaken to the ground by an earthquake, your pet needing a $10,000 operation, or your wedding being postponed due to the death of a close family member. These can all be insured against.

Types of insurance The most common type of insurance is “indemnity“ insurance, which covers people for their actual losses. If, for example, you buy a $2,499 camera that is expected to last 20 years and it is stolen after four years, you’d expect to get around $2,000

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

back – being the actual financial loss to you, not the cost of replacement.

There’s one proviso to this rule. That is if, after five years, a similar replacement camera cost $1,500, you’d only get 4/5ths of the value of the replacement price back.

Replacement cover Sometimes indemnity cover leaves people out of pocket. As a result, in recent years replacement insurance has become more common. This replaces the item in question or pays a sum equivalent to replacement cost, rather than giving you what your old item is worth second-hand.

That doesn’t always mean that you’ll get cash in hand to go out and buy the new items. The insurance company usually has the right to replace the item if it chooses.

If, for example, you lose your wedding ring while gardening or swimming, the insurance company can arrange for you to visit a specific jeweller and pick out a ring up to the value of the one you lost. You get an equivalent ring, but the insurer pays less than the full replacement price because it gets a discount.

Or, sometimes you will be sent to a manufacturing jeweller to have the ring replaced.

House and contents policies Most insurance companies offer two levels of cover for your home. The first covers you for “defined events” such as fires, explosions, lightning, storms, floods, earthquakes, eruptions, landslips, electrical burnouts, freezing, collisions, burglary and vandalism. This is viewed as basic cover.

A more comprehensive policy will cover you for any accidental damage or loss to your home. It’s well worth paying for this extra cover because disasters come in all forms and the wording “accidental damage” is pretty much a catch all.

The latter is the most common. If your house burned down and you were only given the indemnity value, it might be financially impossible to rebuild to the same standard, if at all.

Even so, you’re effectively left in charge of your own rebuild if there is a catastrophic event. Your insurer will bring in a claims assessor to ensure its costs are kept down. It’s up to you

Insurance

to ensure the build goes smoothly and is up to standard.

Contents insurance Contents policies vary greatly and it’s well worth reading the fine print, or getting an insurance broker to explain it to you.

You’ll usually be covered for either set circumstances, such as fire and water damage, or you’ll have a blanket “all risks” cover.

The latter is more expensive.

Even so, your “all risks” may only cover you for items on your property. What’s more, the goods that are covered must be your own personal items, not someone else’s or used for business purposes.

A more comprehensive policy will cover items taken out of the house – but only up to a certain value. You may well need to specify other items you take away from home such as expensive bicycles, jewellery or electronic equipment and pay an extra premium.

Excesses With most insurance policies you’ll have an excess to pay – typically a few hundred dollars. The excess stops you claiming for things you can afford to pay for yourself, and/or putting an administrative burden on the insurance company. What’s the point of paying a $10 claim if it takes $200 of insurance staff time and resources?

Common mistakes Where householders are often caught out by their insurance is with gradual damage. Most household policies exclude this totally. In some cases there is limited cover for it.

An example of gradual damage is a house where the floorboards are found to be rotten thanks to a leaking water pipe. The insurance company will argue this damage happened gradually and therefore wasn’t a single event.

The Insurance & Savings Ombudsman’s files are littered with complaints about insurance companies declining claims on this basis. In one case, the homeowner found her retaining wall was leaning because a neighbour had redirected the flow of his storm water discharge five years earlier.

The insurance company’s engineer reported: “there had been no sudden, accidental, or unforeseen event which had triggered the ‘failure’. The ‘failure’ per se, had been slow, gradual and progressive”.

The repairs for gradual damage can be very expensive indeed – especially if the damage is structural. Unless you have a policy covering this type of damage, you will have to foot the bill yourself.

Kiwis’ love of DIY sometimes gets them in trouble with their insurance companies. In one extreme case, according to the Insurance Council, the owner of a property dug out under his house intending on adding another floor. The house collapsed,

Souping up your car may make the insurance void come claim time. So be sure to declare any changes you make to your vehicle, even if it only involves changing the wheels or installing a super-duper sound system.

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Insurance

and the owner‘s insurance policy didn’t cover him, because he hadn’t told the insurance company about the renovations.

Non disclosure of renovation works is usually grounds to turn a claim down. In this case, the home owner should have taken out contract works insurance for the duration of the renovations.

When it comes to contents insurance, people also make common mistakes. For example, it’s not usually possible to claim for stolen or damaged items if the culprits were legally on your property. If your teenage children hold a party while you’re away and people invited to the house cause damage or steal items, you won’t be covered. The Ombudsman sees many cases such as this.

If you work from home once in a blue moon you may find that your computer isn’t covered – or the cover is very low when you come to claim – because of the “business use”.

Motor vehicle insurance In some countries it’s compulsory to have third party motor vehicle insurance. It’s not compulsory in New Zealand. But you’d be crazy not to have this type of cover as a minimum.

The car may only be worth few hundred or thousand dollars.

But it’s not your car you need to worry about. Every year thousands of drivers end up paying to repair the damage they caused to another car or building out of their own pocked.

A worst-case scenario is that you crash your old banger through a shop front or even derail the Overlander. That’s expensive.

Your choices with motor insurance are usually: fully comprehensive, third party, or third party, fire and theft. Fully comprehensive covers you for damage to your car or other vehicles and property. Third party only covers the damage to the other vehicle or property.

Like household insurance, you’re typically covered for the current market value of the car if you have comprehensive car insurance, not what you paid for it.

With some insurers you will pay premiums on the sum you say it’s worth, but only be paid out the current market value if it is written off. Others, such as AA Insurance, will agree a value for the car when you take out the policy and pay that amount if the vehicle is written off or stolen.

One big fishhook with car insurance is vehicle “modification”. If, for example, you add mag wheels or a souped up exhaust system, your car is viewed as “modified” and you’ll have to pay an increased premium. If you don’t tell your insurer that the vehicle has modifications – even if you’ve bought it that way – you may find that come claim time that your insurance policy in null and void.

Another issue you need to be very wary of is drinking and driving. You don’t need to be convicted of drink driving for

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• Financial Planning

Phone us or call in to see one of our advisors: Ross Sheerin, Andrew Parkinson and Jonathan York.

Phone: (07) 578 3863. 143 Durham Street, Tauranga Discolsure document available on request free of charge.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Insurance

your insurance company to refuse payment. Claims assessors can, and do decline, claims on the basis of the driver being under the influence of alcohol.

You may, for example, be breath tested hours after the crash and slip through. If it can be argued that you would have been under the influence at the time of the crash, you can say good-bye to the payout.

Making a claim In an ideal world, none of us would need to make claims.

Invariably we do. Most claims go through effortlessly and you’re paid out in a matter of days or weeks. But that’s not always the case.

When you make a claim direct to the insurance company or via your broker you will need to fill in a claim form. The information you provide verbally, in the claim form, and on your original insurance proposal form will be considered by a claims handler.

With that in mind, it’s important when filling out a proposal form or any other document for motor and other types of policies to ensure that everything you write is 100 per cent correct and doesn’t gloss over the truth.

Insurance companies are often defrauded and as a result they can be quite vigilant at checking that you are telling the truth. Claims handlers are trained to identify anomalies.

The Insurance Council of New Zealand has a running total on its website of the cost of fraud in our country. From January 1, 2011 to the middle of May, it was sitting at $90 million, and increasing by the hour.

An Insurance Council fraud survey in 2005, found 13 per

Anything you say when applying for insurance or making a claim will be noted down. Never be tempted to gloss over the truth with regard your claims history etc.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

cent of respondents said that insurance companies can easily afford to pay. Otherwise, law-abiding people don’t see it as a crime to make a claim for: • events/losses that didn’t happen • staged losses - for example arson or vehicle theft • and exaggerated claims The industry is fighting back in a number of ways including launching a fraud hotline (0800 372835) and by running an Insurance Claims Register, which is used to check if full disclosure of claims history has been made.

If your motorcycle or car was stolen or written off five years ago and one insurance company paid out, but you fail to mention this to a new insurer, a subsequent claim for an accident may be declined.

The reason for this is that the new insurance company would have charged a higher premium had it known about the earlier claim because you posed a higher risk.

If your claim is declined If your claim is declined, don’t give up. Talk to your broker if you have one, or make a formal complaint to the insurance company outlining why you believe the claim should be paid.

If this fails, you can take your complaint to the Ombudsman www.iombudsman.org.nz. Most insurance companies in New Zealand are members of the scheme and will abide by the ombudsman’s independent decision.

Next month: Health, travel and life insurance.

Diana Clement is a freelance business writer.

Email: Diana@Wordfusion.com

Precious metals

Good as gold

Metal

Michiel Van Ketts says gold is the perfect investment as fears grow of inflation driving down the value of paper currencies

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If you’re wondering where to put your money in these uncertain times, the answer’s easy - buy gold bullion bars. Investing in gold is one of the smartest ways to prosper in today’s economy and acquiring bullion bars is the best way to acquire the yellow metal.

Historically, gold has always been a winner in the wealth stakes. It’s the oldest form of financial exchange and has long stood the test of time. Whole civilizations have been built on gold and today it is more important than ever.

If you’re thinking about acquiring gold for your portfolio or just as security for the future, here are five great reasons why gold is such a fine investment.

Firstly, gold is the ultimate inflation buster. It’s no surprise that the price of gold soars when investors fear inflation.

With the world’s central banks inflating the economy by pumping money in, savvy economists are predicting inflation coming soon. And if that happens, the value of your cash holdings will slump so you clearly need to do something.

Including gold in your investment portfolio will go a long way towards hedging against inflation. And having those yellow bars at home will help you feel more secure in difficult times.

The next great advantage of gold is its liquidity. You’ll never have a problem either buying or selling your gold. The gold market is global with 24-hour trading and a vast range of buyers ranging from the jewellery sector to financial institutions to industrial manufacturers. This means you’re always assured of a market for your gold wherever you are.

Demand for gold is rising while at the same time, world gold production is flat or falling meaning a limited supply.

Add to this the perennial demand from investors and jewellery makers and you have a commodity that will never lose its value.

However to ensure this liquidity, you need to acquire gold of certified quality and quantity such as gold bullion bars.

If you obtain gold in the form of jewellery, the actual value of the gold will be far less than you paid as a certain sum is factored in for design and craftsmanship. Buy gold bullion bars or coins and get all the security of a property investment coupled with perfect liquidity.

Allied to this liquidity is the fact that the gold market is a transparent one with clear prices always available. The gold

price is fixed twice a day at 10.30 am and 3pm at the London offices of N M Rothschild by the five main Bullion Houses - NM Rothschild, HSBC, Deutsche Bank, ScotiaMocatta and Societe Generale. This means you can always find out the current price of gold online or in the newspaper.

In addition, buying gold bullion bars is suitable for investors of all types. Invest grade bullion bars come in .999 fine gold come in sizes ranging from 2.5 grams up to one kilo.

Sizes are available for all budgets and can be incorporated into all types of portfolios. Another great incentive is that there is no sales tax on investment gold coins or gold bullion bars.

Finally, gold is universally accepted as a medium of exchange. Wherever you go in the world, gold is accepted as a medium of value. Whether in the souks of Bahrain or the boulevards of Paris, you can find someone who will accept your gold at its true value.

You can invest in gold in a variety of ways such as mining shares, gold futures, exchange-traded funds and various other derivative forms. Gold coins are another option but they tend to incur higher premiums. This means that when you come to sell them, you get less back.

But by acquiring the real yellow metal in the form of gold bullion bars, you’ll have total liquidity as well as the aesthetic pleasure of owning an object of classic beauty.

If you want to buy gold bullion you can simply order online or over the telephone and the bullion bars will be delivered to your home and you’ll be a proud investor in gold. Just make sure you have somewhere to securely store it.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Wealth

Study the rich listers By looking at where the world’s wealthiest people invest their cash, anyone can work out where the smart money’s going, writes Tony Sagami

Y

ou’re probably reading this because you want to make money, and you’re probably not a millionaire… yet.

One of the best ways to become rich is to copy the most successful people in the world by becoming a student of studying success.

One publication that knows the millionaire/billionaire market better than anybody else is Forbes magazine. Every year, Forbes publishes a list of the 400 wealthiest Americans.

This year, Bill Gates and Warren Buffet top the list with a net worth of US$54 and US$45 billion, respectively.

Forbes also lists the world’s billionaires. There are 1,210 billionaires this year, up from 1,011 in 2010.

What I find interesting is the geography of where those billionaires live – it is changing. The United States continues to dominate, with 396 billionaires, but Asia is a close second with 332.

While the United States has more billionaires than any country in the world, I am sure you can guess which country comes second. Of course, it’s China.

With 72 billionaires – that’s up from 28 a year earlier – China has the second number of billionaires in the world.

The country is creating more wealth than any other part of the world.

Here’s a list of the China’s top billionaires: • 1: Li Ka-Shing, the Warren Buffet of China, is worth US$26 billion. Through Hutchison Whampoa and Cheung Kong Holdings, he is the world’s largest operator of container terminals and the world’s largest health and beauty retailer.

His companies make up 15 per cent of the total market capitalization of the Hong Kong Stock Exchange.

• 2: Thomas Kwok is the managing director of Sun Hung Kai Properties, the largest property developer in Hong Kong.

• 3: Lee Shau Kee, worth US$19 billion, is a property developer and majority owner of Henderson Land Development, a property conglomerate with interests in properties, hotels, energy and internet services.

• 4: Robin Li is the founder of Baidu.com, the ‘Google’ of China. With a net worth of US$9 billion. He is the richest man in mainland China.

• 5: Cheng Yu-tung is a Hong Kong billionaire and owner of New World Development, one of Hong Kong’s largest conglomerates, with interests in real estate, infrastructure and hotels.

Most people outside Chiuna have never heard of the Hurun Wealth Report. The Hurun rich list is the Chinese equivalent of the Forbes list.

Founded in 2009 by Rupert Hoogewerf in Shanghai, the Hurun Wealth Report tracks the richest people in China and 38

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

releases the results annually.

The recently published list shows that China has 960,000 millionaires. That is a 9.7 per cent increase in the number of millionaires from last year and a 135,000 increase from the 825,000 millionaires two years ago.

Of those 960,000 wealthy Chinese, 60,000 are considered super rich with 100 million yuan (US$15 million) or more in wealth.

What is more interesting than the number of millionaires is who they are: The average age of the Chinese millionaire is 39 years, which is 15 years younger than those in the United States and Europe.

• 30 per cent of the Chinese millionaires are women.

• The super-rich Chinese with a net worth of at least 100 million yuan are bunched in three cities: Beijing with 10,000, Guangdong province with 9,000 and Shanghai with 7,800.

• The most useful information is how those Chinese millionaires got their money: • 55 per cent of Chinese millionaires got their wealth from private businesses, • 20 per cent are property investors, • 15 per cent got their wealth from the stock market, and • 10 per cent are high-income executives.

You, too, can participate in that phenomenal wealth creation by investing the same way and including a heavy dose of Chinese stocks in your portfolio.

You should have noticed that real estate is the source of many of Chinese richest. Chinese real estate has been on fire.

In 2010, housing prices went up in the country by 13.7 per cent, and luxury property prices rose even faster.

There are two Chinese real estate stocks listed on the NYSE: E-House (EJ), which is the Century 21 of China, and Guggenheim China Real Estate (TAO), an exchange traded fund that invests in Chinese real estate companies.

If you just wanted to add some broad exposure to the booming Chinese economy, here are four ETFs to look at: iShares FTSE/Xinhua China 25 Index ETF (FXI) owns the 25 largest and most liquid Chinese companies, so think of this as investing in the Dow Jones 30 Industrials of China.

The top 10 holdings make up more than 60 per cent of the fund so you will be heavily weighted with China Mobile, China Construction Bank, Industrial and Commercial Bank of China, China Life Insurance, and Bank of China.

SPDR S&P China (GXC) is managed by State Street and is also a large-cap fund with emphasis on financials as well.

PowerShares Golden Dragon Halter USX China (PGJ), isn’t as heavily weighted toward large-cap financials. It owns

Wealth

Wealth a lot of energy (21 per cent), technology (18 per cent), and telecommunications (16 per cent).

Claymore/AlphaShares China All Cap (YAO) focuses on small caps.

As always, you need to do your homework and decide whether any of these securities are appropriate for your personal situation and financial goals. And as you know, timing is everything when it comes to investing, so you should wait for these to go on sale before jumping in.

Seek professional expert advice before making any investment decisions.

Tony Sagami is the editor of Asia Stock Alert, a monthly newsletter with a mission to help you profit from booming Asian economies with companies the Wall Street crowd ignores.

One of the most experienced research analysts in the industry, Tony follows a “boots-on-the-ground” approach for getting his market insights by travelling throughout Asia.

World rich list Ranking Country

Population Billionaires

1

United States

307 million

396

2

China

1.3 billion

72

3

Russia

142 million

58

4

India

1.1 billion

47

5

Germany

82 million

43

6

United Kingdom 62 million

42

7

Hong Kong

7 million

29

8

Switzerland

7.7 million

27

9

Japan

127 million

23

10

Canada

32 million

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Ethical Investing

Ethics

Clean green investments Dr Robert Howell says it is time for investors to pull away from investments linked to coal-based industries and search out environmentally-friendly energy operators

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ames Hansen is the director of NASA’s Goddard Institute for Space Studies in New York. He was the first scientist to warn the US Congress of the dangers of climate change, and is now considered one of the leading scientific authorities on the subject.

He is quite clear about the dangers of coal. His advice: coal-fired power stations are death factories – close them. He says coal is the single greatest threat to civilisation and all life on our planet.

The amount of carbon dioxide in the atmosphere has already risen to a dangerous level. The pre-industrial carbon dioxide amount was 280 parts per million (ppm). Humans, by burning coal, oil and gas, have increased this to 392 ppm; it continues to grow by about two ppm a year.

Hansen says the greatest danger hanging over our children and grandchildren is the initiation of changes that will be irreversible on any time scale we can imagine.

If coastal ice shelves buttressing the west Antarctic ice sheet continue to disintegrate, the sheet could disgorge into the ocean, raising sea levels by several metres in a century.

Such rates of sea level change have occurred many times in Earth’s history, in response to global warming rates no higher than those of the past 30 years. Almost half of the world’s great cities are located on coastlines.

If we burn all fossil fuels, we will destroy the planet we know. Carbon dioxide would increase to 500 ppm or more.

We would set the planet on a course to an ice-free state, with sea levels 75 metres higher than present. Climatic disasters would continually occur.

But if we cut off the largest source of carbon dioxide – coal – it will be practical to bring carbon dioxide back to 350 ppm, lower still if we improve agricultural and forestry practices, increasing carbon storage in trees and soil.

According to Hansen, coal is not only the largest fossil fuel reservoir of carbon dioxide, it is the dirtiest fuel. Coal is polluting the world’s oceans and streams with mercury, arsenic and other dangerous chemicals.

The dirtiest trick that governments play on their citizens is the pretence that they are working on “clean coal” or that they will build power plants that are “capture-ready” in case technology is ever developed to capture all pollutants.

In New Zealand, a United Nations review has found a large credibility gap between New Zealand’s target for reducing greenhouse gas emissions by 2020 and the measures in place to achieve it.

“It could find no plan for two-thirds or more of what is required to meet the target,” says the Sustainability Council’s executive director, Simon Terry.

The UN review voices ‘great concern’ about whether New Zealand will put measures in place in time to do so.

Low-grade coal According to former MP Jeanette Fitzsimons, New Zealand’s position will be even worse if Solid Energy’s plans to use lignite, or low-grade coal, to produce briquettes for local use and export. The state-owned coal company Solid Energy has also developed plans to use the lignite for fertiliser and diesel.

Non-renewable energy 40

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Ethical Investing

The company wants to build a pilot plant in 2011 to make briquettes; taking the water out of lignite so it burns cleaner and hotter (but with no less carbon emissions) for Fonterra’s milk-processing plants and for export. The pilot plant will produce 100,000 tonnes a year of briquettes.

The full-scale plant would be many times larger. Solid Energy intends to build a plant to convert coal to crude oil and/or diesel. They claim it could produce all New Zealand’s diesel this way.

Depending on the technology used, it is likely to double the carbon emissions of every litre of diesel compared with petroleum-sourced fuel. They also want to use coal to produce urea, an artificial nitrogen fertiliser.

Although Fitszimons is best known as a former co-leader of the Green Party, it is not well recognised that she is one

of New Zealand’s authorities in the climate change field. She says New Zealand is heading in the opposite direction of what is needed.

In addition to oil and gas exploration, there are welladvanced plans to use more than three billion tonnes of economically recoverable lignite from three fields in Southland. These plans are big, and New Zealanders are hardly aware of them.

Fitzsimons says Solid Energy state all the emissions will be “offset”. But increasing the amount of biological carbon that cycles between atmosphere and plants can’t compensate for putting more fossil carbon into the system, even if our ETS scheme pretends it can.

It is sometimes said that New Zealand need not worry about our emissions because we are such a small player. The three countries most responsible, per capita, for filling the air with carbon dioxide from fossil fuels is the UK, the US and Germany, in that order.

Yet, we have participated in many international and regional wars because – even if we are small – we are part of an international community and everyone should play a part.

On a more selfish level, if we do not play our part, we will find it increasingly difficult to have access to key markets such as the EU and Asia.

Renewable energy

Green energy

Professor Ralph Sims is a New Zealander with an international reputation in the renewable energy field, being professor of sustainable energy, Massey University, and the director, Centre for Energy Research, having returned from Paris after working with the International Energy Agency.

He says that for medium to large electricity generation, geothermal is a safe bet. More wind-generated power is coming on stream too. Small hydro sites are numerous, but ideally we need low-head turbines for run-of-river.

Some good micro turbine systems are in place though.

Visit the New Zealand-based renewable energy store and consultancy, Ecoinnovation, for examples.

Ocean energy is still at the R&D stage so it is high risk as a vehicle for investment. Solar thermal at domestic level and biomass heat for industrial and commercial building sectors must surely expand (using the good resources from forest residues mostly). Wastes to energy (biogas, landfill gas, MSW incineration) are all possible.

Biofuels are tricky. In Sims’ view, advanced fuels from ligno-cellulose are still a long way off. Food crops (such as Solid Energy using oilseed rape for bio diesel) are not viable New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Ethical Investing

even at $100+/barrel oil.

Electric vehicles are bound to come (but probably imported) though the locally-made Yike Bike is a good concept that is being supported by New Zealand venture capital firms Pioneer Capital Partners and K1W1 as well as the New Zealand Foundation back it for Research, Science and Technology.

One key option might be supporting community-owned heat and power schemes – rather than having the SOEs moving in and developing a site. Great options here are just starting to gain momentum. Other options could be novel mobility systems, so no need for everyone to own a car.

Warming up In summary, the science on climate change is clear. Our investments in coal, oil and gas have contributed to a world that will be 49ºC+ warmer with dire consequences for future generations. We need to invest in renewable energy, and away from coal.

In New Zealand and Australia there are a number of options. However, as with the several of the underlying technologies, these are not without specific investment risks.

According to Mark Bytheway from SIRIS in Melbourne, investors can choose direct investment or managed investment funds. However, there are limited direct renewable energy investment opportunities in New Zealand and Australia. There are approximately 20 “single purpose” renewable energy companies – those that only produce renewable energy.

But the recent listings of coal seam methane and geothermal companies have expanded this.

The risk to investors here is not just “picking the (winning) technology” but also that these companies are developing

and so are small in market capitalisation. They often reflect companies with management and governance “challenges”.

Alternatively, several of the larger energy companies offer some exposure, through their respective renewable energy assets e.g. Contact Energy, AGL and Origin.

For managed investment funds, there are several clean tech funds investing in local/regional renewable energy companies and/or directly into projects (e.g. Viridis, Arkx).

Again, the challenge for these funds is the size of the investible pool of renewable energy companies and the investment quality of many of these companies.

For investors inclined towards international investments, there is a much wider choice of both direct investments and managed funds, reflecting larger renewable energy markets that are often underwritten by much more supportive regulatory and pricing structures.

Dr Robert Howell is chair, Council for Socially Responsible Investment.

On the web www.csri.org.nz • www.ecoinnovation.co.nz • www.yikebike.com

References • Mark Bytheway, personal communication.

• Brian Fallow. UN Finds NZ Credibility Gap on Emissions. NZ Herald April 19 2011.

• Jeanette Fitzsimons. Keep coal in the hole, or green efforts will remain futile. NZ Herald, Nov 2 2010.

• James Hansen http://www.guardian.co.uk/commentisfree/2009/ feb/15/james-hansen-power-plants-coal • Oxford Climate Conference http://www.eci.ox.ac.uk/4degrees/ media.php • Ralph Sims, personal communication.

The future of travel?

42

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Economy

Growing pains

Deficit

Dr Amapola Generosa of Berl Economics says New Zealand will face a time of slow expansion until the rebuilding of Christchurch gets underway

T

he second earthquake to hit Christchurch, and the crisis faced by Japan (New Zealand’s fourthlargest trading partner), has knocked out New Zealand’s slim prospects for a faster-paced growth economic growth in 2011.

A general gathering of momentum focussed on the Christchurch re-build underpins our forecast for a recovery through calendar 2012.

Gross domestic product is likely to see a contraction in the year to March 2012, dropping by 0.9 per cent; compared to a 0.4 per cent expansion in the year to March 2011. The economy is set to gain some momentum in the year to March 2013, and push towards higher growth in the year to March 2014.

The overall lower growth forecast is based on general uncertainty in early 2011, compounded by domestic and international tragedies, subdued export revenue growth, weak domestic spending, and restrained government expenditure.

Looking at the detail, New Zealand had a slow expansion of production toward the final quarter of 2010. On a year on year basis, GDP was up 1.5 per cent in the year to December 2010. This is more solid than the 2.1 per cent decline in the year to December 2009, but is noticeably lower than the 2.8 per cent growth seen over the 2007 calendar year. Indeed, despite the growth in the latest year, overall economic activity for 2010 (as measured by GDP) was below that of three years earlier.

GDP growth in 2010 fell short of many commentators’ expectations largely due to weak domestic demand.

This weak growth performance was well entrenched over the middle of 2010 and preceded the September earthquakes, which exacerbated the already sluggish growth of economy. The economy appears to have lost momentum following premature suggestions of an export-led

recovery early this year.

The increase in production in most sectors has been weak compared to the December quarter in the previous year. New Zealand has to channel much of its resources to reconstruction and rebuilding damaged infrastructure, and to lift the confidence of the household and business sectors.

On the expenditure side, domestic spending is still weak as households and businesses remain cautious. Retail sales values for the December 2010 quarter were flat, down 0.1 per cent compared with the September 2010 quarter. Moreover, consumer confidence slumped to its lowest in the past five quarters, slipping to 108.3 points in the December 2010 from 120.3 points in the September 2009 quarter.

Government expenditure also declined as it looked to cut costs in an effort to extricate itself from a credit watch list.

Government investment is down 9.6 per cent on a year ago, while consumption growth slipped from 2.2 per cent in the September quarter to 0.3 per cent in the December 2010 quarter. Given these trends and the ballooning fiscal deficit, it is clear that government will not be the driver of any recovery.

With growth in household spending looking less optimistic, much is expected on the business and external sectors of the economy. Business confidence in New Zealand has resumed an upward trend, increasing by 8 per cent in the December quarter of 2010. This boost in the sector was led by the agricultural sector, which has benefited from soaring global commodity prices of dairy products.

But, with the wake of crisis in Japan, a major importer of New Zealand’s cheese, milk and casein, as well as two of the top export earners of New Zealand, forestry and aluminium, we expect export volumes in the next months to wane.

Export volumes might fall, but relatively high export prices and stable world demand are likely to hold up export receipts.

The residential buildings aspect is likely to be a positive contributor over the next year as rebuilding efforts take place in Christchurch.

Faster-paced growth depends on a multitude of factors and the economy’s ability to manage the risks to global growth and export prices.

The challenge, therefore, is how various sectors involved in the whole process can promptly, efficiently and effectively use the resources to get recovery in the right track.

Dr Amapola Generosa is an Economist at Berl.

Further information on BERL can be found at www.berl.co.nz

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Non-bank lenders

Risks and reward Non-bank lenders that provide investment options will always have a place in the market, writes Kirk Hope

A

number of highly critical commentators have, in a quite self-interested way, written off the non-bank sector after the 63 finance company failures.

I say self-interested because these commentators are generally selling a substitute investment, or have other income generating interests at stake. So, what is the future of non-bank finance in New Zealand? In order to answer that question it is worthwhile looking at a little bit of history.

The history of banking and the history of the non-bank sector in New Zealand are indelibly intertwined. For the period 1965 to1982, assets and liabilities of finance companies grew from $47 million to $2.2 billion, and from $43 million to $2.1 billion for the banks – 20 per cent year on year growth.

The non-bank sector was primarily involved in the business that was outside the scope of the private savings and trustee banks of the era – that is they provided motor vehicle, and consumer hire-purchase finance, property investment, and the financing of agricultural and industrial machinery and equipment.

By 1982, there were 24 companies that accounted for well over 90 per cent of the total finance company assets. The relatively rapid growth experienced by finance companies was a combination of the effects of controls on the other major financial institutions (trading and savings banks) and a willingness to pursue business by offering attractive rates of return to investors, and tailoring investment opportunities to the needs of the market.

What is clear from this period, is that the risk-reward equation was calculated in a way to bring in investors. This is an important point, because there is a key reason why that equation appears to have unravelled during the last six or seven years, that will be discussed further below.

From the period 1983 to 1998 the story

changed drastically. Non-bank lending and deposit taking only doubled between 1983, and 1998, equating to around a 6.5 per cent growth rate. This is mainly due to the changes that banks made in their businesses after financial deregulation occurred, and which led to much tougher competition in the deposit market. Banks also entered directly into the lending markets that finance companies had previously dominated.

Another key factor during the period from 1989 to around 1998 was that the economy was relatively flat. However, the primary finance company players remained relatively constant – despite the significant changes in the market.

From 1998 things began to change again in the both the bank and non-bank sectors. The two primary reasons for this – and the key contributors to the breakdown in the risk reward-equation for finance company investors – were a demographic retirement bubble, and historically low international interest rates.

This occurred on a global scale and was simply mirrored in New Zealand, that is baby boomers moving into retirement who were looking for better rates of return. Global markets were flooded with liquidity looking for a home, but more importantly, the best returns possible.

Large banks wanted access to this liquidity because it was far cheaper than domestic funding through retail deposits, and so they became heavily involved in offshore borrowing.

By 2008 up to 40 per cent of large banks’ liabilities were sourced from offshore investors – usually on very short terms. This funding grew from $50 billion in 2000, peaking at $135 billion in 2008.

During this period, there were no regulatory limitations on the extent of large bank’s offshore borrowings.

What did this mean for finance companies? Because New Zealand retiree investors were also seeking higher rates of return, finance companies offering rates

often only 1 or 2 per cent above bank rates were easily able to tap into a ready market.

To demonstrate the extent of this shift, between 1999 and 2006 finance company deposits more than trebled, and business was highly profitable due to strong lending margins.

The problem was that the flood of liquidity led to an unravelling of the risk-reward for investors. Money placed in low interest-baring deposit plans was sometimes lent to high-risk businesses, and the risks transferred to the depositors.

What of the future? In 2009 the Reserve Bank introduced a macro prudential tool called the ‘core funding ratio’ which requires banks to move toward sourcing 75 per cent of liabilities from more stable funding sources such as long term wholesale debt and, more importantly, domestic retail deposits.

Over the course of 2009 to 2010, banks sought to attract a greater level of domestic retail deposits by offering much higher interest rates. This in turn has led to a return to a more competitive environment for deposits for finance companies.

Similarly, as Reserve Bank rules for non-bank deposit takers begin to bite, it may be that we see some of those firms exit the deposit taking market, and choose to fund themselves through wholesale rather than retail funding.

The sector itself has returned to relatively historical norms in terms of participant numbers, and is populated by companies that have been in the market for a long time.

History tells us something significant about the sector, and that is that there will always be a market for the type of asset and consumer lending that finance companies provide, and that banks do not have an interest in.

Kirk Hope is the executive director of the Financial Services Federation – an industry association for financiers that was established in 1965.

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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45

Fund

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

Diversified Balanced PIEs  AMP Dyn Markets Balanced Fund 1.2923 6.77 1.90 3.30 3.43  AMP Dyn Markets Balanced Trust 1.2827 6.71 1.73 2.68 3.78  AMP Lifesteps Moderate Balanced Fund 1.2764 6.38 2.28 0.82 8.89 AMP Lifesteps Moderate Fund 1.3308 5.97 3.64 4.27 5.35  AMP Select Balanced Fund 1.2478 6.70 1.84 2.68 56.61  AMP Select Balanced Trust 1.2082 6.73 1.83 2.29 33.58  ANZ Balanced Growth Fund* 1.9933 8.41 3.03 2.73 14.48  ANZ Investment Funds Balanced Fund 1.0655 7.86 6.24 ANZ Retirement Plan Balanced 2.2890 7.83 3.49 3.12 26.48  ASB EasyFund Balanced 1.0130 8.19 2.48 74.86  ASB EasyFund Moderate 1.0884 7.17 3.64 83.50   Asteron Managed Fund* 10.2227 6.00 1.45 1.35 23.11  Asteron RSP Mgd Neutral* 2.0213 5.94 1.09 1.00 15.40  Asteron SP2000 Balanced Fund* 1.6298 6.00 0.26 0.16 7.70  Asteron Superplan Balanced Fund* 2.1444 5.28 -0.32 -0.43 67.13 Craigs Balanced Fund 1.1561 8.78 4.55 15.77  Craigs Balanced SRI Fund 1.1674 5.84 4.08 2.39  Diversified Wealth Management Balanced Fund 1.1731 6.39 5.47 4.99 22.20  Milford Balanced Fund 1.0646 6.89 5.90 OnePath Balanced Fund 1.7864 8.95 3.93 3.32 25.73  Public Trust Balanced Fund* 1.4535 6.06 3.89 5.26  Public Trust Balanced Growth Fund 1.2552 5.99 2.32 13.31  Public Trust Conservative Fund 1.2917 5.81 3.95 17.18   Public Trust Moderate Growth Fund 1.2711 5.68 3.31 8.97 SIL 60s Plus Super Balanced Plus Fund 2.5165 9.49 3.96 3.22 22.39  SIL Personal Retirement Balanced Plus Fund 2.5165 9.49 3.96 3.22 75.81  Thoroughbred Balanced Flexible 1.7818 8.91 3.80 3.65 21.33  Thoroughbred Balanced Locked-In 1.7607 9.34 4.18 4.02 31.95  Thoroughbred Balanced Trust 2.0341 9.07 3.82 3.49 18.89  Thoroughbred Education Fund 2.0341 9.07 3.82 3.49 18.61   TOWER FreedomPlan Balanced* 2.6427 5.48 1.60 2.50 161.26 TOWER FuturePlan Balanced* 2.6633 5.64 1.86 2.65 161.26  TOWER IP Balanced Fund* 2.6633 5.64 1.86 161.26  TOWER Multi Sector Fund 2.0609 6.18 2.03 3.85 11.91 Westpac Diversified Trust 1.3804 6.68 1.82 61.30 Westpac Retire Plan Balanced Fund 2.3863 6.10 1.75 108.64 Diversified Defensive PIEs AMP Dyn Mkt Conservative Fund 1.3759 5.41 5.13 4.96 0.64  AMP Dynamic Mkt Conservative Trust 1.3413 5.33 5.01 4.97 1.37  AMP Lifesteps Conservative Fund 1.3101 5.36 5.12 4.83 2.02  AMP Select Conservative Fund 1.3656 5.40 5.20 4.98 10.97  AMP Select Conservative Trust 1.3481 5.39 5.17 4.89 14.79  AMP Select Income Fund 1.3885 5.09 7.11 6.52 3.11  AMP Select Income Trust 1.2966 5.10 7.00 5.25 4.83  ANZ Investment Funds Cons Bal Fund 1.0626 7.11 5.86 ANZ Investment Funds Conservative Fund 1.0580 6.20 2.44  ASB EasyFund Conservative 1.1208 6.43 3.94 189.67 ASB EasyFund Defensive 1.1625 5.48 4.75 95.66   Asteron RSP Mgd Constve* 2.0608 6.17 4.35 3.95 2.14  Asteron SP2000 Conservative Fund* 1.7036 6.14 3.52 3.08 2.06  Asteron Superplan Conservative Fund* 1.9451 5.24 2.91 2.42 4.81 Craigs Conservative Fund 1.1841 6.46 5.11 7.62   Lifestages Capital Stable Portfolio* 2.1771 2.52 2.78 3.85 9.90 Milford Income Fund 1.0621 9.67 38.80 Public Trust Defensive Fund 1.3237 5.35 5.54 19.01   Thoroughbred Cons Flexible 1.6632 5.19 4.50 4.77 7.63 Thoroughbred Cons Locked-In 1.7805 5.47 4.92 5.23 10.01   Thoroughbred Conservative Trust 1.8829 5.37 4.52 4.99 2.88 Westpac Income Plus Trust 1.3539 5.13 3.08 21.20 Diversified Growth PIEs  AMP Dynamic Markets Growth Trust 1.2321 7.83 -1.85 0.32 3.10  AMP Dynamic Mkts Growth Fund 1.2064 7.56 -2.03 0.96 4.04  AMP Lifesteps Aggressive Fund 1.1840 8.22 -2.17 0.43 0.07 AMP Lifesteps Balanced Fund 1.3001 6.66 1.92 3.04 3.99   AMP Lifesteps Growth Fund 1.2213 7.35 -0.57 1.38 1.67  AMP Select Growth Fund 1.1340 7.88 -1.85 0.37 33.56  AMP Select Growth Trust 1.0906 7.83 -1.95 -0.26 13.24 ANZ Investment Funds Balanced Growth Fund 1.0731 9.09 1.66 ANZ Investment Funds Growth Fund 1.0765 9.91 0.14 ANZ Retirement Plan Growth 2.0854 9.10 2.82 2.35 10.21 

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Fund

ASB EasyFund Growth Asteron RSP Managed Growth* Asteron SP2000 Aggressive Fund* Asteron SP2000 Dynamic Fund* Asteron Superplan Aggressive Fund* Asteron Superplan Dynamic Fund* Craigs Growth Fund Diversified Wealth Management Dynamic Funds Milford Aggressive Fund Public Trust Capital Growth Fund* Public Trust Growth Priority Fund Thoroughbred Growth Flexible Thoroughbred Growth Locked-In Thoroughbred Growth Trust TOWER FreedomPlan Growth Fund* TOWER FuturePlan Growth Fund* TOWER IP Growth Fund* Westpac Growth Trust Westpac Retire Plan Dynamic Fund NZ Equity (Active) PIEs AMP OnePath NZ Shares Fund AMP OnePath NZ Shares Trust AMPCI NZ Shares Fund AMPCI NZ Shares Trust Asteron RSP NZ Equity* Asteron Socially Responsible Investment Trust Asteron SP2000 NZ Share Fund* Asteron SP2000 NZ Small Co Fund* Asteron Superplan NZ Shares Fund* Asteron Superplan NZ Small Co Fund* Craigs NZ Equity Fisher Funds Fledgling Fund Fisher Funds NZ Growth Fund Fisher Funds Premium NZ Fund OnePath New Zealand Share Fund SIL 60s Plus Super NZ Share SIL Personal Retirement NZ Share TOWER FuturePlan NZ Cos Fund* TOWER IP NZ Companies Fund* TOWER NZ Equity Trust Tyndall Core NZ Equity Fund NZ Equity (Passive) PIEs AMPCI NZ Shares Index Fund AMPCI NZ Shares Index Trust SmartFONZ SmartMIDZ SmartTENZ NZ Equity (Australasian) PIEs Asteron SP2000 Trans Tasman Fund* Asteron Superplan Trans Tasman Fund* Devon Alpha Fund Devon Trans-Tasman Fund Guardian Small Companies Fund Milford Peak Fund Mint Australia NZ Active Equity Trust OnePath Equity Selection Fund Perpetual Australasian Shares Fund Perpetual NZ Australia Share Fund* Pie Australasian Growth Fund Tyndall Aggressive Australasian Equity Fund Tyndall Small Companies Fund NZ Property PIEs ASB NZ Property Trust MFL Property Fund Mint Australia NZ Real Estate Investment Trust OnePath Property Securities Fund TOWER FreedomPlan Property Fund* TOWER FuturePlan Property Fund* TOWER IP Property Fund* NZ Mortgage PIEs ANZ FlexiMortgage Income Trust*

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

0.9355 1.9546 1.3977 1.5629 1.3539 1.8247 1.1633 1.0855 1.4496 1.4527 1.2585 1.7089 1.6925 1.7918 1.8823 1.9047 1.9047 1.2547 2.4984

8.69 5.75 6.68 5.82 6.26 5.13 9.11 7.35 5.79 6.40 6.61 10.15 10.56 10.33 5.58 5.68 5.68 6.93 6.92

21.58 24.40 0.50 1.94 5.09 17.39 11.81 4.50 10.88 164.00 1.94 3.88 0.92 8.63 2.80 2.86 9.58 3.16 3.18 14.97 2.80 2.77 8.94 -1.00 -0.53 87.40 -0.61 -0.30 87.40 -0.61 87.40 0.82 37.35 0.90 102.98

1.2125 1.2285 1.2344 1.2721 2.0729 1.1888 1.7539 3.0460 1.6164 2.8044 1.0746 1.1991 3.3374 0.7768 2.1962 2.8290 2.8290 2.3224 2.3224 2.5472 1.0134

5.61 5.57 7.66 7.38 3.48 2.57 4.13 7.80 3.42 7.16

1.42 1.12 1.44 1.40 -0.37 -0.73 -0.02 5.56 -0.74 4.84

1.39 1.25 2.43 2.53 -1.49 -1.24 -0.96 3.86 -1.70 3.11

10.53 11.35 11.59 7.50 7.32 7.32 1.09 1.09 0.95

0.01 -0.70 0.62 0.41 1.13 1.13 4.59 4.59 -1.06

0.13 0.56

1.0796 0.9676 1.3642 2.2508 0.9164

5.60 5.45 1.19 -0.98 5.22

-1.90 -2.72 -3.31 -4.69 -3.08

2.1902 2.8495 1.0504 2.5840 3.6255 1.2247 1.0880 1.3259 1.0575 0.9510 1.8845 1.0886 1.2606

4.08 -0.05 -0.98 3.44 -0.71 -1.69

0.63 -1.66 41.75 31.86 1.53 5.20 8.44

0.9262 1.9961 0.8988 1.5330 3.2114 3.2303 3.2303

5.27 9.39 7.04 9.51 3.62 3.75 3.75

6.02 6.84 7.89 8.52 5.83

0.78 0.00 -3.31 -0.81 -3.96 -1.44 4.99

2.27 5.29 7.94 4.47 2.42

-16.49 -1.21 -1.42 -0.88 2.87 3.07 3.07

1.0000 4.37 4.64

0.00 -0.58 -0.87 -1.23 -1.55

-2.19 -1.17 -1.17 -1.36 -1.42 -2.31 -3.64 -2.82 -1.28 -3.65

3.02

0.04

              

5.98  3.57  6.02  2.02   1.23  2.45  0.51 1.59   0.91 4.22  19.55  3.13  79.04 29.69  29.61  4.31  15.91  4.87  4.87  10.14 2.00 4.40 2.11 85.30 37.00 65.70

    

 2.37  15.31 39.00 99.00 11.00  35.80  7.80  19.43  6.31  5.05 20.24  9.80  5.22

 3.64 -0.51 379.37   2.80 1.88 44.60  12.38 9.32  12.51 9.32 9.32 5.44

29.33

Fund

Capital Mortgage Income Trust Perpetual Mortgage Fund Westpac Home Loan Trust Westpac Mortgage Investment NZ Fixed Interest PIEs AMP OnePath NZ Fixed Interest Fund AMP OnePath NZ Fixed Interest Trust AMPCI NZ FI Fund AMPCI NZ FI Index Fund AMPCI NZ FI Index Trust AMPCI NZ FI Trust Asteron Corporate Bond Trust Asteron NZ Fixed Interest Trust Asteron RSP NZ Fixed Int* Asteron SP2000 Capital Fund* Asteron SP2000 NZ Bond Fund* Asteron Superplan Capital Fund* Asteron Superplan NZ Bond Fund* Craigs Fixed Interest Fund OnePath Secure Income Fund Perpetual NZ Bond Fund Public Trust NZ Bond Fund SIL 60s Plus Super Fixed Interest Fund SIL Pers Retirement Fixed Interest Fund Tyndall Corporate Bond Fund Tyndall Fixed Interest Fund Tyndall Income Fund NZ Cash PIEs AMP OnePath NZ Cash Fund AMP OnePath NZ Cash Trust AMP Select Cash Enhanced Fund AMP Select Cash Enhanced Trust ANZ Retirement Plan Capital Stable ANZ Retirement Plan Deposit Portfolio ASB Cash Fund Asteron Deposit Fund* Asteron RSP Deposit* AXA UT34 - Selected NZ Cash Fund Guardian Cash Fund Public Trust Cash Management SIL 60s Plus Super Cash Plus Fund SIL Personal Retirement Cash Plus Fund Thoroughbred Cash Fund TOWER Cash Fund Westpac Cash Plus Trust Westpac Retire Plan Accumulation Int’l Equity (Australian) PIEs Craigs Australian Equity Fund Devon Australian Fund Fisher Funds Aust Growth Fund Fisher Funds Premium Aust Fund OnePath Australian Share Fund SmartMOZY SmartOZZY Int’l Equity (Regional) PIEs Asteron Asian Share Trust Asteron SP2000 Emg Mkts* Asteron SP2000 Euro Fund* Asteron SP2000 Far East Fund* Asteron SP2000 Nth American Fund* Asteron Superplan Emg Mkts Fund* Asteron Superplan European Fund* Asteron Superplan Far East Fund* Asteron Superplan Nth American Fund* SIL 60s Plus Super Pacific Basin* SIL Pers Retirement Pacific Basin* TOWER FreedomPlan Asia/Emerging* TOWER FuturePlan Asia/Emerging* TOWER IP Asia/Emerging Mkts Fund* Int’l Equity (Global) PIEs AMP FD Int’l Share Fund 1 - Value Fund

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

1.0000 1.0000 1.0000 1.0000

5.54 7.31 2.64 2.68

6.84 7.54 3.72 3.65

5.21

1.3961 1.3086 1.4882 1.4266 1.3197 1.4789 1.0230 1.0775 2.3210 1.9011 2.0306 2.3075 2.5898 1.1016 1.2727 1.0145 1.4485 2.2410 2.2410 1.0633 0.9895 1.1462

8.07 7.92 6.92 7.13 6.92 6.97 7.30 8.04 8.03 3.61 7.56 3.08 7.61 6.34 7.56

6.99 6.86 9.74 8.00 7.77 9.76 5.43 7.04 7.74 4.59 6.80 4.20 6.82

5.75 3.90 7.34 6.47 5.43 7.00 4.66 5.26 5.95 5.70 5.32 5.34 5.29

5.85

4.99

10.58 10.09

1.3261 1.1787 1.2690 1.1458 1.9357 1.1701 1.0000 9.0851 9.0632 1137.6 1.0000 1.1545 1.9691 1.9691 1.0000 1.1173 1.1426 2.7560

3.29 3.11 2.96 2.93 4.29 2.71 3.54 3.27 3.27 3.09 2.87 2.66 2.87 2.87 2.49 2.91 3.37 3.05

6.78 8.99 7.68 5.96 7.68 5.96 8.22

7.76

5.05 5.05

3.37 3.27 3.05 2.98 3.62 3.80

4.99 3.20 4.34 2.83 4.45 5.19

4.36 4.35

5.65 5.65

4.36 3.79 3.97 3.97 3.78 3.77 4.25 3.67

5.60

1.1287 1.1671 2.5392 1.0984 3.3470 5.7544 3.9899

18.65 18.89 9.94 6.84 6.73

12.55 12.73 5.74 -2.05 4.73

1.2603 1.5735 1.5151 1.2312 1.4058 1.3384 1.8337 1.8394 2.0478 1.7149 1.7149 2.8032 2.8388 2.8388

6.55 6.84 8.88 8.21 4.38 6.06 8.14 7.40 3.61 8.85 8.85 14.30 14.32 14.32

-6.74 -4.90 -6.01 -8.86 0.38 -5.66 -6.69 -9.57 -0.34 -1.30 -1.30 -0.55 -0.13 -0.13

5.52 5.52 5.21

7.04 7.75 0.00 5.54

25.40 74.11 198.15 384.76 2.71 3.24 3.46 10.14 4.73 11.80 20.29 13.07 1.11 4.71 1.60 43.24 6.72 35.79 7.44 1.10 3.19 6.25 7.01 35.63 2.89 7.84

            

5.83 7.82 2.92 5.78 4.65 30.89 431.34 13.28 4.45 35.24 78.00 32.53 1.51 2.40 68.70 16.20 104.22 27.18

     

18.46 23.00 97.16 91.38 40.27 56.60 111.90

   



       

    

-2.02 0.85 -5.53 -4.24 -3.50 0.02 -6.21 -4.96 -4.23 6.32 6.32 6.90 7.17

2.62 0.74 1.54 1.62 1.34 4.59 13.35 16.11 11.64 0.39 4.13 38.52 38.52 38.52

            

0.8167 4.38 -9.22 -7.77

6.79



Fund

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

AMP FD Int’l Share Fund 1 - Value Trust 0.8603 AMP FD Int’l Share Fund 3 - Growth Fund 0.8122 AMP FD Int’l Share Fund 3 - Growth Trust 0.8405 AMP SSt Global Shares Index Hdg Trust 1.1230 AMP SSt Global Shares Index Trust 1.0285 AMPCI Global Shares Index Fund 1.1689 AMPCI Global Shares Index Hdg Fund 1.2297 ASB EasyFund World Shares Trust 0.8820 Asteron RSP Int´l Equity* 1.6814 Asteron SP2000 Global Fund* 1.3857 Asteron Superplan Global Fund* 1.6826 Craigs Equity Fund 1.1520 Elevation Capital Value Fund 1.2042 Fisher Funds International Growth Fund 1.2476 Fisher Funds Premium International Fund 1.2694 Guardian Global Equity Fund 1.2886 OnePath International Share Fund 1.2042 Pathfinder Global Water Fund 1.0911 Perpetual Emerging Markets Shares Fund 0.9639 Perpetual World Shares Fund 1.0307 SIL 60s Plus Super Intl Share 1.8464 SIL Personal Retirement Int Share 1.8464 Thoroughbred Intl Equity Trust* 1.3287 TOWER FreedomPlan Intl Companies* 2.0464 TOWER FuturePlan Int´l Companies* 2.0846 TOWER Global Fund 3.3056 TOWER Global Gateway Fund 265.0745 TOWER International Equity Fund 1.2641 TOWER IP Intl Companies Fund* 2.0846 Int’l Fixed Interest PIEs AMP Blackrock Global FI Fund 1.4194 AMP Blackrock Global FI Trust 1.3310 AMP PIMCO Global FI Fund 1.5316 AMP PIMCO Global FI Trust 1.5337 AMP State St Global FI Index Fund 1.3971 AMP State St Global FI Index Trust 1.2982 ASB EasyFund World Fixed Interest 99.3820 Asteron RSP Intl Fixed* 2.4597 Asteron SP2000 Global Bond Fund* 2.2268 Asteron Superplan Global Bond Fund* 2.1062 Perpetual Global Bond Fund 1.0398 TOWER BondPlus Fund 1.4576 Other PIEs ASB EasyFund Global Property Fund 0.8338 Asteron RSP NZ Property* 2.6445 Asteron SP2000 Property Fund* 1.4048 Asteron Superplan Property Fund* 1.2650 Elevation Capital Multi Strategy Fund 0.8980 Fisher Morrison Infrastructure Fund 1.2992 Fisher Morrison Premium Infrastructure Fund 1.3130 Pathfinder Commodity Plus Fund 1.2720 Perpetual World Property and Infrastructure 1.0135 TOWER Global Commodity Fund 1.2425 TOWER Global Hedge Fund 290.1220 KiwiSaver Diversified Balanced PIEs AMP KiwiSaver Balanced Fund 1.0426 AMP KiwiSaver Moderate Balanced 1.0705 AMP KiwiSaver Moderate Fund 1.1239 AMP KiwiSaver OnePath Balanced Fund 1.1016 AMP KiwiSaver TOWER Balanced Fund 1.0927 AMP KiwiSaver Tyndall Balanced Fund 1.0275 ANZ KiwiSaver Balanced Fund 1.1041 ANZ KiwiSaver Conservative Balanced Fund 1.1488 ASB KiwiSaver Scheme´s Balanced Fund 1.0471 ASB KiwiSaver Scheme´s Moderate Fund 1.1212 AXA KiwiSaver Balanced Portfolio 1.0477 Craigs kiwiSTART Balanced Fund 1.1561 Craigs kiwiSTART Balanced SRI Fund 1.1674 Fidelity Life Balanced Kiwi Fund 5.9741 Fidelity Life Ethical Kiwi Fund 2.2040 FirstChoice KS Scheme´s Active Bal Fund 1.0366

4.34 3.37 3.05 7.38 6.25 3.41 8.65 9.53 6.42 6.93 6.04 9.83 7.91 4.95 4.80 8.14 12.08

-9.01 -9.32 -9.21 -2.93 -2.12 -1.94 -4.68 -1.34 -3.66 -4.47 -5.13

9.61 9.61 10.14 8.00 8.11 7.59 -1.86 3.21 8.11

0.67 0.67 1.35 -2.38 -1.78 2.46 -0.47 -2.29 -1.78

-0.31 -0.31 -0.49 -1.54 -1.18 0.83 -1.34 -4.55

4.49 4.39 7.35 7.30 3.63 3.50

6.19 6.18 8.26 8.23 6.10 6.02

6.24 4.10 8.64 8.57 6.36 5.67

4.97 5.65 5.60 3.98 8.51

6.27 6.53 6.51

6.46 6.85 6.80

6.88

6.71

16.31 77.10 29.40 27.74 10.01 7.42 8.91 20.26

-7.62 -7.94 -7.94 -1.09 -3.15 -2.76 -4.53 -2.96 -4.10 -4.78

7.17 7.75 -3.36 3.13 1.77

-3.05 10.70 5.54 -10.73 -7.25 -11.79 -8.16 -4.86

3.80 6.27 2.38 4.09 3.37 11.66 6.38 86.25 3.61 1.78 17.78 54.61 6.21 16.26 28.14 13.00 18.49 1.80 3.43 7.46 1.02 12.34 2.65 33.03 33.03 70.82 39.60 20.49 33.03

          

   

       

 2.50  1.97  2.70  2.06  7.74  4.28 26.10 1.10  1.10  1.64  68.73  105.06

33.26 -3.33 5.15 -3.38 0.62 -0.08

 30.62 0.76   0.91  1.40 16.04  8.41 17.44 29.00 3.89  38.52 13.72 

7.36 7.14 6.66 8.65 5.45 6.18 8.50 7.54 8.75 7.70 8.24 8.78 5.84 5.78 5.48 6.25

125.14 117.74 81.70 25.62 7.50 5.77 78.65 50.40 168.90 209.24 80.34 19.73 4.68 62.16 5.36 16.13

2.84 3.27 4.47 3.98 3.54 2.77 4.43 5.02 3.13 4.44 3.60 4.55 4.08 4.99 2.68

New Zealand INVESTOR • June 2011 • www.irg.co.nz

              

I

47

Fund

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

FirstChoice KS Scheme´s Tracker Bal Fund 1.0445 8.67 FirstChoice KS Scheme´s Tracker Mod Fund 1.1119 7.61 Grosvenor KiwiSaver Balanced Fund 1.1708 6.31 Huljich Balanced Diversified KiwiSaver Fund 1.1301 -0.85 Huljich Conservative Diversified KiwiSaver 1.2382 0.67 Law Retirement KS Scheme Balanced Fund 1.1461 5.24 Mercer KiwiSaver Balanced Fund 1.0269 6.02 Mercer ST KiwiSaver Active Balanced Fund 1.0258 5.84 Mercer ST KiwiSaver Conservative 1.1363 4.27 Mercer ST KiwiSaver Moderate Fund 1.0695 4.82 Milford KiwiSaver Balanced Fund 1.0646 6.89 National Bank KiwiSaver Balanced Fund 1.1059 8.59 NB KiwiSaver Conservative Balanced Fund 1.1492 7.56 OnePath KiwiSaver Balanced Fund 1.0755 7.61 OnePath KiwiSaver Conservative Balanced 1.1393 7.06 SIL KiwiSaver Balanced Fund 1.1148 8.55 SIL KiwiSaver Conservative Balanced 1.1581 7.66 Smartkiwi Balanced Fund 0.9767 6.12 TOWER KiwiSaver Balanced Fund 3051.6 6.07 Westpac KiwiSaver Balanced Fund 1.0694 7.87 KiwiSaver Diversified Defensive PIEs AMP KiwiSaver Conservative Fund 1.2085 6.23 AMP KiwiSaver Default Fund 1.1585 5.24 ANZ KiwiSaver Conservative Fund 1.1914 6.37 ASB KiwiSaver Scheme´s Conservative (default) 1.1830 5.95 AXA KiwiSaver Conservative Fund 1.2024 7.12 AXA KiwiSaver Income Plus (default) 1.1596 5.95 Craigs kiwiSTART Conservative Fund 1.1841 6.46 Fidelity Life Capital Guaranteed Kiwi Fund 2.2950 4.77 Fidelity Life Conservative Kiwi Fund 6.0147 6.14 FirstChoice KS Scheme´s Active Cons Fund 1.1368 5.67 FirstChoice KS Scheme´s Tracker Cons Fund 1.1809 5.89 Fisher Funds Conservative KiwiSaver Fund 1.0614 5.25 Grosvenor KiwiSaver Conservative Fund 1.1892 6.48 Mercer KiwiSaver Conservative (default) Fund 1.1911 3.89 NB KiwiSaver Conservative Fund 1.1943 6.36 OnePath KiwiSaver Conservative Fund (default) 1.1985 6.37 SBS Lifestages KiwiSaver Scheme 2.2154 3.72 SIL KiwiSaver Conservative Fund 1.2007 6.41 Smartkiwi Conservative Fund 1.1123 3.68 TOWER KiwiSaver Cash Enhanced Fund 1.1743 4.84 TOWER KiwiSaver Conservative Fund 1.2018 5.50 Westpac KiwiSaver Conservative Fund 1.1425 6.45 KiwiSaver Diversified Growth PIEs AMP KiwiSaver Aggressive Fund 0.9019 8.45 AMP KiwiSaver Growth Fund 0.9505 8.09 ANZ KiwiSaver Balanced Growth Fund 1.0552 9.54 ANZ KiwiSaver Growth Fund 1.0033 10.40 ASB KiwiSaver Scheme´s Growth Fund 0.9751 9.47 AXA KiwiSaver High Growth Portfolio 0.9569 8.97 Craigs kiwiSTART Growth Fund 1.1633 9.11 Fidelity Life Aggressive Kiwi Fund 2.9766 7.20 Fidelity Life Growth Kiwi Fund 5.7365 5.96 FirstChoice KS Scheme´s Active Growth Fund 0.9738 6.33 FirstChoice KS Scheme´s Tracker Growth Fund 0.9724 9.40 Fisher Funds Growth KiwiSaver Fund 1.1870 10.26 Grosvenor KiwiSaver Balanced Growth 1.1123 11.21 Grosvenor KiwiSaver High Growth Fund 0.9935 5.98 Huljich Growth Diversified KiwiSaver Fund 1.0779 -2.36 Law Retirement KS Scheme Dynamic Fund 1.1444 6.01 Mercer KiwiSaver High Growth Fund 0.9206 7.90 Mercer ST KiwiSaver Growth Fund 0.9758 6.46 Mercer ST KiwiSaver High Growth Fund 0.9166 7.61 Milford KiwiSaver Aggressive Fund 1.4496 5.79 NB KiwiSaver Balanced Growth Fund 1.0551 9.56 NB KiwiSaver Growth Fund 0.9998 10.40 OnePath KiwiSaver Balanced Growth 1.0163 8.08 OnePath KiwiSaver Growth Fund 0.9604 8.50 SIL KiwiSaver Balanced Growth 1.0645 9.53 SIL KiwiSaver Growth Fund 1.0112 10.49 TOWER KiwiSaver Growth 1.0231 5.94

48

I

3.09 4.27 4.13

2.43 2.37 4.21 4.49 4.48 5.01 3.68 4.69 4.67 5.20 1.99 3.01 4.03 6.41 4.45 5.49 5.34 6.01 5.31 5.11 5.28 4.86 5.32 5.11 5.35 5.53 5.51 3.35 5.63 3.75 4.43 4.58 4.90 -1.03 0.28 3.74 2.87 1.67 1.51 4.99 4.67 2.97 1.54 1.52 9.62 0.57 0.16 1.32 0.00 10.88 3.71 2.82 2.70 1.56 3.94 3.12 0.96

14.41 11.57 51.48 39.05 76.43 2.50 22.78 33.92 1.33 9.80 1.50 117.57 64.66 5.13 2.10 129.54 49.86 4.98 155.80 192.97

  

            

38.13 346.81 51.73 886.49 14.21 440.37 7.96 21.27 27.00 4.17 48.92 6.60 16.34 431.95 74.71 406.61 41.00 149.14 2.00 324.45 27.26 416.63

      

95.56 110.08 56.18 130.61 163.58 63.43 25.24 11.03 29.39 15.94 12.29 222.50 11.64 43.63 82.31 2.00 16.79 2.62 4.52 23.10 98.71 206.92 6.09 6.17 123.48 91.03 47.64

           

New Zealand INVESTOR • June 2011 • www.irg.co.nz

            



          

Fund

Exit $ 1Yr 3 Yr 5 Yr Size $M Label

Westpac KiwiSaver Growth Fund 1.0212 8.11 3.01 123.64  KiwiSaver NZ Equity (Active) PIEs Craigs kiwiSTART NZ Equity 1.0746 0.01 KiwiSaver NZ Equity (Australasian) PIEs Grosvenor KS Trans-Tasman Small Co Share 1.2972 2.82  Mercer ST KiwiSaver TransTasman Shares Fund 0.8985 8.07 1.93 0.71  SIL KiwiSaver Australasian Share 0.8971 8.59 1.77 8.60  Smartkiwi Growth Fund 0.8296 6.65 -0.54 13.20 KiwiSaver NZ Property PIEs SIL KiwiSaver Australasian Property 0.8531 9.64 -0.61 4.59  KiwiSaver NZ Fixed Interest PIEs Craigs kiwiSTART Fixed Interest Fund 1.1016 6.34 0.16 Grosvenor KiwiSaver Enhanced Income Fund 1.2428 3.66 4.89 10.23   SIL KiwiSaver NZ Fixed Interest 1.2357 8.13 6.36 3.40 KiwiSaver NZ Cash PIEs AMP KiwiSaver Cash Fund 1.2170 4.00 5.13 25.76  ANZ KiwiSaver Cash Fund 1.0924 2.89 23.26 ASB KiwiSaver Scheme´s NZ Bank Deposit 1.1802 2.80 3.97 142.85  AXA KiwiSaver Cash Portfolio 1.1879 3.41 4.48 14.63   FirstChoice KS Scheme´s Cash Fund 1.1787 2.74 3.94 6.97 Mercer KiwiSaver Cash Fund 1.2174 4.77 5.23 7.81  Mercer ST KiwiSaver Cash Fund 1.2144 4.57 5.15 1.29  National Bank KiwiSaver Cash Fund 1.0928 2.89 38.19 OnePath KiwiSaver Cash Fund 1.1791 3.06 4.07 0.85   SIL KiwiSaver Cash Fund 1.1682 2.64 3.56 11.71 TOWER KiwiSaver Preservation 2350.8 3.20 4.32 11.94  Westpac KiwiSaver Cash Fund 1.1508 3.08 3.87 99.77  KiwiSaver Int’l Equity (Global) PIEs Craigs kiwiSTART Equity Fund 1.1520 9.83 1.67  FirstChoice KS Scheme´s Active High Growth 0.8816 6.04 -4.16 1.68 FirstChoice KS Scheme´s Global Sustain Fund 1.1913 6.51 4.79 2.59  Grosvenor KiwiSaver International Share Fund 1.1248 2.47 Grosvenor KiwiSaver Socially Responsible 1.1543 4.69  Mercer ST KiwiSaver Global Shares Fund 0.8367 9.29 -3.46 1.10 Mercer ST KiwiSaver Shares Fund 0.8630 9.03 -1.50 0.84  SIL KiwiSaver International Share 0.9411 10.07 0.91 13.11  SIL KiwiSaver Sustainable Growth Fund 1.0508 7.27 0.93 TOWER KiwiSaver Equity Fund 2638.28 7.00 -1.02 17.45  KiwiSaver Int’l Fixed Interest PIEs  Mercer ST KiwiSaver Fixed Interest Fund 1.3048 1.30 7.23 0.72 SIL KiwiSaver International Fixed Interest 1.3094 4.58 7.13 1.16  KiwiSaver Int’l Equity (Australian) PIEs Craigs kiwiSTART Australian Equity Fund 1.1287 0.02 KiwiSaver Other PIEs Fidelity Life Options Kiwi Fund 4.5909 10.81 12.88 44.28  Grosvenor KiwiSaver Geared Growth Fund 1.2497 6.01 1.42 Mercer ST KiwiSaver Real Assets Fund 0.8291 5.40 -3.29 0.48  SIL KiwiSaver International Property 0.8334 20.66 -3.24 3.65 Diversified Balanced Unit Trusts & Gif’s  AMP Balanced Trust (Other Fund)* 1.4036 6.50 1.20 -0.13 0.95 PIE fund returns are measured pre-tax. Returns for funds that have become PIEs (e.g. from 30/9/10) are shown ‘grossed-up’ (pre-tax) to transition date. These indicative returns are approved by fund managers and are for fund comparative purposes, and are not suitable for calculating an investor’s investment return.

Non-PIE NZ fund returns are reported post-tax assuming a marginal tax rate of 30%. All returns are measured post management fees but before upfront fees. All distributions are assumed to be reinvested. Australian fund returns are in NZ dollar terms and are measured pre-tax but Australian exit prices are in A$ as are fund sizes. FundSource Fund Ratings are calculated from risk-adjusted returns over the past three years to 31/10/2010 comparing similar funds across all legal fund types.

The top 15 per cent of funds attain 5 stars, next 20 per cent 4 stars, next 30 per cent 3 stars, next 20 per cent 2 stars and bottom 15 per cent 1 star.

Funds with less than a three year history have no fund rating. Past performance is not necessarily a guide to future performance. Any representation or statement expressed in this document is made in good faith on the basis that FundSource Limited is not able to be liable in respect of such representation or statement.

FundSource does not guarantee the accuracy of third-party information used to calculate fund returns. This information should not be relied upon as a substitute for detailed advice from a professional financial adviser. Copyright © FundSource Limited. [* represents a closed fund].

For more information please see: www.fundsource.co.nz.

Email fundsource@fundsource.co.nz

Fixed Term Investments

Selected Tradeable Securities ISSUER Government stock NZ Government NZ Government NZ Government NZ Government NZ Government

Credit Rating

NZDX Code

Maturity Date

Minimum Holding

Current Yield1

Coupon

Payment Frequency

AAA AAA AAA AAA AAA

GOV390 GOV380 GOV360 GOV340 GOV320

15 May 2021 15 Dec 2017 15 Apr 2015 15 Apr 2013 15 Nov 2011

10,000 10,000 10,000 10,000 10,000

5.16% 4.74% 4.07% 3.15% 2.60%

6.00% 6.00% 6.00% 6.50% 6.00%

Six-Monthly Six-Monthly Six-Monthly Six-Monthly Six-Monthly

A+ AAAA+ A+ AA A+ A AAAA-

ANBHA ANB080 ASBPB BISHA BNSPA BNZ080 CBAFA CASHA RBOHA RCSHA

Perpetual 09 Jun 2014 Perpetual Perpetual Perpetual 15 Jun 2012 15 Apr 2015 Perpetual Perpetual Perpetual

10,000 10,000 5,000 5,000 5,000 10,000 5,000 5,000 5,000 5,000

9.16% 5.20% 5.76% 9.38% 8.39% 5.40% 3.86% 11.23% 5.30% 8.09%

9.66% 8.50% 3.86% 9.89% 9.10% 8.42% 3.59% 10.04% 4.21% 8.78%

Six-Monthly Six-Monthly Quarterly Quarterly Quarterly Six-Monthly Quarterly Quarterly Quarterly Quarterly

BBBBBB BBB Not Rated Not Rated Not Rated BBB BBB+

OCFHA PWC050 PWC080 TPW080 TPW060 TPW020 VCT040 VCT050

Perpetual 29 Mar 2013 28 Sep 2012 15 Dec 2014 15 Mar 2014 15 Sep 2012 15 Jun 2012 15 Oct 2014

5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000

7.69% 5.40% 5.70% 6.29% 6.90% 6.40% 6.00% 5.20%

4.92% 6.39% 6.59% 7.60% 8.50% 8.50% 8.00% 7.80%

Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Six-Monthly Six-Monthly

AAANot Rated BBB Not Rated Not Rated Not Rated BBBBBB-

AIA050 AIA070 AIA080 BPF020 CEN010 IFT060 IFT070 IFT090 WKS010 WKS020

29 Jul 2011 07 Nov 2015 15 Nov 2016 15 Nov 2011 15 May 2014 15 Sep 2013 15 Nov 2015 15 Feb 2020 15 Jun 2012 15 Sep 2012

10,000 10,000 10,000 5,000 5,000 5,000 5,000 5,000 5,000 3,000

3.20% 5.75% 6.00% 10.25% 5.45% 7.90% 8.25% 9.00% 23.50% 6.80%

6.83% 7.25% 8.00% 9.95% 8.00% 8.50% 8.50% 8.50% 9.80% 9.65%

Six-Monthly Six-Monthly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly

AAA A+ Not Rated BB+ BB Not Rated A

AQN010 AKC010 FCG010 GFN030 MAR010 NFFHA SKTFA TCN540

01 Apr 2019 24 Mar 2014 10 Mar 2015 15 Nov 2012 15 Jul 2013 24 Nov 2011 16 Oct 2016 15 Jun 2013

5,000 10,000 5,000 5,000 5,000 5,000 5,000 5,000

5.60% 4.65% 5.20% 7.90% 9.00% 6.87% 4.46% 6.40%

9.80% 6.42% 7.75% 8.30% 10.50% 6.71% 4.06% 8.20%

Quarterly Six-Monthly Quarterly Quarterly Quarterly Six-Monthly Six-Monthly Six-Monthly

CORPORATE Banks ANZ National Bank ANZ National Bank ASB Capital No. 2 BNZ Bank BNZ Bank BNZ Bank CBA Credit Agricole Rabobank Nederland Rabobank Nederland Power Companies Origin Energy PowerCo PowerCo Trust Power Trust Power Trust Power Vector Vector Building & Infrastructure Auckland International Airport Auckland International Airport Auckland International Airport Burns Philp Finance Contact Energy Infratil Infratil Infratil Works Infrastructure Finance Works Infrastructure Finance General AMP Group Financial Services Auckland City Council Fonterra GPG Finance Marac Finance Nufarm Finance Sky Network Television Telecom Finance Ltd 1

= Current yields listed are indicative, subject to availability and exclude brokerage payable.

This list is intended to provide investors with a guide only and contains debt instruments such as Bonds, Capital Notes and Preference Shares, each of which has a particular structure. We recommend that investors consult with IRG Investment Advisers to determine the most appropriate risk exposure for their individual portfolio. Yields are changing daily and some issues have annual rate resets. Call IRG on 0800 474 669 to discuss.

These rates are current as at 19 May 2011 Rates are subject to change at anytime and should be reconfirmed by calling IRG on 0800 474 669

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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49

Investments

Fixed term investments All rates below (unless otherwise specified) are offers under the Government’s Retail Deposit Guarantee Scheme.

For enquiries regarding non-guaranteed rates, please call us on 0800 474 669.

FINANCE COMPANIES - Debenture Stock Minimum 3 6 9 12 18 Investment Months Months Months Months Months

STANDARD TERMS Broadlands Finance*

$500

2 Years

3 Years

4 Years

5 Years

8.75

9.00

9.75

9.75

10.00

10.00

Fisher & Paykel Finance**

$1,000

4.62

4.87

5.37

6.25

6.75

7.00

7.20

7.30

7.35

F&P existing investors

$1,000

5.12

5.37

5.87

6.75

7.25

7.50

7.70

7.80

7.85

General Finance

$5,000

6.75

8.00

8.50

9.00

8.50

8.00

Marac Finance**

$1,000

4.25

4.75

4.95

5.25

5.50

6.00

6.50

6.75

6.75

NZF Money*

$1,000

4.50

5.75

6.25

8.60

8.75

9.25

9.50

9.25

9.25

NZF Money*

$10,000

4.50

6.00

6.50

8.85

9.00

9.50

9.75

9.50

9.50

$1,000

3.70

4.20

-

6.20

6.45

6.95

7.15

7.40

7.60

$10,000

3.90

4.45

-

6.40

6.65

7.15

7.35

7.60

7.80

$100,000

4.00

4.50

-

6.50

6.75

7.25

7.45

7.70

7.90

$5,000

4.00

4.40

4.30

4.50

4.65

4.80

5.60

5.90

6.15

PGG Wrightson Finance**

UDC Finance*

4.25

CREDIT RATINGS - Finance Companies Standard

NON - STANDARD TERMS

Govt. Guaranteed until

& Poor’s

Oct-10

AA

3

BBB-

3

3

PGG Wrightson Finance**

BB

3

3

Fisher & Paykel Finance**

BB

3

3

B

3

CCC

3

UDC Finance* Marac Finance**

Broadlands Finance* NZF General Finance

Dec-11

Broadlands Finance

Minimum Investment $500

30 Months 10.00

* Participant of Government Guarantee Retail Deposit Scheme until October 2010 (up to $1,000,000 per eligble depositor per institution) ** Participant of Government Guarantee Retail Deposit Scheme Extension until December 2011 (up to $250,000 per eligible depositor per institution)

3

NOTE: • We are mindful that historic data may not be a predictor of the future. We recommend that clients review each investment to ascertain that it’s appropriate for their needs. In this market we believe caution is appropriate and clients should not take undue risks.

• IRG recommends that before investing investors consider the size of the investment contemplated in relation to their total portfolio and overall risk as the level of risk and return varies considerably between Finance Companies.

• We recommend investors call IRG to assist in determining the appropriate risk exposure for their portfolio and to receive the relevant Investment Statement and Research on these and other investments.

• Rates for Finance Companies not mentioned in this listing are available upon request.

• There are no Entry or Exit Fees payable on investments held for the full term in the above Finance Companies.

• Brokerage received by IRG in connection to a Finance Company investment is paid by the issuer at standard industry rates. These rates are freely available from either the Finance Company or IRG and are summarised in the investment statement.

These rates are current as at 19 May 2011.

Rates are subject to change, and often do, therefore they should be reconfirmed by calling IRG on 0800 474 669.

A disclosure statement is available free of charge upon request by phoning 0800 474 669.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Advertising Feature

Auckland’s Best Kept Secret

Prohibition Restaurant

O

ver the last 20 years Auckland’s dining scene has changed dramatically: from a 6pm closing culture to World-Class dining establishments. But the opening of Prohibition Restaurant in Ponsonby has turned the history page over in order to start a whole new chapter of elaborate restaurants where the environment is just as important as the cuisine. Weeks before Prohibition Restaurant’s third anniversary we spoke to one of its owners, Colin Gardner.

- Colin, why so much attention to the décor and the ambiance?

- I like to compare the restaurant business with the cinema or the theatre. There is without doubt an art involved in every aspect of creating a great restaurant. I say this without any hesitation. I want to ensure that an evening spent dining in our restaurant becomes a truly memorable experience for the guest, comparable to that experienced at the theatre, so that when patrons leave the overall impression lingers on for days on end. I want to broaden the restaurant culture: gustatory pleasure should be in harmony with all the other senses – reinforced by the ambiance and sound which add to creating a holistic experience.

- Why you think most restaurateurs overlook the ambiance aspect?

- Not surprising. Most restaurants are opened by chefs who are proud of their culinary achievements to the extent that they have no time for the décor or purposely understate the décor for the sake of the decorations on the plates they present.

- Our food critic says that his mother’s cooking is better than any culinary extravagance…

- That is how all fashions end up. How often, on leaving the restaurant, have you heard or said “…and now let’s go and eat somewhere…”. I lived in Moscow for a decade and in the late 90`s haute cuisine was all the rage there. Lots of so called “French”, “fusion” and “molecular” restaurants opened up. And by the time I moved here from Moscow in 2008 most of them had ceased trading or changed.

Ironically, at Prohibition we have a French head chef, Denis Baudet, but he likes to say “I make a real food”. And it shows: I have been to all the top restaurants in Auckland and I am yet to find a chef better than Denis.

- Why did you chose “prohibition” as the concept for your restaurant.

- The 1920`s - 1930`s period is the last but one era in history (the last one would be the 1950`s-60`s) that can be clearly identified and differentiated by colour schemes, dress fashions, musical sounds and interior decor. Since the “hippy” times we live in an eclectic world where styles have become mixed up or replaced by a new style – so called “miserableism”. The Prohibition era in the US is a glorious time that deserves to be enshrined in the form of a restaurant.

- I have been to Prohibition, and in fact the décor there evokes a strong nostalgia for the luscious era of early jazz and the Chicago Clubs.

- My business partner, Eduard Gorin, could have been a theatre director (laughing). He loves history and feels the “times”. In our theatre for gourmets, we offer three menus: one for the palate, another for the eyes - three holistically but differently designed rooms with plans to build a fourth one - and a third menu for the ears – Auckland`s top jazz musicians, including the glamorous Georgia. We are the only restaurant in Auckland which has live performances on a daily basis.

- Your three year anniversary is approaching – quite a long time, but most people I talk to about Prohibition, say they have never heard of it. You keep a low profile.

Why? - It goes with the concept! And we have a lot of repeat guests who spread the word for us – best marketing.

- I have only been to Prohibition once but saw at least two highly recognisable faces. How do you serve celebrities? Do they get special treatment?

- Most of the high profile guests that have been to Prohibition tend to be very modest and undemanding people and many of them are even more grateful for the memorable evening than most “normal” guests are (I do not mean tips). Maybe this is because they appreciate we are a discrete venue where it is safe “to see and not to be seen”…

- Do your staff feel nervous serving the celebrities?

- We are experienced in making sure things run smoothly, and our staff don’t stress out when high profile guests arrive.

- I did some research on the internet – Prohibition is rated number two on Tripadvisor after The French Cafe.

A good result for a new establishment which has had little publicity.

- Each of our staff members will receive a big bonus when we are rated number one.

Discover Auckland`s best kept secret at www.prohibition.co.nz, or phone (09) 361 5858.

The 1920’s themed Library Room at Prohibition Restaurant

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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51

Trusts

Letting go Setting up a trust may have its advantages, but as Michael Coote writes, it pays to shop around and overcome the psychological barrier that property placed in a trust is no longer yours

T

he advantages of having a family trust is heavily promoted by companies that specialise in establishing and managing them for paying clients, although of late “self-managed trusts” have been publicised on the airwaves.

Trusts have become truly democratised in New Zealand, which probably explains why there are hundreds of thousands of them. Gone are the days when trusts were the exclusive preserve of the well off end of society.

Ordinary New Zealanders have voted overwhelmingly for trusts by setting up hordes of them. Clearly, the advantages appear particularly persuasive.

Yet, having a family trust involves significant change, not least because it entails the transfer of property to a new owner in the form of the trustees and triggers all manner of potentially hazardous requirements under trust and taxation laws.

Surely then, there must be some disadvantages? Could there be reasons to pause and reconsider before plunging headlong into settling your most significant property into trustee ownership?

A search of websites offering trust advice to New Zealanders reveals a cluster of disadvantages that need to be weighed up.

The headings below for disadvantages come from the Sorted website.

Cost Nothing more is stated by Sorted under this heading, but there is surely something to be said.

Value for money and affordability are important considerations and so it pays to shop around to get an idea of establishment costs and what you will receive in return. A trust is an intangible entity, so it might not be quite clear what your money is going to buy in setting one up.

Moreover, not all trust services companies are created equal, and some may charge too much for something that may cost less elsewhere, whereas others might seem a bargain but sell you shoddy goods.

Managing the trust Sorted warns that professional trustees will need to be paid, and states that the cost for these services “is unlikely to be less than $200 a year, and potentially could be much more”.

The minimum sum quoted is peanuts and so is unlikely to stop formation of a trust dead in its tracks.

But there could be other ongoing costs, such as for accountancy services if the trust earns income that needs to be reported to the IRD (gift duty drops out of the picture on 52

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

October 1 this year), or legal fees if the trust needs a review or an amendment.

It is relevant therefore, whether any continued requirement for professional services could be afforded, because if not, initial set up costs could be wasted and assets trapped in a trust that wasn’t being run properly.

Loss of control This reason is probably the most significant psychological barrier to setting up a trust.

Sorted summarises the core issues as, “When you sell your assets into a trust, you no longer own them – they are ‘alienated’ from you. Even if you are a trustee of the trust, you cannot deal with the assets as if they were your own – you have to listen to the thoughts of the other trustees and you are required by law to consider the positions of all the beneficiaries in the context of the trust deed.”

Of course, many people who overcome this barrier have their family trust set up so that there is as little “daylight” as possible between controlling the property when they owned it and acting as its trustee.

One big risk with this approach is a trust being found to be a sham by a court judge.

It is foolish to set up a trust only to carry on treating the property transferred as if you still owned it yourself.

If other trustees are involved, the need to keep them onside is highly relevant, even though common legal advice is that writing the trust deed so the settlors can get rid of inconvenient trustees is touted as a simple solution.

The problem is that a dissident trustee could actually be in the right from the legal perspective and able to blow the whistle on inappropriate actions by other trustees.

Then there are the rights of the beneficiaries to consider, with fiduciary duties owed them by trustees in law and the risk of a trustee being sued for failing to perform these duties correctly.

Trusts are not “set and forget”. They demand active oversight, management and record-keeping – year in, year out, no matter how boring or unimportant this might seem.

Conclusion The disadvantages of setting up a family trust must be carefully evaluated, no matter how compelling the advantages may seem.

Shop around and read widely before making the commitment, because it could be costly and difficult to unwind once entered into if you subsequently change your mind.

On the web: www.sorted.org.nz/home/sorted-sections/trusts/disadvantages

Classifieds

Feeling unnoticed?

Now might be a good time to invest in rebranding.

Simon Weil Partner/Trust Specialist

Think outside the square...

Level 11, 51-53 Shortland Street, Auckland 1010 DDI (09) 915 5465 simon.weil@morrisonkent.co.nz www.morrisonkent.co.nz

mobile 021 0233 1843 daniel@dmgadvertising.com

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INVESTOR NEW ZEALAND

FAMILY TRUST

FAMILY TRUST FAMILY TRUST SPECIALIST SPECIALIST FAMILY TRUST Contact SPECIALIST Contact SPECIALIST

INVESTMENT RESEARCH GROUP

To advertise here call Bobbie Henderson on

Jacques Vannoort, LLM Contact Jacques Vannoort, LLM Contact Sanctuary Trust Law Jacques Vannoort, LLM Sanctuary Trust Law Jacques Vannoort, LLM jacqvan@xtra.co.nz jacqvan@xtra.co.nz Sanctuary Trust Law Sanctuary Trust Law jacqvan@xtra.co.nz Unit20,20,2 Bishop 2 BishopDunn DunnPl,Pl,Botany, Botany, Auckland. jacqvan@xtra.co.nz Unit Auckland.

Phone273-2173 273-2173 •www.sanctuaryhouse.co.nz www.sanctuaryhouse.co.nz Unit 22jacqvan@xtra.co.nz Bishop Auckland.

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

I

53

Investing

Take some simple investment steps

Invest

Invest wisely and simply, David McEwen gives us a few first-hand investment tips

T

he past decade has seen a remarkable boom in the price of mineral resources such as copper, iron ore, gold and even coal.

Professional investment advisors often make the process of making money seem very complicated.

I suspect it is a way for them to justify their fees.

While the intricacies of futures and currency markets may be difficult to master, there are plenty of ways an individual can take steps to improve their wealth without taking unnecessary risks.

Here are few simple but very effective steps you can implement today.

If you haven’t already started saving and investing, start today. Investing a little now is better than saving up a large lump sum and then getting started.

Pay yourself first. Money you spend on housing, food and even debt repayments is money that you pay to someone else. Why not put 10% aside from every pay cheque into a separate account and treat that as money you pay yourself?

Don’t be too conservative in your investment approach, otherwise your returns will remain low. Learn about different types of investments and use them to build up a diversified investment portfolio.

Match your investments to your age and risk level. Learn how to approach investing using a life cycle investing

• • • •

• •

•

•

•

•

•

strategy. For example, when you are young you should let compounding work for you. As you get older, the more conservative your investments should become.

Make investing fun. Gather up your friends and start an investment club. Learning to invest as a group reduces the fear level and makes investing both educational and social.

Never invest in something you don’t understand. If your financial advisor can’t explain how it works, avoid it.

Be wary of investments that sound too good to be true. If an investment offers 20% in a marketplace in which 5% is the typical return, don’t touch it.

It is not possible to beat the market using publicly announced information. If you see a piece of news in the media you should remember that the effects of the news are already reflected in the asset’s price.

Riskier investments produce higher potential returns. The market prices in risk. To take advantage of the increased returns associated with increased risk, you have to have a long investment horizon.

Diversification helps you by doing two things: it averages the risk among all your investments, and it narrows the effect of risk (that is, if something bad happens, it’s only happening to a part of your portfolio).

A sound investment strategy can only be achieved once you have chosen an investment time horizon. Are you saving for the short, medium or long-term?

David McEwen is a share market analyst and financial adviser david@mcewen.co.nz

54

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

Balance

Women are doing it for themselves Auckland duo is helping Kiwi women achieve financial freedom while achieving the much vaunted work-life balance

F

or the modern woman, the demands of managing a job with a family and a healthy lifestyle can seem near impossible, say two entrepreneurs.

Janine Ogg and Jo Foster say those who aspire to have both a successful career and a balanced family life often feel dogged by high stress levels, strained family relationships, feelings of guilt and an unhealthy lifestyle.

“They frequently places their own health and fitness at the bottom of a long list of priorities,” says Jo. “For many, the belief that women can ‘have it all’ has proven to be a frustrating myth – simply adding to the pressures and expectations we put on ourselves as we go about our daily lives.”

However, Jo and Janine say women in New Zealand and around the world are refusing to accept that it has to be this way – and fortunately for those who aren’t prepared to give up on the work life balance dream, exciting possibilities are starting to arise.

They point to last year’s Intuit 2020 report that forecasts that work-life balance will no longer be a myth as we start to use the range of modern tools and technology that’s available to invest in our communities and families.

The report also found that social connectivity, wireless networks, mobile communications and computing devices are “redefining the boundaries of presence and location, affording entrepreneurs the flexibility to do business virtually anywhere”.

“It also looks like women are going to be at the forefront of this change,” says Janine.

The Intuit 2020 report predicts that in the next 10 years, one billion women will be contributing to the world economy as a direct result of these developments. Many of these women will opt out of conventional careers because they have an entrepreneurial spirit and want to forge their own path.

Others may strike out on their own because they feel they have no other option if they want the freedom to balance work and their social life.

“Technological advances are not only making it easier for women to strike out on their own but they are also making it cheaper,” says Jo. “The evolving systems and software significantly reduce the cost (and therefore the risk) of setting up and running a small business.”

Janine and Jo run Love Your Small Business and say it is an example how this trend is playing out in New Zealand. They are helping women around the world keep up with these developments.

Janine and Jo

Their company shows women how they can achieve financial freedom and work/life balance for themselves through entrepreneurship. In addition, Janine and Jo have prioritised work life balance for themselves.

They have developed a hybrid business model that combines online technology with offline programs to ensure they can deliver quality outcomes for clients around the world, while still enjoying their own family relationships and balanced, healthy lives.

In the spirit of showing women that they can have their cake and eat it too, they host women-only online events.

Their Profit with Purpose telesummit provides free access to expert information for women, no matter what their means or what stage of business they are in, and is an example of how women can use online technology in business.

The summit brings together people from around the world to share advice and inspiration with women entrepreneurs.

Among those who have taken part is former Fortune 500 executive and author Maria Gamb.

“Overall, the intention is to connect women entrepreneurs, budding and established, with the tools, resources and information they need to achieve financial freedom and work/ life balance,” says Jo. “And when the message is all about how you can create a profitable business in a purposeful way, engaging with emerging technologies is on the list of topics.

“Among other things, the telesummits will explore how to use social media, tips for putting place business systems, how you can have fun creating a meaningful business plan, stress management techniques and how to practice inspired leadership and generate a mindset of success.”

New Zealand INVESTOR • June 2011 • www.irg.co.nz

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Parting Shot

Look after your cash From July all financial advisors will need to be trained and registered to offer advice, be sure to sound out your advisor on what qualifications they have, writes Brent King

T

he new financial adviser regulations take effect on the 1 July this year.

This will mean that financial advisors will need to have qualifications to continue in the business.

The qualifications requirements will depend on the type of advice the advisor will give. If advice is only to be on products that the advisors employer is the promoter of then the required qualification will be different to the situation where an advisor gives advice on the full range of products including shares, bonds and unit trusts.

The key for investors is to ask your advisor about their individual qualifications and to be clear about what they are able to give advice on.

Your advisor is required to give you a disclosure statement.

Make sure you read it clearly and that you understand it.

The point is the government believes this will improve the performance of the financial markets. There is logic in this argument however the simple fact is Financial markets in countries that have a strong economy perform well. Those in economies that have a soft or poor economy perform badly.

Our focus should be on ensuring our economy is well managed and in a growth cycle. It should be focused on production not simply speculative assets of property and finance.

I agree with the concept of up skilling the financial services sector. This is logical and prudent.

We needed now to ensure that the public take advantage of the skills and don’t continue down the path of making judgments without advice. If the market took advice on all

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New Zealand INVESTOR • June 2011 • www.irg.co.nz

takeovers we would not have the stupid offers from predators offering steeply discounted offers for listed shares such as Vector etc.

The market has an opportunity now to take advantage of the increased technical knowledge. I strongly encourage clients to do so.

The biggest focus for all New Zealanders is to get an efficient market that gives the strong growth and increasing wealth. The vote catching lolly scrambles are simply destructive to an efficient economy.

The give-aways such as student loans are simply wrong.

New Zealand has been lurching from policy to policy. The politicians simply don’t have a plan except to get re-elected.

As a country we are going to have to make decisions about medium term objectives or continue to wait for the growth of our commodity prices to create wealth.

In the meantime we borrow more and more and employ more government officials to enforce laws.

In this column I have criticize the government for borrowing up to $1 Billion a week!

The government and markets have finally realized this is a not sustainable.

I now strongly suggest to readers that they focus more on their money and take very good advice.

They consider how the economy is being run and support political Parties that have a medium term plan.

The key factor is to look after your own money. Don’t expect the government to do it. They never have and never will!

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