Capex just fine: Forget the 0.2% fall in capex in the March quarter reported today by the Australian Bureau of Statistics and instead focus on the future. The ABS said new private capital spending dropped slightly (down 0.2% in the March quarter from December when it rose a restated 6.1% (original estimate was 5.5%). The seasonally adjusted estimate for buildings rose 6.7% in the March quarter (it was down in the December quarter), while the seasonally adjusted estimate for equipment, plant and machinery fell 6.0% after rising sharply in the December quarter. Actual capital expenditure totalled $27.70 billion, seasonally adjusted.
That left the six estimate for the current financial year for new capital spending at $108.651 billion, down 2.5% for the same estimate of the 2009 financial year and 1.5% down on estimate 5 (at the end of the December quarter). Even so, capex is likely to reach near record levels in the 2010 financial year and, if there’s no significant change, will be the second highest level of investment spending recorded by the ABS. Looking into the 2011 financial year the ABS said the second estimate (in this report) was for a 16.9% rise capex (to $10.3.93 billion), compared with the second estimate for the 2010 financial year. Estimate 2 is also 3.7% higher than in estimate one for 2011.
Dud watch: the Foster’s divorce, day 2. All in all, the Southcorp buy has been shown to be a value-destroying deal and only benefited the selling Oatley family, who received $584 million for its 18.8% of Southcorp, and other shareholders in what was the biggest wine company in the country. They got $4.17 a share for their Southcorp shares when they sold out in early 2005. At that price and with the Foster’s price of about $5.49 yesterday, the other wine businesses (Beringer in the US) and the huge CUB beer business and distribution deals only have a value of $1.32 a Foster’s share, which is ridiculous. The beer business is worth more than the wine business because it makes more money. Foster’s announced write-offs of $770 million in 2008 and another $400 million-plus in February last year. Yesterday’s write-offs will be between $1.1 billion to $1.3 billion. Australian taxpayers will help Foster’s cut that by between $50 million and $100 million. Nice of us to help a needy company, isn’t it?
Dud watch2: so, all up the write-offs could total $2.5 billion before tax, or about 40% of what Foster’s paid (just over $6 billion). It started moving into wine in 1996 when it paid $482 million for Mildara Blass. It bought Beringer of the US in 2000, paying $2.6 billion and then Southcorp in early 2005, paying $3.7 billion. The Cellarmasters business was also bought for $150 million and is no longer. If that is not a value-destroying chain of deals, then what is? It’s also an indictment on successive boards, managers and advisers.
TV watch: According to London reports, RTL, the big European broadcaster, is planning to sell its unprofitable UK operator Channel Five, currently run by high-profile CEO Dawn Airey. Five runs Neighbours (which is made by the RTL subsidiary, Fremantle). The London Telegraph says that Channel Four (which is financially challenged) and BSkyB could be interested, along with the production house Endermol (which is part-owned by Silvio Berlusconi’s group Mediaset). Fremantle and RTL would not let Neighbours be owned by an opposition production house. The Telegraph says RTL had lined up advisers to prepare a “tender process” for the channel. The paper also said ITV could be interested, but it is financially challenged as well. The price, about £100 million for a business that lost £35 million last year. A lot of money for not much.
TV watch 2: And The Guardian says BSkyB is understood to be close to completing negotiations to buy Virgin Media Television’s successful TV channels business, which operates Virgin1, Living, Bravo and Challenge, for about £150 million. The paper said the deal could be finalised next week.
US economy watch: the US economy is ticking over with orders for US-made durable goods up 2.9% in April, thanks to stronger demand for planes and communications equipment. The US Commerce Department said that excluding the 16.1% increase in transportation goods, orders fell 1.0%. The overall increase exceeded the expected 2.5% rise forecast by economists. Total orders have risen in four of the past five months. March orders were revised upwards to show almost no change from the first estimate of a 0.6% decline. Shipments rose 1.4% in April, and were up 1.8% excluding transportation goods. Inventories rose 0.7%. Non-defence capital goods, excluding aircraft, often called core durable-goods orders, fell 2.4% in April after a 6.5% gain in March.
US house watch: new US house sales soared in April as home buyers rushed to claim the tax credit that expired at the end of the month. New house sales climbed 14.8% to a seasonally adjusted rate of 504,000 last month, up from an upwardly revised 439,000 in March, the Census Bureau reported. Sales were up 47.8% in April over April last year (when demand was very much lower because of the recession). The median price of new houses sold in April was $US198,400, down almost 10% from April last year because there were more first-time buyers. About 211,000 new houses were for sale at the end of April, that’s five months’ backlog at April’s sales level. With the tax credit ended, watch for a fall in new house sales from next this month onwards. Demand for mortgages has already dropped sharply and remained at a 13-year low last week.
Apple eats Microsoft: Apple overnight moved past Microsoft as the world’s most valuable company. Its market value of $US222.1 billion at the close was just ahead of Microsoft’s $US219.2 billion. Apple shares rose to above $US250 in trading and then eased. Microsoft shares fell 2.2% to $US25.50. Shares of Apple are worth more than 10 times what they were 10 years ago, as it has changed consumer electronics with products such as the iPod, iPhone and MacBook laptops. Microsoft, whose operating system runs on more than 90% of the world’s PCs, has run out of growth. Its shares are down about 18% over the past decade. But what about the string of suicides at the main Chinese factory of its iPhone supplier? Only ExxonMobil is ahead of Apple as the biggest company in the US with a market value of just over $US278 billion.
Euro watch: Italy has made a bold attempt to go to the top of the austerity zone (aka the eurozone, Club Austerity) with a €24.9 billion cut in Budget spending over the next two years. The cuts, foreshadowed this week, aims to reduce Italy’s Budget gap an additional 1.6 percentage points of gross domestic product to drop the shortfall to 2.7%, or within the EU limit of 3% of GDP in 2012 from 5.3% last year. The 5.3% of GDP level last year was less than half that of Greece, Ireland and Spain, which have the region’s highest deficits. Italy still has the zone’s current biggest debt at 115.8% of GDP.
Japan watch: Japan had another month of solid export growth in April. The government this morning said that exports rose 40.4% in April from April last year (when exports fell 39.1%). That was down on the 43.5% rise in March. Imports rose 20.6%, down from the 24.2% in March, but up sharply from the 35.5% fall in April last year. Exports to Asia, which account for more than half of Japan’s total exports, rose 45.3% from a year earlier, while those to the US were up 34.5%. Shipments to the European Union rose nearly 20% from a year earlier, slowing from a 26.7% rise in March. It was the fifth straight monthly rise. The trade surplus for the month was ¥742.26 billion, narrowing from ¥948.9 billion.
Census watch: the Australian Bureau of Statistics says people in parts of New South Wales, South Australia and Western Australia will be taking part in a test of the 2011 census next month. About 20,000 households in those three states will take part in the test, which will be held on June 15. The NSW regional city of Dubbo has been named as one part of the state where the test will be conducted with the 4300 houses in the area participating. The real census will happen on August 9 next year. For the test, form delivery starts on June 2; census test night is June 15 and the test forms will be collected from the next day.
Court watch: the US arm of ABC Learning Centres filed for bankruptcy in a Delaware court overnight, more than 18 months after the company went into administration in Australia. The filing came after an Arizona jury ruled against the company earlier this month in a lawsuit and ordered it to pay more than $US47 million in damages to RCS Capital Development LLC. Reuters reported that the company filed under Chapter 15 of US bankruptcy law, which deals with cases involving more than one country and allows American courts to recognise the actions of insolvency proceedings in foreign countries. ABC Learning listed both assets and debt of more than $US100 million each in court papers.