Did real wages really grow in 2014? The stats, don’t lie, do they? Real wages certainly did rise faster than inflation last year — up 0.6% in the December quarter and 2.5% for the year. That compares to a consumer inflation rate of 0.2% for the December quarter and 1.7% for the year. But that growth was due to the sharp fall in inflation in the December quarter, thanks to falling oil and petrol prices, rather than soaring wage growth. In fact, the quarterly growth rate of 0.6% was flat through most of the year, which again confirms there are no wage pressures in the economy as a whole. The extra disposable income from lower interest rates and petrol prices looks like a big boost for the economy, but Australian home owners don’t spend rate cuts, they save them in a majority of cases by boosting interest repayments. The petrol price fall still looks ephemeral and will depend on the value of the dollar. Oil and petrol prices have risen from the lows of December/January, so the extra money in consumers pockets will start falling. Unfortunately for tax revenues and Joe Hockey’s budget, it’s bad news — as higher disposable income isn’t taxed directly and the government (sorry, the states) only benefits through higher GST receipts. But those receipts will be down because the value of petrol sales has fallen sharply. Bad luck, Joe. — Glenn Dyer

US rate rise looms — seriously. At the moment the US Federal Reserve is being “patient” about the timing of the first interest rate movement since December 2008. That means it will be at least two Fed meetings before it moves to lift rates. So it’s sitting, observing the US economy (which seems to have slowed a touch this quarter). But from what chair Janet Yellen said overnight, the central bank is generally happy with the US economy’s strength and direction, especially the labour market. In her first appearance for 2015 before US Congress, Yellen gave us a clue as to when we can expect that interest rate rise when she told a US Senate committee that if the central bank modified its guidance to markets, a rate rise could follow at any meeting. And dropping the use of the word “patient” could come as soon as next month’s meeting of the Fed’s Open Markets Committee, with Yellen telling the committee the “modification should be understood as reflecting the committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target [interest rate] range could be warranted at any meeting”. She said if growth continued to strengthen, the Fed would start considering an increase on a “meeting-by-meeting basis”. But with the Fed tipping US inflation to continue to decline for several more months, then remain muted, a rate rise will not necessarily come quickly, because the central bank wants to be certain inflation is heading back to the 2% target range. Once that becomes certain, US interest rates will rise. So a US rate rise is coming — and markets didn’t blink overnight. — Glenn Dyer

Kiwis do it better #45. Not content with having stronger economic growth, higher interest rates, the best rugby team in the world and perhaps the biggest threat to Australia at the Cricket World Cup, the country’s government-controlled airline, Air New Zealand, is paying yet another dividend to shareholders — while Qantas continues to withhold payments to its long-suffering shareholders. Air NZ announced this morning a 20% rise in half-year underlying earnings before tax to NZ$216 million. Air NZ declared an interim dividend of NZ6.5 cents per share, up 44% on the same period last year. Qantas reports its interim figures tomorrow morning — will it rejoin the dividend-paying club, or remain in the doghouse with its bitter rival, Virgin Australia? Is it time for the Flying Kangaroo to put up for shareholders with an expected surge in earnings thanks to the fall in fuel costs and thousands of job cuts? Or will we hear more Blarney Stone blather about how competitive things are in the industry? — Glenn Dyer

French nuclear financial meltdown #1. Here’s the ugly truth about nuclear power — besides the very obvious one of the highly dangerous nature of its core raw material and production process. Its financial dangers seem to be just as scary, but no one in Australia seems to worry about that. The discussions and controversies here are all about the fuel cycle, uranium mining and disposing of the waste — all vital issues. But few if any people worry about the real cost of power stations and whether they can be built on time and according to budget. So here’s a timely warning for anyone interested: take a look at French nuclear group Areva and its recent adventures in nuclear power. On Tuesday, the company (the world’s largest nuclear group) issued its fifth profit warning in seven months, saying it expected to report a 4.9 billion euro loss (over A$7.1 billion — much more than the 3.7 billion euro sharemarket value of the company) for 2014 thanks to cost overruns on key European projects, especially a much-delayed power station in Finland. The loss will be the largest the French state-controlled group has ever recorded. The warning came as the company continues to work on a massive bailout with its biggest shareholder, the French government, which owns 87%. Areva has huge debts and hasn’t sold a new nuclear power station since 2007, and its biggest headache is the cost overruns on the Finnish Olkiluoto 3 reactor, which is now due to come online in 2018, 10 years behind schedule and horrendously over budget. The project has so far been the subject of 3.9 billion euros of impairment charges (A$5.7 billion) by Areva. The company has also taken losses on its investments in a new uranium conversion plant in France and on an abortive expansion into solar energy, which failed with over A$500 million in losses. Will the South Australian Royal Commission into nuclear power take a cool, rational look at Areva’s stuff-ups in Finland and its mishandling of other projects? Also not helping has been the worldwide slow-down in nuclear power stations since the Fukushima disaster in Japan in March 2011. By the way, a new leak of radioactive water from Fukushima was reported this week. — Glenn Dyer

And here’s French nuclear headache #2. Besides its stake in Areva, the French government controls around 85% of the other big state nuclear power company, EDF (once known as Electricite de France), which produces most of France’s electric power from a chain of nuclear power stations. EDF is facing lengthy delays and steep cost overruns on a new plant it’s building at Flamanville, Normandy. The cost of that plant has jumped 50% to 5 billion euros, with start-up date now 2016 instead of 2012, but with no certainty. There are also uncertainties about whether a showcase project in Britain will proceed — one in which both EDF and Areva would participate. At 16 billion pounds, or around A$30 billion, the planned power station at Hinkley Point is now looking very uncertain. It would be the first such plant to be built in Britain since the 1990s, but with the problems at EDF and Areva (a 10% shareholder) there’s every chance a decision will be delayed into 2016 at the earliest. Certainly nothing will happen for months, with the UK about to face a very confusing national poll in May. The original plan was to start producing electricity from Hinkley Point in 2018; now the talk is 2013. Optimists. On present indications, Hinkley Point and the troubled plants in Finland and Normandy won’t happen without financial bailouts from the government, which is already short of money and facing the difficult task of reviving a moribund economy. Bailing out Areva and EDF would divert billions of euros from being used to stimulate the economy rather than pay off creditors to both tottering giants. — Glenn Dyer

A bargain buy, but not a bargain deal. Here’s why Sydney-based womenswear retailer Specialty Fashion, in buying a company for $5 million, bought itself millions of dollars of pain and management headaches and destroyed shareholder value hand over fist, once again underlining why many takeovers are simply dud deals. Despite many in the business media lauding the November 2013 purchase of Rivers, the heavily advertised chain of footwear, men’s and women’s clothing stores, it has been a loss-making disaster, as we saw with the interim results for Specialty Fashion yesterday. The company warned in January of the problems flowing from the Rivers deal, and yesterday shareholders got the final bad news — no interim dividend because Rivers has weakened the strength of the group as a whole. Specialty said earnings for the six months to December 31 fell more than 60% thanks to the losses at Rivers. That was despite Rivers powering a 27.4% jump in Speciality Fashion’s sales for the half year to $413 million. But Rivers destroyed profit margins to the point where Specialty’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell 27.5% to $22.6 million, and net profit for the half-year plunged 64% to just $5.85 million. While sales and margins improved at Specialty Fashion’s major brands, Katies, Millers, Crossroads, Autograph and City Chic, Rivers’ losses widened to $11.2 million as prices were slashed to clear excess stock. Rivers’ heavy ad spend was also slashed to save money, but it wasn’t enough. Rivers’ losses are expected to continue for the next 12 to 18 months, meaning more pressures for Specialty Fashion and its shareholders. When it bought Rivers in late November, 2013, Specialty Fashion’s shares were trading at 88 cents. They closed trading yesterday at 67 cents, down 4% on the day and close on 24% since the purchase. In terms of market value, that’s a fall of close to $30 million. Some bargain, wasn’t it? — Glenn Dyer

Patties does the right thing. Unlike Prime Minister Tony Abbott, Patties Foods has done the smart thing in dropping its interim dividend because of the unknown costs associated with its Chile/Chinese berry hepatitis poisoning scare. There’s no sense in antagonising possible victims, their lawyers and the public generally by paying out dividends to shareholders while some people are suffering from an unexpected infection of Hep A — it’s not the best PR. Patties paid an interim dividend of 3.2 cents a share a year ago; this year, none until the situation and the costs are sorted. Explaining the reasons behind the dividend decision, Patties said in a statement accompanying the profit report: “Due to the current uncertainties around the potential but as yet unknown effects resulting from the voluntary frozen berries recall, the board has prudently determined to defer consideration of an interim dividend until matters and their financial impacts become clearer.” And the company’s chairman, Mark Smith, said tests were currently being conducted to identify a link with the Hepatitis A outbreak and the Nanna’s berries product. “Patties is acting in full co-operation with the state and federal health authorities, the department of agriculture and FSANZ. Whilst the source of the Hepatitis A virus is still unconfirmed, further detailed tests are being conducted by Patties Foods and the relevant authorities,” he said yesterday. That’s making a better fist of a difficult situation than Abbott, who last week told the ABC “Australian companies shouldn’t be poisoning their customers” — said with no evidence at all that any poisoning has actually happened. Patties shares are down around 12% since the berry problems emerged earlier this month. That’s a loss of more than $20 million in value. — Glenn Dyer

Not beating around the Bush: After eight tough years Southern Cross Austereo chairman Max “The Axe” Moore-Wilton has been replaced by well-regarded Peter Bush, who also chairs ASX-listed Pacific Brands and Mantra Group. Bush has a solid track record in media having chaired Nine through its painful restructure under the ownership of private equiteers CVC, and knows more about survival than most having led the Cruising Yacht Club inquiry into the tragic 1998 Sydney-Hobart race. Southern Cross’ announcement this morning spins the line that the appointment gives the company’s board a clear majority of independent directors — four out of seven — after fresh recruits Kathy Gramp, Rob Murray and Glen Boreham joined in August. Not before time. But Southern Cross, owner of the 2day FM and MMM radio networks and a string of Ten and Seven regional TV affiliates nationally, remains firmly in the orbit of Nick Moore’s Macquarie Group — the largest shareholder, which recently boosted its stake to 27.5%.  The market clearly liked the Bush appointment, with Southern Cross shares jumping 10% this morning $1.04 even though it  reported a 7% drop in revenue to $308 million for the December half-year, and a 24% drop in after-tax profit to $35 million. From a standing start, and despite his other board commitments, Bush will have to get cracking. — Paddy Manning

Peter Fray

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