Harvey Norman profit falls 40%, Rudd Government tweaks stimulus: Economy Roundup

Retailer Harvey Norman has recorded a massive 40.2% decline in profit for the full year, but the company says it is “cautiously optimistic” about the industry’s performance in the coming months.

Net profit also fell to $214.35 million from $358.45 million during 2007-08. While sales rose 3.8%, the company maintains the harsh economic conditions have put its margins under pressure.

“The underlying strength and stability of the franchising operations segment, a strong balance sheet, our clear and distinct number one market position, our brands and our key supplier relationships are core factors in our ‘cautiously optimistic’ outlook for a positive future,” it said in a statement.

Profit from underlying business operations was $250.42 million, down 15% from $295.14 million during 2008. However, the company maintained this was a “substantial turnaround from the first-half result which was down 29.1%”.

Chairman Gerry Harvey said in a statement the retail, franchise and property systems have “proven to be resilient in achieving strong results, particularly in the second half of FY09, and our brands continue to grow market share in all key product categories”.

Rudd under fire for school stimulus blow-out

The Rudd Government is now under fire for a $1.7 billion deficit under its school infrastructure spending program, as inaccurate cost estimates and high prices from contractors force it to plug a massive hole in the budget.

A new report from coordinator general Mike Mrdak brought the $12 billion program into question, with opposition education spokesman Christopher Pyne labelling the program as a “debacle”.

The report claims that $1.5 billion has been taken from non-stimulus spending programs to help plug the hole, with the Education Department also contributing another $175.9 million.

It said the Government only assumed a 90% take-up rate for the stimulus spending by primary schools, but out of the country’s 8,000 schools only 78 refused the Government funds.

The spending will come out of the Government’s plans for insulating houses, with 700,000 homes and 800 public housing units now unable to claim the insulation due to the blow-out in schools spending.

It recommends the Government take a different approach to the program, which provides funds for school infrastructure projects such as new halls and classrooms, in order to save money.

“Where reasonable costs are not achieved through initial tender rounds, state and territory governments may need to renegotiate prices with the best proponent or consider alternative procurement approaches to ensure projects achieve value for money for government,” it says.

Australian shares higher on Wall Street results

Meanwhile, the Australian share market has opened higher today after a positive lead from the US, where higher oil prices saw Wall Street stocks rise.

The benchmark S&P/ASX200 index was up 23.2 points or 052% to 4474 at 12.00 AEST. The Australian dollar also moved up to US83c.

ANZ shares rose 0.6% to $20.45, with Commonwealth Bank shares also increasing 0.3% to $44.89. NAB shares gained 0.4% to $27.5, while Westpac rose 2% to $24.47.

The Commonwealth Bank has announced it will raise $900 million in the issue of a new Tier 1 hybrid security, which will qualify as non-innovative residual Tier 1 capital.

“The offer will increase the group’s Tier 1 capital ratio by 30bps, enhancing the strength of the group’s capital position,” the bank said in a statement to the ASX.

Shares in timber company Gunns have been placed in a trading halt due to discussions with an unknown party about a potential acquisition.

According to a statement given to the ASX, the company said it will be finalising the negotiations soon with shares to be halted for two days or until a statement is released to the market.

Oil refiner Caltex has recorded a 52% increase in first-half net profit, but said it expects the second half of the year to offer new challenges.

The company recorded net profit of $298 million, up from $196 million, with revenue also up 27% to $8.89 billion. It said in a statement the higher Australian dollar and oil prices would keep the company on its toes.

“Global refiner margins will likely remain under pressure in the second half of 2009 because of depressed demand and expected growth in global surplus refinery capacity,” Caltex said.

In the US, Wall Street closed higher due to a rebound in oil prices, but the market is expected to remain flat after a preliminary report regarding the country’s GDP remained steady, expecting a contraction of just 1%.

The Dow Jones industrial average gained 37.11 points, or 0.39%, to end at 9,580.63.