The downsizing of Kirkcaldie & Stains and Bethunes Investments, formerly known as Mowbray Collectables, is further evidence that Wellington businesses, particularly listed companies, continue to struggle.

Thirty years ago Wellington was the country’s dominant business city but this position has been decisively lost to Auckland. In light of this it is not surprising that up to 1,000 new residents are entering Auckland every week and putting huge pressure on the region’s housing market.

The accompanying table shows that Auckland companies now clearly dominate the NZX, whereas in the mid-1980s the distribution of listed companies was more widely spread.

Since 1983 Auckland’s share of NZX-listed companies has surged from 39 per cent to 66 per cent while Wellington’s share has gone from 23 per cent to 14 per cent. Meanwhile, the rest of the North Island’s share has fallen from 9 per cent to 7 per cent and the South Island from 30 per cent to just 14 per cent.

In 1983 five of the ten largest NZX companies by market capitalisation – Fletcher Challenge, Brierley Investments, ANZ Banking Group (NZ), Lion Breweries and Goodman Group – were based in Wellington while four were in Auckland – NZ Forest Products, New Zealand South British, Alex Harvey Industries and Carter Holt Harvey. Wattie Industries, the other top-ten company, had its head office in Hastings.

At present only two of the largest NZX companies, Meridian Energy and Contact Energy, are Wellington based with the remaining eight domiciled in Auckland. In recent years the larger listed Wellington companies have been partly Crown-owned or former Crown enterprises and many of these eventually moved to Auckland.

Finally, thirty years ago all the major banks, insurance companies and investment management companies had their head offices in Wellington. The major banks, with the exception of Kiwibank, have moved to Auckland as have most of the insurance companies, including Tower (formerly Government Life).

ACC has remained in Wellington but most of the other large investment organisations, including the New Zealand Superannuation Fund, have their head offices in Auckland.

It is, therefore, not surprising that the Auckland housing market is hot while the Wellington market is decidedly cool.

According to Quotable Value figures released this week the average house value has risen 18.8 per cent in Auckland over the past 12 months compared with just 1.6 per cent in Wellington.

In the past five years Auckland’s average house value has risen 62 per cent compared with only 5.3 per cent in Wellington and the average Auckland residential property value is now 1.87 times greater than the capital city.

There is little doubt that the migration of businesses to Auckland has been a major contributor to the Auckland housing boom.

The poor performance of Kirkcaldie & Stains, Wellington’s iconic department store, reflects the problems facing the capital city.

Established in 1863, the store was purchased in 1931 by UK-based British Overseas Stores which sold it to Renouf Corporation, a high-flying investment company, in 1985. Renouf Corporation later became Hellaby Holdings. Hellaby sold a 40 per cent stake to the public in 1995 but the company didn’t list until mid-2001.

The iconic Wellington store has struggled in recent years with the five-year financial summary in the 2014 annual report painting a particularly gloomy picture. Revenue has fallen steadily, the company reported losses in four of the previous five years and no dividend has been paid since 2012.

The interim report for the six months ended February 28, 2015 reported another loss but the good news was the sale of its main property holding for $41.1 million. As a result the company had cash holdings of $19.9 million and net tangible assets of $2.94 per share.

On June 4 the company announced that it had entered into a conditional agreement with Australian retailer David Jones whereby the latter would take over its Lambton Quay store lease, pay $400,000 for the “Kirkcaldie & Stains” name and an additional $500,000 for the company’s fixed retail assets. The agreement was approved at a meeting of shareholders on July 31 and the company is planning to distribute $1.88 a share to shareholders, mainly from the sale of its only property asset last year.

Any other distribution will be strongly influenced by the sale of Kirkcaldie & Stains stock – which is valued at $7.4 million – before David Jones takes possession of the store next February. This additional cash distribution could be anywhere between 30c and $1 a share. There have been grumbles about the demise of Wellington’s premier department store but it is extremely difficult for single-store companies to survive in the internet age, particularly in a city that has lost its position as a major business centre. However, the wind down of Kirkcaldie & Stains has been energised by the revelation that Sir Ron Brierley has acquired an 8.4 per cent stake and has joined his old mate Sir Selwyn Cushing, who owns nearly 20 per cent.

What are the chances of the two knights using Kirkcaldie & Stains as a back door listing vehicle for a new investment company with the aim of repeating their early successes at Brierley Investments? Mowbray Collectables listed on the NZX in 2001 following the issue of 1.2 million shares to the public at 50c a share. Its main businesses were a stamp dealing and auctioning company and Bethunes Rare Books.

The founding shareholder and chief executive was John Mowbray, and Sir Ron Brierley has also been a substantial shareholder. Mowbray Collectables, which has struggled to create a viable business, had accumulated losses of $5.4 million at the end of March and total equity of only $1.1 million. In addition, the auditors have raised concerns about the valuation of its inventory.

The directors decided to sell the company’s traditional businesses and shareholders approved the following transactions at a special meeting on June 24:

• The sale of the traditional stamp and coin businesses to John Mowbray for $950,000.

• The appointment of Elevation Capital Management to manage Peter Webb Galleries for a fee of $10,000 per month. Peter Webb is 50 per cent-owned by the listed company and is its sole operating business.

Shortly after the meeting Mowbray Collectables changed its name to Bethunes Investments. Since then the company has announced a 15-for-one renounceable rights issue at 1.5c a share because “Bethunes simply has too great a debt burden for a small company”. The issue could raise up to $2.87 million.

Subsequently acting independent chairman Chris Swasbrook told the annual meeting that Peter Webb “had been particularly disappointing” and the forecasts provided to it at the time of the 50 per cent purchase in October 2013 “have proven to be overly optimistic”.

He went on to say that Bethunes had looked at investments in the storage and food processing industries but “no opportunities have been forthcoming to date”.

The clear impression from the annual meeting was that Bethunes Investments plans to become an investment company as Swasbrook compared it with a number of listed investment companies. But it is the least valuable company on the NZX main board with a market capitalisation of just $510,000. If Sir Ron and Sir Selwyn don’t turn Kirkcaldie & Stains into an investment company then we can be fairly certain that’s what Swasbrook will do with the other troubled Wellington company.


Brian Gaynor

Portfolio Manager