Commercial assets and liabilities[1]
Introduction
Purpose
The commercial assets and liabilities on the Crown's balance sheet consist of the 17 SOEs and Air New Zealand.[2]The portfolio is therefore comprised largely of entities operating in openly competitive environments where they compete with private sector entities in the supply of goods and services. A minority occupy certain niche/monopoly positions in the economy and are not subject to competition. In these cases if there are price or access issues they are subject to regulatory control. Regardless, they are all companies with principally commercial objectives.
Broadly speaking any increase in the value of the portfolio contributes to overall Crown net worth and therefore, indirectly, to reducing the costs of capital faced in the economy. In addition, any dividends received can be used to fund public services, the costs of which might otherwise be met from taxation or from borrowing.
These considerations need to be balanced against the costs - including opportunity costs - of ongoing Crown ownership.
More detailed information on the commercial portfolio can be found in the COMU APR 2010.
Current holdings
The current SOE portfolio consists of 17 companies with a combined commercial value of just over $18 billion.[3] In addition to the 17 SOEs, the Crown also has around a 76% shareholding in Air New Zealand, a company listed on the NZX. The Crown's shareholding has a current valuation of around $880 million.
The composition of the portfolio reflects the residual result of broader policy choices rather than a deliberate choice to meet specified commercial investment goals – such as maximising return and/or reducing risk – as would normally be the case for a portfolio of investments. A detailed breakdown of the commercial portfolio (apart from the two non-operational SOEs) is provided in the following table.
| Company | Assets $m |
Liabilities $m |
Equity $m |
Valuation $m |
Total shareholder return (5-year average) |
Description of activities |
|---|---|---|---|---|---|---|
| Air New Zealand Ltd | 4,597 | 3,031 | 1,566 | 1,159.8 | 19% | Air passenger and cargo transport services |
| Airways Corporation of New Zealand Ltd | 143.1 | 97.6 | 45.6 | 113 | 13.1% | Air navigation services |
| Animal Control Products Ltd | 6.7 | 1.5 | 5.2 | 6.5 | 28.6% | Manufacture and sale of pest management products |
| AsureQuality Ltd | 57 | 25.9 | 31.1 | 85.4 | n/a[4] | Inspection, auditing, testing, training and biosecurity surveillance and response services |
| Genesis Power Ltd | 2,532.3 | 1,086.8 | 1,445.6 | 1,624 | 5.5% | Electricity generation and retailing |
| Kordia Group Ltd | 257.1 | 161.1 | 96 | 198.5 | 28% | Telecommunications engineering services |
| Landcorp Farming Ltd | 1,521.9 | 284.8 | 1,237.2 | 1,270 | 12.8% | Pastoral farming and land development |
| Learning Media Ltd | 12.7 | 7.2 | 5.5 | 10.5 | 27.9%[5] | Publication, marketing and sale of educational materials |
| Meridian Energy Ltd | 8,715.6 | 3,644.9 | 5,070.7 | 6,700 | 14.9% | Electricity generation and retailing |
| Meteorological Service of New Zealand Ltd | 29.2 | 16.5 | 12.7 | 43.9 | 5.6% | Weather forecasts and related information presentation services |
| Mighty River Power Ltd | 4,894.9 | 2,205.9 | 2,689 | 3,425 | 42.9% | Electricity generation and retailing |
| New Zealand Post Ltd | 13,075.5 | 12,242.9 | 832.5 | 1,374 | 34% | Banking, postal and courier services |
| New Zealand Railways Corporation | 13,248.8 | 829.4 | 12,419.4 | n/a[6] | n/a | Rail and infrastructure provision |
| Quotable Value Ltd | 32.8 | 10.7 | 22.1 | 34.4 | 17.2% | Property valuation |
| Solid Energy New Zealand Ltd | 1,000.2 | 556.8 | 443.4 | 3,275.6 | 115.1% | Development, production and marketing of coal and associated energy products |
| Transpower New Zealand Ltd | 3,565.5 | 2,110.5 | 1,455 | 1,600 | 7.7% | Electricity transmission |
Source: 2010 Company Annual Reports and Statements of Corporate Intent
The SOE portfolio is dominated by energy sector assets, comprising three electricity generator/retailers, a coal mining company and an electricity transmission company. Eighty-four percent of the total equity (excluding KiwiRail and Air New Zealand) is in these five companies. In addition, the portfolio includes a number of very small companies, some in wind-down or liquidation mode.
A significant proportion of the liabilities within the commercial portfolio represent external private sector debt obtained by SOEs on terms and conditions that reflect the stand-alone nature of the company. The Crown guarantees neither the operations nor the funding of SOEs.
Notes
- [1]For the purposes of the Government's financial statements any transactions between entities within the Crown reporting group are eliminated. However, the entity-specific reporting in this section includes transactions made to entities within the Crown reporting group, so reported numbers will differ.
- [2]The Government's financial statements identify any assets, liabilities, income and expenses attributable to minority interests in Air New Zealand.
- [3]This includes two non-operational SOEs consisting only of some residual assets, Timberlands West Coast and Electricity Corporation of New Zealand (ECNZ).
- [4]AsureQuality was formed in October 2007. Figures are for 2008/09.
- [5]Four-year average as no commercial valuation was undertaken in 2004/05.
- [6]New Zealand Railways Corporation trades as KiwiRail. KiwiRail's track assets are currently valued on a replacement cost basis (optimised depreciated replacement cost, ODRC) rather than on a commercial basis. ODRC valuations are standard for non-market public assets such as hospitals but the ODRC value does not give a good indication of the commercial valuation of KiwiRail.
