Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Govt businesses make $20M on assets worth $45B in 2012/13

Government businesses make $20M on assets worth $45B in 2012-13

By Pattrick Smellie

Dec. 19 (BusinessDesk) – Government businesses with assets worth $45 billion made a total net profit of just $20 million in the year to June 30, according to the Treasury’s annual portfolio report.

The assets do not include Meridian Energy, Air New Zealand and MightyRiverPower, which were partially privatised, but cover such troubled entities as KiwiRail, Solid Energy and New Zealand Post, which are all struggling to make their business models work.

The annual review covers Crown-owned assets valued at $125 billion, some $45 billion of which are classed as “commercially-focused entities”, another $52 billion is held in investment funds such as the New Zealand Superannuation Fund and Accident Compensation Corp’s investment portfolio.

A further $29 billion of assets are held in so-called “policy-focused assets” such as Crown Research Institutes, whose performance is judged on more than strictly commercial grounds.

“For the residual commercial priority portfolio, overall performance (with some notable exceptions) was mediocre,” the Treasury’s Crown Ownership Monitoring Unit says in the report.

“Portfolio net profit after tax was just $20 million, with the poor performances by Solid Energy ($335.4 million loss), KiwiRail ($174.6 million loss) and Learning Media ($9 million loss) being partially offset by strong returns from Transpower ($264 million), Airways Corp ($22 million) and AsureQuality ($10 million).”

Total shareholder return (TSR) excluding KiwiRail was 3.0 percent, although that represents an improvement on the negative 8.2 percent return achieved in the year to June 30, 2012, which was hit hard by the first round of losses from Solid Energy, which is now being managed in rescue mode.

“This overall result does not represent a satisfactory return in an environment where stock market indices have performed strongly,” COMU says. It comprised “a 6.5 percent dividend yield combined with a 3.5 percent decrease in the value of the commercial priority portfolio.”

“The current year’s performance was impacted by a decline in the performance of Solid Energy, asset impairments in NZ Post’s postal business, further asset impairments of KiwiRail’s capital expenditure and an impairment loss recorded by Landcorp as a result of a decline in the market value of its livestock,” the report says.

“While there are some positive indicators in terms of total shareholder return and dividend yield, the overall financial performance for the commercial priority portfolio was poor in 2012/13,” the report says.

“The bottom line result was only marginally better than breakeven for the portfolio” and represented a return on equity of 0.2 percent.

New independent valuations of the commercially-focused entities were undertaken, with a major differences between board and independent valuation emerging for Transpower, in particular, which independent valuers think is worth $600 million more than its board, at $2.3 billion, based on “different (but valid) methodology and a higher discount rate.”

The report is especially pessimistic about KiwiRail. While a conversion of debt to equity helped bolster the rail company’s valuation, along with a $250 million capital injection from the Crown pushed equity up $573 million, KiwiRail faces a reduced earnings outlook because of its inability to renegotiate a contract with Solid Energy, whose coal volumes are falling.

“Overall, we consider it will be challenging for KiwiRail to achieve the operating cash flows needed to support even the valuation of negative $574 million.”

Total revenue for the commercially-focused assets fell by 4 percent in total, largely thanks to lower production and prices for Solid Energy’s coal and lower wholesale electricity prices for Genesis Energy, partially offset by growth in Kiwibank lending.

At 17 percent, the decline in operating earnings was proportionately higher than the decline in revenue, again thanks in part to redundancy, restructuring and closure costs at Solid Energy.

The report also notes that the TVNZ board assesses the broadcaster’s value at $370 million, $60 million higher than the independent valuations, “due to it having higher forecast cash flows and using a lower weighted average cost of capital … as the discount rate.”


© Scoop Media

Business Headlines | Sci-Tech Headlines


Oceans: NOAA Declares Third Ever Global Coral Bleaching Event

As record ocean temperatures cause widespread coral bleaching across Hawaii, NOAA scientists confirm the same stressful conditions are expanding to the Caribbean and may last into the new year, prompting the declaration of the third global coral bleaching event ever on record. More>>

Scoop Business: A Decade Of Government Pre-Seed Investment

More publicly-funded science is being commercialised after a decade of government ‘pre-see’d investment, according to an independent review. More>>


Solid Energy: Plan To Shut Unprofitable Huntly East Mine

Solid Energy, the state-owned coal miner in voluntary administration, plans to shut down its unprofitable Huntly East mine and lay off 65 staff after deciding the site stands "no chance whatsoever" of finding a buyer. More>>


E Tū: Merger Creates NZ's Biggest Private Sector Union

E tū has been created by the merger of the Engineering, Printing and Manufacturing Union and Service and Food Workers’ Union. It represents more than 50,000 working New Zealanders in industries as diverse as aviation, construction, journalism, food manufacturing, mining and cleaning. More>>


Internet: NZ Govt Lifts Target Speeds For Rural Broadband

The government has lifted its expectations on faster broadband speeds for rural New Zealand as it targets increased spending on research and development in the country's information and communications technology sector, which it sees as a key driver for export growth. More>>


Banks: Westpac Keeps Core Government Transactions Contract

The local arm of Westpac Banking Corp has kept its contract with the New Zealand government to provide core transactions, but will have to share peripheral services with its rivals. More>>


Science Investment Plan: Universities Welcome Statement

Universities New Zealand has welcomed the National Statement of Science Investment released by the Government today... this is a critical document as it sets out the Government’s ten-year strategic direction that will guide future investment in New Zealand’s science system. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news