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Primary Production Committee Releases

Primary Production Committee


Inquiry into sale of Terralink’s Property Services Division continuing

Wellington, New Zealand, 16 June 2000—
Yesterday, the Primary Production Committee continued its inquiry into the sale of Property Services Division of Terralink New Zealand Limited to its former employees. The terms of reference for the inquiry are:
To inquire into the circumstances surrounding the sale of Property Services Division of Terralink New Zealand Limited to its former employees
To inquire into the appropriateness of the decision to sell the division
To identify any issues in relation to the sale for the governance and oversight of Crown entities
To report its findings and recommendations, if any, to the House of Representatives.
Mr O’Connor, Chairperson of the committee, said, “In our review of the 1998/99 financial performance and current operations of Terralink New Zealand Limited, we identified a number of issues about the sale that needed further examination. These were: fair value, oversight of the sale process, availability of information, use of section 13 of the State-Owned Enterprises Act 1986 to override the sale, protection of intellectual capital, strategies to avoid competition from staff, and consequences of management buyout in State enterprises. The terms of reference cover these concerns.”
“We have received advice from the Office of the Controller and Auditor General that addresses most of our concerns about the first two terms of reference,” Mr O’Connor said. “The committee’s focus will be on what lessons can be learned from the sale.” [ENDS]


Primary Production Committee


Committee completes financial review of Terralink
Wellington, New Zealand, 16 June 2000

Yesterday, the Primary Production Committee completed its financial review of Terralink New Zealand Limited. The committee draws particular attention to the sale of the Property Services Division of Terralink. The division was sold to a group of its senior employees as the result of aggressive management buyout action.

The committee examined the valuation and selling price of the business and notes that there are several issues related to the sale, particularly the lack of information regarding the sales process. Other issues include the role of shareholding Ministers in significant asset sales and the need for State enterprises to protect their intellectual capital and safeguard against competition from employees.

Mr O’Connor, Chairperson of the committee said, “This situation sets a dangerous precedent for the sale and control of State enterprises generally and we have initiated an inquiry into the sale of the division to further examine these matters.”
Terralinks continuing financial viability is questioned, with the committee calling the reduction in shareholder equity from $13.8 million in 1996 to $1.91 million in 1999 “a very unsuccessful outcome for the Crown”. The committee, however, acknowledges Terralink’s aim to achieve its first profit in the coming financial year and will closely monitor Terralink’s progress.

The committee notes that one positive development is the refocusing of Terralink’s business on Geospatial services and the increase in operating revenue from $11.72 million in 1998 to $12.232 million in 1999.

The committee also notes the sale of the Survey Services Division, a loss-making part of Terralink, to staff in 1998. Mr O’Connor said, “We expect the sale will have a positive impact on the financial viability of Terralink, but again we have concerns that there is insufficient information to determine whether fair value was achieved for the sale or if there was appropriate oversight of the sale process.”

Primary Production Committee


Primary Production Committee reports on ASURE New Zealand Limited

Wellington, New Zealand, 16 June 2000—
The Primary Production Committee presented its report on the review of the 1998/99 financial performance and current operations of ASURE New Zealand Limited today. This is the first time that ASURE has come under select committee financial review scrutiny. The company was established in November 1998 to enable the separation of the delivery function of meat inspection from the regulatory and verification functions (which remain with the Ministry of Agriculture and Forestry (MAF).
The committee identified three issues:
the level of goodwill in ASURE's asset base
The treatment of goodwill is the significant issue for ASURE. Goodwill represents 94.5 percent of its net assets as at 30 September 1999, and is valued at $9.5 million. The committee noted that goodwill was being amortised over a ten year period. However, Damien O’Connor, Chairperson, said, “We are concerned that if, in a contestable environment with goodwill needing to be written down immediately, there could be a permanent impairment in the value of the goodwill that has not yet been amortised. This could have a considerable effect on the financial position of the company.”
The committee was impressed with ASURE’s restructuring efforts, particularly in eliminating middle management and reducing frontline charges and Head Office overheads. This resulted in a substantial reduction
in total charges to the meat industry. Furthermore, ASURE has concentrated on improving performance and ensuring that technical competence among its meat inspectors is developed to a high standard. Mr O’Connor said, “We commend ASURE for its restructuring efforts, in reducing costs and developing organisational competencies. In a contestable environment, however, ASURE could face the loss of significant intellectual capital. We are particularly concerned that the company makes every effort to minimise this risk.”
Meat inspection services will not become fully contestable until foreign governments consent to non-government meat inspection. ASURE considers that there will be a contestable environment operating from the 2001/2002 year onwards. The company has developed a three-year strategy aimed at increasing the value of revenue streams for currently contestable business. This area of business still constitutes a very small part of ASURE's business, however. Mr O’Connor said, “We encourage ASURE to not lose sight of the need to focus on the mandatory business as it appears that United States Government approval of a contestable environment, based on MAF's model, may not be readily forthcoming. The American concern is, in fact, that ASURE's commercial interests may be a potential conflict of interest. In view of this concern, we believe the Government's priority is to protect United States market access rather than a contestable environment for ASURE to operate in.”

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