Its been
a very busy past week with the travel and meetings.
Continuing
on from last Tuesday's theme - disappointingly for British steel producers the
impact of China's need to export deflation is now being felt (ITV). Unusually, the ITV have been on the ball for once. With a
closure/insolvency at Redcar and now a further 1,200 UK job disappearing
at plants in Scunthorpe and Scotland, the end if nigh for higher cost
producers.
The
majority of steel producers are incapable of competing on a skewed playing
field. With "energy pricing readjustments" being the favoured
play in China, since the removal of the boron rebate (subsidy). Commercially
this made sense, as most western construction companies started to avoid the higher
content boron steel as welding joints was an issue (integrity).
China has
not just benefit from advancements and investments in technology at the steel
plants, but been aided by subsidies and "energy pricing adjustments"
enabling them to produce significantly cheaper. the benefits of incentives
benefit the . We'll come back to the Chinese energy consumption figures later,
as there's a suggestion the economy is still contracting with circa negative
0.3-0.5% in energy consumption in the first 8 months. (The GDP figures will also evidence this.)
India
responded in June (Economic
Times/India Times) by increasing the import/customs tax increases to
attempt to maintain a balance where their native producers. This has had
limited impact and India may have to impose outright
anti-dumping measures. Initially te India Government are likely to introduce 22-27% customs / import tax and this will be
implemented shortly.
In
January 2015, the EMC highlighted the issues of dumping of steel in Europe by
China. The shorts were ArcelorMittal SA (AMS: MT) and Evraz (EVR) plus 'a
few others, albeit thanks to some brilliant technical analysis by Hugo, it was played appropriately.
Steel
stocks, despite buy backs, have had the writing on the wall,
where the competition was an tsunami like wave of supply into world
markets. The affects have been witnessed in the share prices of almost every
producer.
EMC- Boron (January 2015), its noted that the boron tax rebated ended
early January 2015, yet just the other day a reader was amused by the Telegraph on boron in steel (from August) referencingcontent from 2008. Readers will be aware of the bias here towards other
news sources including our own as they are are much more reliable.
In
contrast to the economic woes, just down the road from where Tata has
mothballed the Llanwern site, Liberty Steel has been
reopened the Newport rolling mill site (Times of India). A brave stance with the current outlook.
In due course we
shall look specifically at the Chinese (indirect) subsidies that are causing
eyebrows around the globe that making Governments question the ability to
produce at such costs. Its something to consider..
With a
similar theme, and a quick recap with a decent read across from AccelorMittal
and Kumba Iron (EMC: Kumba) - Anglo American are leveraged, operating in 'various entities and sectors' that have
experienced pricing pressures. Made worse by a complex structure are operations that are hard to manage, including the allocation of funding and costs
controls that provide for limited upside in the current environment. An example being Anglo/De Beer's Diamond operations need
considering with the wider company structure below.
A wider
look from Bloomberg©. - Click on Image to Expand.
 |
| Anglo Corporate Structure |
The
market has appropriately read across from BHP Billiton's (BLT)'s recent debt
Hybrid Part 1 & Part 2 and now acknowledges the mammoth task of
Anglo's debt/leverage. More to come for certain on this with Q3 due out
22 October.
Thanks to
an on the ball chap/analysts noticing the Rapaport item - there are reports of
yet more carnage for De Beers (Anglo Diamond division). Rapaport has
suggested that De Beers (owned by Anglo but more importantly the previous
saviour of the group) has suffered at the last sales event. Additional
reading: Current
rough prices unsustainable and unacceptable.
The car
crash being that prices were off yet again, suggestions of "larger diamonds being
on the tables and the prices still taking a hit. So what did the
buyers/sightholders do? Leave with near 70-75% of allocated diamonds on the tables. Revenue won't be near consensus of $450M but likely
to be 200-250M on the last sale. Now De Beers/ANGLO can't even tempt buyers
with larger/better stones at a discount. (EMC view).
We
highlighted Dominion Diamond Corp (TSX/NYSE: DDC) last Tuesday as well. For
those followers of fashion, it’s worth noting Rio Tinto has a 60% interest in
Diavik Diamond Mine and numbers came in below expectations. With diamond
production down 15% but more so, recoveries down 25%. Mind you, at least
they'll have less to hold in inventory.
Today,
continuing on from our view on the profits warning in Tribal Group back in June May, EMC: TRB 15 May 2015. The company's theme has not changed
at all. There is a trading update that's best to leave to Tribal to
explain -
Tribal Group plc ("Tribal"), a leading
provider of student management systems and services for education management,
issues a trading statement to update its outlook for the second half of the
year ending 31 December 2015.
In recent years Tribal has been successful in
winning large software projects in our chosen markets. The expectations of our
larger customers continue to evolve and attract the interest of new
competitors, and our success in winning large contracts remains difficult to
predict. At the same time, despite being well positioned in the market,
the focus on our larger customers has resulted in Tribal being less successful
in building a pipeline of medium-sized and smaller opportunities to complement
these large deals.
We have also seen the extension of certain large
customer programme timelines, which has resulted in the deferral of revenue and
higher project delivery costs.
In light of these trading conditions, we now expect
our revenues for the current year to be lower than the prior year, and we
expect our operating profits to be significantly below our previous expectations.
The Board initiated a review of the Group's
operations in the summer. Despite implementing initiatives to drive sales and
increase our operating efficiency, we have been impacted by the more difficult
trading environment. We are strengthening our sales leadership, fundamentally
reviewing of our sales priorities and processes, and better aligning our cost
base with our ongoing activities.
The process to appoint a new Chief Executive is
advancing well, and an update will be provided in due course. [Ends]
One has a suspicion that the Chief Executive search hasn't gone as
seamlessly as thought. What is the debt position of the company and more so....see
bold (additions from EMC) that should be thought provoking. There are some
positives, we didn't need to highlight the entire announcement. That's Tribal's
third strike on the bases of profits/performance updates and as such the caveat
of caution applies, expect a kitchen sink approach upon appointment.
To save time, we'll merely edit the view from EMC May...
Tribal Group (TRB) gave an update into the AGM. a trading update. With timelines going out further,
one would be wise not to ascribe too much value in light of a second third warning
about the timing of and Keith Evan's departing departure, the warning signs were there!
Having missed the previous year’s targets, the terminology is far from
positive, but with a new 'man soon to be at the wheel' there's some hope, after a kitchen sink episode and some hope of an improvement in outlook. Yet another company struggling with its guidance and outlook.
We'll leave the GDP announcement for China to the wider press, having already formed a view last week, there's some items that will need more time, than allowed currently.
Thank you to a reader, this CNBC item Chinese property is worth noting. China’s economy built on shaky ground. There's some useful insights that were missed at the end of clip but worth finding...
Atb Fraser
