BHP Billiton, Fortescue Metals, Wesfarmers and Woolworths all reporting well as profit season wraps up

By finance reporter Stephen Letts Updated about 5 hours ago Related Story: Santos plunges to $2.7b loss, Sims crushed but Iluka returns to profit Related Story: Medibank profit rises but dividend falls Map: Australia Results from the big end of resources and retail dominate this week with BHP Billiton, Fortescue Metals, Wesfarmers and Woolworths all reporting and pretty well wrapping up the profit season. It has been a case of so far, not so bad, even quite good. At roughly half time, with 47 per cent of companies comprising 61 per cent of market capitalisation having posted results, Citi's Quantitative Research team has the scoreboard reading 30 per cent beating earnings forecasts, 26 per cent below and 44 per cent in line. AMP Capital's Shane Oliver has the score at 54 per cent beating expectations, with 68 per cent of companies reporting higher profits on a year ago — against the long-term average of 62 per cent — and 69 per cent raising dividends. "Company guidance has had a slight positive skew," Mr Oliver said. "The better-than-feared nature of the results to date has been reflected in 66 per cent of stocks seeing their share price outperform the market the day results were released." There is a caveat though; there is still a way to go and good results have a habit of coming out early in the reporting season. Resources: BHP Billiton (Tuesday), Fortescue (Wednesday) and South 32 (Thursday) BHP Billiton's result will not be pretty; expect net profit to be down at least 80 per cent on last year's interim profit of almost $US5 billion. The $US7 billion charge to US onshore oil and gas assets has been well ventilated, after BHP lowered its short and medium-term oil prices. BHP conducts a bi-annual review of its asset values and it begs the question whether any other nasties will pop up in the result. Morgan Stanley resources team — which recently upgraded BHP to a buy — said there was some potential for further impairment, although probably at the more modest end of the scale. That is, of course, unless BHP capitulates on its commodity price assumptions, in which case investors better put on their hard hats. The other big news will be the seeming inevitability of the shrinking Big Australian cutting its progressive dividend policy. Deutsche Bank argued in a note to clients BHP will pull both the capex and dividend levers to maintain its A credit rating. "It [BHP] can cut financial year capex to a reasonable $US5.5 to $6 billion — current guidance is $US7 billion — and cut the progressive dividend by 50 per cent or $US3 billion," Deutsche Bank said. The broker said BHP could cut even deeper into capex — by another $1.5 billion — but argued that it would just damage the business. "Cutting the dividend, in theory, does not change the fundamental value of the company, it is simply an allocation of cash," Deutsche Bank noted in maintaining its valuation of BHP at $20.27 a share. "However, we think it would improve BHP's ability to make value accretive buybacks or pursue M&A [mergers and acquisitions] in oil and copper at this low point in the cycle." Deutsche Bank is looking beyond the profit number — and dividend cut — in the results focusing instead on management's strategy to lift growth and returns. BHP's smaller Pilbara neighbour Fortescue Metals Group has been punished like all the iron-ore miners, but its recent second quarter results showed an improvement, at least in an operational sense. It cut cash costs and the capex budget, improved its mining efficiency and the quality of its product, all of which has boosted margins and moved Fortescue break even costs down to around $30 a tonne. Net profit may even rise to around $400 million, which would be a pretty good effort in the current environment. South 32 — the BHP spin-off of second tier assets — reports as well in what has so far been a short and less-than-prosperous corporate life. Nothing to get excited about here — expect more talk of ripping costs out and there is potential for impairment charges to make for a pretty grim result. Infographic: Share price response relative to market on day of results (Source: AMP Capital) Retail: Wesfarmers (Wednesday), Woolworths (Friday) and Harvey Norman (Friday) Sales growth for all the big supermarket chains is less than thrilling as Coles, Woolworths and Aldi duke it out in a bare-knuckled price fight. Morgan Stanley has been studying the checkouts and found Coles and Woolworths have cut prices by around 4.6 per cent, and Aldi by 1.2 per cent — so in relative terms, not much has changed. "Industry data indicates supermarkets are doing it tougher … supermarkets industry sales growth has slowed to just 2.5 per cent while food inflation in supermarket products has turned negative," Morgan Stanley noted. As the supermarket space race continues — floor space growing at around 4 per cent a year — the immediate outlook is certainly challenging. Wesfarmers is expected to deliver a first half profit a tad under $1.4 billion, or roughly what it produced this time last year. Food and Liquor sales should be growing by a respectable 3.5 per cent, while Bunnings will be good for another 7 per cent or so growth. Wesfarmers' coal operations — as opposed to Coles operation — will be a black spot and drag things down a bit. Woolworths set its first half profit guidance of $900 million to $1 million back in October and has stuck by it ever since. Most brokers are going for the lower end of the range which would represent a 30-per-cent drop on the previous corresponding period. Credit Suisse has forecast zero like-for-like sales growth for Woolworths in food and liquor for the second quarter, which is hardly laying them in the aisles. Credit Suisse also forecasts a considerable contraction in margins, which is unlikely to be appreciated in the investor community. As well, the home improvement business — Masters — will most likely be booked in as a discontinued operation, incurring a rather nasty impairment charge in the numbers. Harvey Norman, on the other hand, seems to be sailing along quite happily, driven by the strong tailwinds from the housing sector. Executive chairman Gerry Harvey does not provide guidance but a half-year profit of around $170 million — up from $138 million last year — on sales growth of 7 per cent is a reasonable punt. Qantas (Tuesday): Qantas is popular tip amongst brokers to produce a pleasant first-half surprise with a profit of around $920 million, at the top end of its guidance range. Whatever the number, the carrier will certainly gain altitude from last year's $200 million profit and the $235 million loss back in 2014. Sydney Airport traffic statistics certainly point to a strong results and international growth and tumbling fuel prices are doing their bit as well. QBE (Tuesday): The consensus view is the globally focused insurer QBE will roll out full-year profit of $US850 million, which would be up on last year's $US821 million. But as always with insurers, there are many complicated and messy bits that make up the bottom line. So far the domestic insurers — Suncorp and IAG — have suffered from poor investment returns as much as natural disasters. Mark-to-market downgrades on asset values could drag down the second half performance while policy renewals may be weaker than expected. Will wage growth and capex crawl off the mat? The week's economic highlights will be two of the domestic economy's lowlights: wages and private capital expenditure. While employment has remained solid, wages and capex have been missing links in non-mining business indicators pointing a broadly robust economy. Capex and the associated expectations survey, due Thursday, have been variously described in previous quarters as appalling, dismal and recessionary. The forecast this time around is for a 1-per-cent contraction, which does not sound great but means things are getting worse at a slower rate than the 9-per-cent fall in December. Wages growth while not dismal, could be described more accurately as flat to moribund at 2.3 per cent year-on-year. It probably will not get worse, but don't expect it to get better in the short-term at least. Overseas, things are quiet. US GDP growth is likely to revised down again, from the current estimate of 0.7 per cent to 0.5 per cent. Unofficial reading of manufacturing activity in the US, Europe and Japan will be released as well and all are expected to show expanding — if not thriving — activity. Australia Day Notes Wednesday 24/2/16 Wage price index Construction work Q4: Wage growth insipid, around 2.3 per cent year-on-year Q4: Down 4 per cent in last quarter, likely to be flat Thursday 25/2/16 Capex Q4: Has been at recessionary levels, couldn't get much worse, could it? Friday 26/2/16 Private sector credit Jan: Has been solid plus 6 per cent year-on-year Corporate Day Notes Monday 22/2/16 Bluescope Steel Brambles Int: Could be a positive surprise driven by cost-cutting Int: A solid first half profit of $US300m forecast Tuesday 23/2/16 BHP Caltex Oil Search Qantas QBE Int: The focus will be on the dividend FY: Profit should rise strongly, dividends up too? FY: PNG growth makes it one of the least bad oil plays. Profit could rise 50 per cent Int: A half-year profit above $900m expected FY: Flatish profit of around $US850m Wednesday 24/2/16 Asciano Flight Centre Fortescue Wesfarmers Worley Parsons Int: Focus will be on the takeover offer from Qube Int: Should be a solid result Int: Cost-cutting and efficiency could make it a not so bad result Int: A $1.4-billion profit will be solid, but flat. Int: Servicing the gas and mining industry means a significant drop in profit is on the cards. Thursday 25/2/16 Crown Entertainment Perpetual South 32 Int: Profit likely to be dragged down by Macau Int: Probably a flat profit of around $60m Int: Not pretty, more cost cutting Friday 26/2/16 Harvey Norman Woolworths Int: Going OK, profit of around $170m tipped Int: Going backwards, profit below $1bn Overseas Day Notes Monday 22/2/16 US, EU, JP: PMIs Feb: Markit's series on manufacturing activity, all expected to be expanding Tuesday 23/2/16 US: Home prices US: Existing home sales Dec: CaseShiller series, up around 6 per cent year-on-year Jan: Robust, up 15 per cent in December Wednesday 24/2/16 US: New home sales Jan: Up 11 per cent in December, may be lower this time Thursday 25/2/16 US: Durable goods orders EU: Inflation Jan: A measure of business investment. Dropped in December Jan: Stubbornly low, 0.4 per cent forecast Friday 26/2/16 US: Economic growth Q4: Forecast to drop from 0.7 per cent yoy. Not brilliant From other news sites:

Urban development in Australia comprises much less than 1 % of the land area.

Access to land at root of soaring house prices * Alan Moran * From: Herald Sun * March 04, 2011 12:00AM Posted Image Looking for land: Planning procedures are barriers to new housing development. Source: News Limited IN 2004, a report by the Commonwealth's normally reliable Productivity Commission (PC) completely misread the causes of high house prices. It failed to recognise that government planning processes had boosted house prices by starving the market of land for urban development. The PC instead blamed interest rates. Since then house prices have defied gravity even though interest rates have gone up and down. A new study by the PC into planning and zoning concludes that government regulation of land availability is the cause of Australia's high house prices. It demonstrates how planning procedures are barriers to new housing development. "Objectives overload" is how the PC describes why all Australian states suffer from excessively high house prices caused by government squeezing land supply. As well as unlocking land for housing, planning aims to promote environmental, social, safety, waste management and a host of other goals. As a result, the PC's new study shows that even after receiving in-principle approval to build, "in greenfield areas . . . as many as 10 years may pass between the time a developable parcel of land is assembled and the subdivision of that land is completed". Over the past 40 years, town planning has morphed from facilitating urban expansion into preventing it. Instead of supporting consumers' requirements by identifying what is needed in terms of trunk roads, mainline water and sewerage facilities etc, planning now seeks to cannibalise urban development in directions preferred by the planners themselves and by politicians. The result is increased costs that are paid for by new house buyers. One rationalisation for planning controls over the location of new housing is that development involves costs to governments. Nowadays, however, government costs in new urban expansions are largely confined to trunk roads and schools. These costs are dwarfed by those the new home buyer pays in land development, local roads, water and sewerage facilities, electricity and telecommunications, etc. Yet, the government costs, which frequently carry excessive charges, often dictate planning and zoning approvals. The PC demonstrates that using planning regulations to prevent "urban sprawl" is not justified for Australia. Unlike densely populated Hong Kong, one of the few jurisdictions with higher house prices than Australia, urban development in this country comprises much less than 1 per cent of the land area. Unfortunately, there are pressures to intensify "objectives overload" in the planning system. The Council of Australian Governments (COAG) with its intrinsically heavy-handed bureaucratic procedures has got involved. COAG's chief bureaucrat Terry Moran has called for "co-ordinated infrastructure, transport and land use plans, clearly identified priorities for future government investment and policy effort, and to enhanced collaboration between all three levels of government". By adding new layers of costs and delays that approach would further gum-up the process. At one time, entrepreneurs like Alan Bond simply bought scrubland close to the city, built local roads and subdivided land with little input from government. At present day prices, such ready-to-build upon blocks would cost $70,000. That's a far cry from the $200,000-plus slug for new buyers looking to build on the outskirts of Melbourne, let alone the $350,000 required for Sydney. Alan Moran is the Director, Deregulation at the Institute of Public Affairs. ======================================================== 150 years of mining to end as Rio Tinto closes Blair Athol mine in central Queensland by end of year John Mccarthy The Courier-Mail August 09, 2012 12:00AM RIO Tinto's Blair Athol mine in central Queensland will close by the end of the year. Blair Athol has had a history of stop-start mining since coal was first discovered there in 1864. Rio opened its main mine in 1984. The end came because of higher costs, the exchange rate and the "significant drop in thermal coal prices". But its end had been predicted five years ago, as the easier-to-reach coal seams began to run out. The decision follows a shutdown by BHP Billiton of one of its seven joint-venture mines in the Bowen Basin earlier this year for similar reasons. Rio said there were about 170 employees and contractors at the mine. About 30 positions will be retained after production finishes in the coal handling and preparation plant and rail load-out facilities, which will continue to be used for coal from the nearby Rio-operated Clermont Mine, as well as care and maintenance work in the lead-up to a rehabilitation program. Clermont region general manager (operations) Dawid Pretorius said the majority of employees wanted to take a redundancy. Redeployment was possible. Read more: http://www.heraldsun.com.au/news/national/years-of-mining-to-end-as-rio-tinto-closes-blair-athol-mine-in-central-queensland-by-end-of-year/story-fndo45r1-1226446255855 ================================================ strawman - a person used as a cover for some questionable activity ≡figurehead, front man, nominal head, straw man, front ↔beguiler, cheater, deceiver, trickster, slicker, cheat - someone who leads you to believe something that is not true 2. strawman - a weak or sham argument set up to be easily refuted ------------ spruik (ˈspruːɪk) vb (intr) archaic slang Austral (Of, relating to, or coming from the south.) to speak in public (used esp of a showman or salesman) ==================

Saskatchewan would study a foreign bid for Viterra

Mon, Mar 12 16:16 PM EDT

WINNIPEG, Manitoba, March 12 (Reuters) - Saskatchewan Premier Brad Wall said on Monday that his government would scrutinize any foreign takeover bid for grain handler Viterra Inc and make a recommendation to the Canadian federal government on whether to approve or reject it.

Viterra, Canada's biggest grain handler, is headquartered in Saskatchewan, a province that is also a major grain producer.

Wall, whose opposition in 2010 is widely seen as persuading Ottawa to block a foreign takeover bid for Saskatchewan-based fertilizer producer Potash Corp, said the province doesn't have any position on Viterra currently because there has not been a formal takeover offer announced.

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Glencore plans three-way Viterra split-source
Fri, Mar 16 10:08 AM EDT

By Victoria Howley

LONDON, March 16 (Reuters) - Glencore is planning a three-way carve-up of Canada's largest grain handler Viterra, an industry source said, to help navigate a politically charged federal review process if it wins the looming bidding war for the company.

Earlier reports said that commodity trading giant Glencore, also bidding for mining group Xstrata, was planning to launch a joint offer with two Canadian companies, privately-owned grain trader Richardson International and fertilizer producer Agrium.

The industry source told Reuters that Glencore would instead buy all of Viterra and then sell its retail fertilizer business to Agrium, with Richardson taking the food processing unit in a rare and complex so-called "back-to-back" transaction.

Viterra said this week it had established a process for considering expressions of interest from parties it declined to name, which sent the stock up 10 percent.

Reuters reported previously that U.S.-based Bunge and Archer Daniels Midland had made approaches along with Glencore.

A foreign takeover of Viterra would be subject to a federal government review to determine whether it is of "net benefit" to Canada. The government vetoed a takeover of Potash Corp by Anglo-Austalian mining giant BHP Billiton in 2010, damaging the country's image as a free market supporter.

Ottawa may be less likely to block a foreign bid for Viterra, however, because its home province of Saskatchewan has already said it doesn't see the company as a strategic resource and does not collect royalty revenues from it, unlike Potash.

Glencore declined to comment.
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Canada's Harper says Viterra bid not 'primarily' foreign
Sun, Mar 25 11:43 AM EDT

* Harper notes many assets will stay in Canadian hands

* Says interest in grain sector "tremendously good thing"

* Opens free trade talks with Japan

March 25 (Reuters) - Canadian Prime Minister Stephen Harper said on Sunday that the structure of Glencore's C$6.1 billion ($6.1 billion) deal to buy No. 1 Canadian grain handler Viterra means it should not necessarily be seen as a full foreign takeover.

Harper's comments come as the Canadian government and regulators begin reviewing the offer by Swiss-based Glencore, already the world's No. 1 commodities trader. Glencore plans to acquire Viterra and then sell off some parts to Canada's Richardson International and Agrium.

"My understanding of the deal is that many of the assets will actually remain in Canadian hands, so I'm not sure it really would be categorized at this point as primarily a foreign investment," he told reporters during his official visit to Japan, according to a transcript provided by his office.

"I think the most important thing is that it does show with the reforms we're making to the grain sector how much interest there is now in the expansion of the grain sector and the agricultural sector in Canada, and I think that's a tremendously good thing."

In 2010, Ottawa blocked a hostile bid by Anglo-American miner BHP Billiton for Saskatchewan-based Potash Corp, the world's largest fertilizer maker, stirring concern about whether the government will allow Viterra to fall under foreign control.

But analysts have said structuring the deal to sell the majority of Viterra's Canadian assets and some others to closely held Richardson and Agrium for roughly C$2.6 billion in cash should allay concerns that Ottawa could block it on national sovereignty or competition grounds.

The Glencore-Viterra deal comes after the pro-markets Conservative government led by Harper ended a long-running monopoly by the Canadian Wheat Board on marketing Western Canadian wheat and barley.

Separately, Harper and Japanese Prime Minister Yoshihiko Noda announced the launch of negotiations towards a free trade agreement. The Canadian government said in statement that a deal could mean gains of up to C$3.8 billion a year in Canadian gross domestic product.

The negotiations will likely be fiercely opposed by the Canadian Auto Workers' union, which represents workers at the Canadian units of General Motors , Ford Motor Co and Chrysler.
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Yara buys 20 pct stake in Canada's IC Potash Group
Mon, Apr 02 02:17 AM EDT

OSLO, April 2 (Reuters) - Norway's Yara said on Monday it had agreed to invest about 40 million Canadian dollars ($40.0 million) in a 19.9 percent stake in Canada's IC Potash Group (ICP) in a private placement transaction.

Yara, the world's biggest nitrogen-based fertiliser maker, said it would aquire 30.13 million common shares in ICP at a price of $1.32 per share.

The firm said it had also entered into an off-take arrangement for 30 percent of all products produced by ICP's Ochoa project in New Mexico for a period of 15 years, and discussed the possibility of establishing a jointly held entity for the purpose of marketing the project's products.

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UPDATE 1-Canada offers more transparency on takeover rules
Fri, Apr 27 12:06 PM EDT

April 27 (Reuters) - The Canadian government promised on Friday to make its reviews of foreign takeovers more transparent, allowing it to explain when it has concerns about a proposed investment and perhaps even saying why.

A government statement said Canada will change the way it reviews foreign investments, a nod to those who have complained about opaque rules that allow the government to block takeovers that it does not think will provide a net benefit to Canada.

"The amendments would allow the minister (of industry) to disclose publicly the fact that he has sent a preliminary notice to an investor that he is not satisfied that the investment is likely to be of net benefit to Canada," the statement said.

"They would also allow the minister to publicly explain his reasons for sending the notice as long as it would not cause harm to the Canadian business or the investor."

Canada, which traditionally bills itself as open to business, shocked the international business community in 2010 when it vetoed a takeover bid for fertilizer giant Potash Corp from Anglo-Australian miner BHP Billiton.

That also prompted concern about what the Conservative government would do if, for example, a foreign company bid for BlackBerry maker Research In Motion, a major Canadian technology company that has fallen on hard times as consumers shy away from its smartphones.

Under the Investment Canada Act, the government can review and block any foreign investments worth more than C$312 million ($318 million), a paltry sum in the global mergers game, if it thinks a deal is not in Canada's best interests.

It has exercised that right twice; once with the planned acquisition of a satellite company by a U.S. bidder and in the 2010 bid for Potash Corp.

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