Business in 2012: Crystal ball gazing

2012 is shaping up as a tricky one to negotiate for anyone in business. Here's a snapshot of what's on the horizon.

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Forecasters say the economy will grow around 3 per cent a year for the next two years - but we remain at the mercy of world markets.

Europe is heading for recession and the debt crisis there hits us in three ways: credit, trade and confidence.

US debt is at alarming levels but late this year there has been some encouraging economic data from the States and economists there are picking growth of 2.4 per cent next year.

Falling corporate profits in China and a cooling domestic property market are dimming growth prospects for the world's second-largest economy, which affects our exporters and the mineral-centric Australian economy - more bad news for us.

Home truths

Economists at the leading banks expect a relatively flat 2012 yet the enthusiasm of residential real estate agents knows no bounds. Somewhere in between lies the truth. New Zealanders still love bricks and mortar and spurn most alternatives, particularly the sharemarket.

Yet KiwiSaver may be starting to change that. Auckland and Christchurch are being seen as 2012's housing hot spots, the first for population expansion within tightly constrained city limits and the second for its rebuilding. The 30 per cent plunge in house prices predicted by one pundit three years ago has yet to happen.

Building up

Talking of the rebuilding, Christchurch work was slow to start, not the bonanza expected for Fletcher Building. Importing workers from overseas to live in satellite city worker camps failed to come to pass and the share price went sour. From 2011's high of more than $9.30 to ending the year around $5.90, how the mighty have fallen.

Chairman Ralph Waters gave off extremely negative signals at the annual meeting and had many riders for achieving profit predictions for the June 2012 full year. Yet chief executive Jonathan Ling remained optimistic. Again, somewhere between the two might lie the truth. Around February, we'll get a taster for the actual performance in the first six months when the half-year result emerges.

Vacancy signs

Will the lights ever go back on in Auckland's ghost towers? Dozens of floors in the CBD now stand empty, the fortunes of their tenants ruined by the GFC. Along Queen St and even up lawyers' mile on Shortland St, the floors are deserted, leaving landlords begging with for-lease signs.

Busy developers last decade brought in thousands of builders to put up newer, flasher, more eco-friendly blocks and added so much new stock that blocks such as 125 Queen St - the ex-BNZ tower in the centre of town - is virtually cleaned out of its office workers. Was that an echo from that office floor?

The great race

The stoush over content and the rights to international movies and music will heat up in 2012 as internet service providers work out how they will entice customers to sign up to ultra-fast broadband.

Internet television and movie services were touted as a big advantage of faster internet, but there are issues over what content providers will be able to offer.

A Commerce Commission report due in May will focus on the issues driving (or blocking) demand for fast broadband. According to industry sources this will put a spotlight on content and stir debate on whether Sky Television (the biggest international rights holder) needs to be regulated.

Mobile force

Telecom will make a far more aggressive play in the market next year than in the past, according to one analyst.

Free from regulatory restraints after splitting with its network arm Chorus in November, the slimmed-down Telecom retail will want to assert itself, particularly in the mobile market.

IDC analyst Rosie Spragg predicted Telecom retail will look to up the competition and attract customers in Auckland, traditionally a stronghold of Vodafone.

Turning up the volume

Online music platform Spotify is set to make moves here early in 2012. Spotify has a catalogue of more than 15 million songs and offers both free and paid-premium services for users to legally access music online. The service has deals with a number of record companies, including Universal Music Group which owns the rights to the grammy-winning artist Rihanna.

Although indicating Spotify will become available here, the British-based company has given no launch date although it could happen as early as February.

Spotify works by letting users stream music and listen to it when online rather than allowing them to download it to their computers.

Sale time

Mighty River Power will be the first initial public offering under the Government's mixed ownership model with shares expected to hit the market towards the end of the year. Although Mighty River Power will be the first IPO, the sale of Crown shares in Air New Zealand may occur earlier because it doesn't require a prospectus.

But based on the bumpy outlook for airlines, the Mighty River Power IPO is probably the best option to go first if the Government wants to attract widespread support for its "mixed ownership model".

Market watch

The local sharemarket stands to benefit from the partial listings of SOEs, but the global economy will keep international markets in disarray.

The partial sale of energy SOEs and the further selldown of Air New Zealand will boost interest in the market and has brokers and advisers rubbing their hands in anticipation of fat fees. But the ongoing volatility in global markets will flow on to the NZX.

Digging deep

Eyeing the weekly exodus across the Tasman the Government remains committed to pushing the minerals and petroleum sector in a bid to boost economic growth here.

New Energy and Resources Minister Phil Heatley faces the tricky challenge of balancing industry impatience with political reality - the growing Green vote. The last minister to try to open up the mining debate was Gerry Brownlee, who got burned by the backlash. Heatley's more low-key approach may be more successful.

Drilling fields

A flashpoint of the deepwater drilling debate last year will be the subject of a court battle next year. The East Cape's Te Whanau-a-Apanui iwi and Greenpeace have succeeded in obtaining a judicial review of the Government's granting of a permit to Brazilian energy giant Petrobras to explore for gas and oil off the East Cape.

The iwi, Greenpeace and the Crown are due to put their cases at a hearing in the High Court at Wellington in June.

Making up

The manufacturing sector - which proved resilient after Canterbury's February 22 earthquake - contracted during the final months of this year.

But BNZ economist Craig Ebert says growth in the domestic building sector, which is looking quite likely as a result of factors including the rebuilding of Christchurch and leaky home repairs, could benefit local manufacturers in 2012.

However, one of the big questions hanging over the manufacturing sector was whether an improvement in industries such as domestic construction could offset "stiff headwinds" resulting from a drop in demand for New Zealand products overseas as a result of continuing global economic turmoil, Ebert said.

Hands in pockets

Consumers are likely to keep spending cautiously in 2012, which means another tough year could be on the cards for retailers.

An improvement in the global economy looks unlikely in the near term, and many Kiwis are focused on keeping their debt under control.

The Westpac McDermott Miller Consumer Confidence Index fell to its lowest level since the depths of the recession in 2009 during the three months to December this year. Some good electronic transaction data around Christmas provided some cheer.

Mouse shopping

Internet retailing has been eating into bricks-and-mortar operators' bottom lines for years, but the impact is likely to increase in 2012.

Most of the large, NZX-listed retailers - such as Kathmandu, The Warehouse and Pumpkin Patch - are investing in their websites to try to increase the amount of business they do online.

But with consumer confidence set to remain low in 2012, shoppers will no doubt flock to the web to take advantage of the bargain basement deals available. If the Kiwi dollar remains strong, purchases on overseas-based websites such as amazon.com will be particularly affordable.

Milking time

Market investors may get the chance to broaden their portfolios into the powerhouse dairy industry this year as farmer co-operative Fonterra pushes ahead with capital structure changes.

The planned changes aim to remove the redemption risk of Fonterra having to pay farmers when they cash in shares and provide permanent share capital, with farmers buying and selling shares among themselves rather than with the company.

Under the proposal, farmers would be able to place shares with a Fonterra Shareholders' Fund and be paid for the rights to dividends and any change in market value, while retaining the voting rights and with the option of regaining the economic interest at a later date.

The fund was expected to raise about $500 million by selling investment units, including to institutions and the public. Although the unit holders would not own shares or have voting rights they would get exposure to a sector responsible for about a quarter of all national export earnings.

The units would be tradeable on the NZX like any other equity investment.

Burger battle

The fast-food fight will step up with Restaurant Brands starting the rollout of a chain of Carl's Jr Restaurants adding to its KFC, Pizza Hut and Starbucks Coffee brands. Restaurant Brands will be the second franchisee for Carl's Jr, which operates two of the restaurants in Auckland.

Carl's Jr is strong in the US, offering a combination of burgers, burrito-style wraps, and unsubtle advertising. Restaurant Brands expects to open the first restaurant by the middle of 2012.

Bumpy ride

Airlines got a bounce out of the Rugby World Cup this year but will need more than sports fans - and a few endorsing celebrities - to help them through 2012.

The median analysts' June 2012 year net profit forecast for Air New Zealand has plunged from $156 million in early October to just $96 million this month. The carrier's June 2013 median forecast has fallen from $165 million to $141 million. Analysts have also taken the knife to Qantas, with the median June 2012 year analysts' forecast falling from $470 million to $327 million over the past few months and the June 2013 year median from $651 million to $487 million.

Dollar bites tourism

Goldman Sachs economist Philip Borkin says the eurozone as a whole is expected to be in recession in 2012, with a mild recession in Britain and soft growth in US for at least the first half of next year.

The New Zealand dollar could be expected to remain elevated in such an environment "which again does not help the backdrop ... certainly for the tourism sector we see 2012 as being a pretty difficult year".

The dollar may not change the decision to come to New Zealand but it can affect how much people have available to spend when they get here and force choices between activities.

Asian wave

In Asia, disaster hit-Japan and its neighbour Korea were well down for the year ended November but other countries are showing strong growth, including the fourth-biggest market of China, up 18.2 per cent, with Malaysia and Singapore up 58 per cent and 20.7 per cent respectively.

Borkin says Asia is also experiencing a bit of a slowdown. "But we still believe, and particularly in a long-run sense that that's really where the growth markets for New Zealand will come from," he says.

"We've also seen new airline capacity for those parts of the world too which has helped increase visitor arrivals and we think that theme will continue maybe at a slightly slower pace but still be positive for the next little while."

Clipping wings

Higher costs for flying to Britain and Europe will ruffle feathers in the airline industry next year, hit the wallets of passengers and could hurt an important tourist market for New Zealand.

The British Government is increasing air passenger duty in April from £85 ($170) to £92 per passenger coming to New Zealand.

Tourism Industry Association chief executive Tim Cossar says the latest rise means a family of four will pay more than $730 in taxes just to leave the country.

"It will simply price more potential visitors to Australia and New Zealand out of the market."

The valuable British market still ranks No 2 for visitors, behind Australia, but it is in decline - down 2.6 per cent for the year ended November.

No smoking

And in a double whammy for the airline industry, a ruling this month at the European Union Court of Justice upheld plans plans to include international aviation in the EU's emissions trading scheme.

The US airline industry is reported as having estimated the carbon cap and trade programme will cost it US$3.1 billion ($4 billion) from 2012 to 2020.

Fitch Ratings says the ruling paves the way for a broadening international trade dispute over access to the EU aviation market.

Delays at Pike River

The long-running saga of the sale of Pike River Coal shows some signs of reaching an end. Receivers had hoped a sale agreement would be signed before Christmas but a number of international parties interested in the mine have to do more internal work.

As part of the sale, the receiver expects to establish a trust that will help to oversee efforts to reopen the mine after the deaths of 29 miners. State-owned Solid Energy has always been interested and could team up with China's Shanxi Corp to buy the assets.