Unique economic factors drive a record quarterly trading surplus for NZ, plus big changes afoot at Spark

Record current account surplus unlikely to be repeated for a while

It was a unique combination of events that saw New Zealand post a record current account surplus yesterday of $482 million in the June quarter. Driven by strong dairy exports and a slump in oil imports due to the Level 4 lockdown more than offsetting the dramatic collapse in international tourism, it may be a while before the feat repeats itself.

The annual deficit of $5.77 billion, or 1.9 percent of GDP narrowed from 2.9 percent in the March quarter. It also came in well below the 2.3 percent consensus shortfall economists were picking.

It’s expected the deficit will begin to widen over time as the short-term hit of Covid-19 abates, domestic demand improves and corporate profitability recovers.

NZ’s net international position showed a liability of $180.06 billion at the end of June, or 58.4 percent of GDP, largely unchanged from the previous quarter when it was $179.34 billion, or 57.1 percent of GDP. Crown debt is expected to peak in 2023/24.

Spark announces plans to streamline its business

Spark New Zealand plans to simplify its business, increase annual revenue by as much as $290 million within three years and generate savings of up to $115 million.

Also top of its ‘To Do’ list is to accelerate the uptake of 5G technology and build out a range of new products related to its health and sports offerings.

Chief executive Jolie Hodson said the plan is about accelerating investments that are already working and using new tools and data analytics to speed new products and services to market.

“Customers are looking for ‘uber-like’ digital experiences and will move to the brands that make their lives easier, so we will accelerate our focus on delivering simple, intuitive customer experiences that ‘just work’” she said.

Spark plans to have 5G operating in up to seven locations by mid-2021 and is aiming to have a national core 5G network operating on a stand-alone basis by 2023.

And it seems its use of the copper wire telephone network is now on borrowed time. The telco said it has decommissioned a third so far and it wants 90 percent of its broadband customer base migrated off copper lines within three years.

In response to rapidly growing demand for digital services, Spark said it also plans to increase its network capacity by 200 percent during the next three years.

Spark shares closed up 1 percent at $4.80.

Fonterra expands its presence in Australia

Fonterra has given its Australian business unit the green light to acquire a Victorian cheese processor for A$19.2 million – subject to regulatory approvals.

The dairy giant said the purchase of Dairy Country would “help drive efficiencies” in its Australian cheese business.

Dairy Country is owned by Retail Food Group. The deal includes the firm’s processing and packing facilities in Victoria, with related services, intellectual property and the trademark for the Dairy Country brand.

The dairy cooperative is due to report annual earnings on September 18.

Fonterra Australia said its Australian consumer business improved gross margin during the period, particularly through chilled spreads.

Australia accounts for around 8 percent of Fonterra’s revenues.

Wirecard NZ business sold

The New Zealand business of failed German digital payment processor Wirecard has been sold, with its Australian branch, to ASX-listed Change Financial for A$7.8 million.

The two businesses have been in voluntary administration since July following the collapse of Wirecard in June.

Charge Financial said Wirecard Australia and NZ’s client base had delivered US$6.7 million in revenues for the 12 months to June 30.

In a related development, the global chairman of EY has expressed “regret” the Wirecard fraud was “not uncovered sooner” by his firm’s auditors and said the Big Four accounting group would “raise the bar significantly” on its vetting work.

Carmine Di Sibio, who has run EY since January 2019, wrote to clients amid a backlash against the group after it failed to identify a €1.9bn fraud at the once high-flying payments processor it audited for over a decade.

Wirecard collapsed in June after admitting that €1.9bn of so-called ‘cash reserves’ did not exist.

EY signed off Wirecard’s accounts for 10 years despite growing scrutiny of its accounting practices by multiple analysts and investors. It has been revealed basic errors included auditors not requesting crucial account information from a Singapore bank where Wirecard claimed it held large sums of money, a routine audit procedure that could have uncovered the fraud much earlier.

A number of investors are preparing to sue Wirecard and EY, which is also being investigated by German regulators.

Former accounting giant Arthur Anderson was eventually brought down following the collapse in 2001 of Enron, which had been a major audit client.

Snowflake IPO sets new record for most successful software listing ever

Cloud computing business Snowflake has raised the largest initial public offering ever for a US software company. Investors, including Warren Buffett, have agreed to purchase 28m shares of the company’s stock valued at US$120 apiece, thereby raising around $3.4bn for the fledgling business.

At that price it gives the company a market capitalisation of more than US$33bn, based on the number of shares outstanding.

Snowflake’s share price well exceeded the company’s targeted range of US$100 to US$110, having earlier been increased by more than a quarter a week earlier. The company’s phenomenal market value is more than two-and-a-half times the US$12.4bn valuation achieved in its most recent fundraising round in February.

Snowflake’s IPO will immediately create a huge publicly listed company in the cloud software industry. The offering is the biggest of the year and the largest in the US since Uber’s US$8.1bn flotation in May last year.

VMware, the cloud computing company majority owned by Dell, previously held the record for completing the largest software IPO, in 2007.

Snowflake has attracted investors with a fast-growing base of customers for its data warehousing product, which allows users to analyse data across multiple remote storage providers, such as Amazon Web Services.

Its revenues grew 121 per cent in the second quarter from the same period last year.

OECD says global economy slowly improving

In its latest report published yesterday, the Organisation for Economic Cooperation and Development upgraded its forecast for global economic output this year, noting that while declines were still “unprecedented in recent history,” the outlook has improved slightly since June.

The Paris-based agency said it now expects the world economy to shrink by 4.5 percent this year before expanding by 5 percent in 2021. Previously, the OECD said it thought the global economy would contract by 6 percent this year and grow 5.2 percent next year.

But the agency, which represents the world’s biggest economies, warned headline figures mask major discrepancies. While it significantly boosted its 2020 forecasts for the United States and China, and slightly raised the outlook for Europe, the OECD lowered its expectations for developing countries such as Mexico, Argentina, India, South Africa, Indonesia and Saudi Arabia.

OECD economists said the downgrades reflected “the prolonged spread of the virus, high levels of poverty and informality, and stricter confinement measures for an extended period.”

China is the only G20 country for which output is projected to rise in 2020, with its economy growing 1.8 percent, compared to a 3.8 percent contraction in the United States and a 7.9 percent decline among the 19 countries that use the euro.

Thomas Cook becomes an online business only

Exactly one year after the collapse of iconic UK travel retailer Thomas Cook, the company is being resurrected as a slimmed down, online-only travel business.

The relaunch comes as the travel industry faces the worst tourism crisis since records began. World Tourism Organisation figures show international tourist trips dropped by an unprecedented 65 percent during the first half of the year.

The new “Covid-ready” website will initially sell holidays to beach resorts and cities in countries on the UK government’s travel corridor list, including Turkey, Italy and some parts of Greece. Further destinations will be added when government restrictions are lifted, alongside more hotels and other types of accommodation.

The relaunch is backed by Fosun Tourism Group, the Chinese conglomerate that bought the Thomas Cook brand and online assets for £11m in November. Fosun also owns Club Med.

The former Thomas Cook Group, which previously operated 560 high streets branches in the UK and a fleet of aircraft as well as its tour operation business, employed 9,000 staff in the UK at the time of its collapse. In a sign of the times the new company will employ just 50 people, all of whom will work remotely.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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