This article originally appeared in the NZ Herald.

The annual reports of Government-owned commercial companies illustrate that it was a mixed year for these entities. The Treasury lists 48 Crown-owned commercial organisations, including Air New Zealand, three NZX-listed electricity generators and a number of airports, but this column covers only 10 of these companies.

The 10, which are all relatively high profile, range from the highly-profitable Housing New Zealand Corporation, NZ Lotteries Commission, NZ Post (including Kiwibank) and Transpower NZ, to the perennial loss makers, Crown Fibre Holdings and KiwiRail Holdings.

Airways Corporation, the air navigation and air traffic management consultant, reported a net profit after tax of $23.2 million for the June 2016 year compared with $15.1m for the previous financial year. The company benefited from an 8.1 per cent increase in international air travel volume and 7.9 per cent rise in domestic traffic.

Chair Susan Paterson and CEO Ed Sims wrote that Airways is positioning itself to take advantage of a predicted 60 per cent growth in Asia-Pacific air traffic over the next 20 years.

Crown Fibre Holdings, which was established to manage the Government’s $1.5 billion ultra-fast broadband (UFB) infrastructure programme, reported another huge loss for the latest year. The company has been funded by a $927.9m Crown capital contribution.

Crown Fibre has no operating revenue and spends most of its money expanding the UFB network. The UFB expansion is now 68 per cent complete and is expected to pass 1.175 million potential users and be 82 per cent complete by mid-2017.

Housing NZ, which owns 61,600 properties and leases 2700 properties, reported a net profit after tax of $134m, before revaluations, for the June 2016 year. The home owner, which houses approximately 182,000 people and has a $22.7b portfolio, built 871 new homes in its latest financial year compared with 666 in 2015 and 487 in 2014.

The corporation spent $496m on repairs and maintenance last year and revalued its property portfolio by $3.2b because of the buoyant residential housing market.

Recently appointed CEO Andrew McKenzie has an ambitious building programme which is expected to deliver 4900 replacement and new homes over the next four years, with a strong emphasis on Auckland.


KiwiRail continues to struggle as its revenue falls year after year. Operating revenue declined from $741m in the June 2014 year to $694m in the latest period and it continues to experience substantial losses. Impairment charges, mainly railway infrastructure and rolling stock, have made significant contributions to the rail operator’s large deficits.

Outgoing Chairman John Spencer continues to play the privatisation/NZX listing blame game and wrote: “KiwiRail inherited a business that had suffered significant underinvestment, was asset-centric and was often subjected to negative commentary as inefficient and ineffective.”

Spencer painted a more optimistic outlook when he added: “With the support of the Government and our partners, the benefits of ongoing investment and a commercial drive are now being realised.”

However, the company still pushes its indirect benefits to New Zealand, with CEO Peter Reidy writing that in the June 2016 year KiwiRail “reduced heavy vehicle impact of 1.1 million trucks on our roads” and saved “208,000 tonnes of CO2 emissions and 77 million litres of fuel”.

Landcorp Farming, which owns 144 farms comprising 158,561ha and has total assets of $1.8b, reported a net profit after tax of $11.5m for the latest year compared with a $20.0m loss for the previous year. These profits and losses have been heavily influenced by livestock revaluations and impairments respectively.

In 2016-17 Landcorp expects “another year of weakness of global milk prices” and “is budgeting for a net operating loss”.

The NZ Lotteries Commission announced a net profit before tax of $204m for the June 2016 year, when it had a prize to revenue ratio of 53.1 per cent compared with 52.1 per cent in the previous year. Lotto had a big June 2016 quarter when two jackpots exceeded $20m and had record sales for the three-month period.

The commission does not pay tax and its entire $204m pre-tax profit was distributed to the NZ Lottery Grants Board. This money is allocated to community groups.

New Zealand Post reported a net profit after tax of $141m for the June 2016 year compared with $143m for the previous year. The company has three distinct operations: Post; Kiwi Group Holdings (KGH), which includes Kiwibank, investment management and insurance; and its Investment Division, including Converga, Speedscan, Couriers Please and ReachMedia.

Post reduced its net loss from $45m in the 2014-15 year to $37m in the latest period. Meanwhile, KGH’s net earnings eased from $132m to $130m while investment earnings declined from $56m to $48m.

On October 31, NZ Super Fund invested $263m in KGH for a 25 per cent stake and ACC invested $231m for a 22 per cent holding. This $494m injection provides Kiwibank with growth equity but has reduced NZ Post’s KGH stake to 53 per cent.

The two Crown-owned media companies, Radio NZ (RNZ) and Television NZ (TVNZ), continue to struggle in a rapidly changing broadcasting environment.

RNZ, which does not have any advertising revenue and is mainly funded by NZ on Air, reported a loss of $4.3m for the year. This was partly due to redundancy payments of $1.65m, and $0.8m to dismantle two masts near Wellington.

Chairman Richard Griffin wrote: “The board regards this one-off deficit as an inevitable result of our determination to invest in strategic rejuvenation. This policy is already paying dividends in both audience numbers and internal culture change.”

Griffin went on to reveal that “RNZ is budgeting for a break-even result in 2016-17 and beyond”.

TVNZ’s net earnings declined from $28.1m in 2014-15 to $12.7m as advertising revenue fell from $314.2m to $303.9m. This compares with a recent advertising high of $326.5m in 2011-12.

Chairwoman Joan Withers wrote: “For the second consecutive year, TVNZ has increased its share of television advertising revenue, moving from 60.8 per cent to 61.3 per cent in this financial year. In a difficult and competitive market, this result is laudable however the overall market decline meant that the gain in share failed to offset the reduction in absolute advertising dollars.”

Chief executive Kevin Kenrick wrote: “The challenge and opportunity for TVNZ is to work with advertisers to optimise the intersection between the reach and engagement advantages of mass media with the transactional capabilities of digital platforms.”

This rather vague statement illustrates the challenges facing TVNZ, particularly as far as advertising revenue is concerned.

Finally, Transpower, which owns the national electricity grid, reported net earnings of $181m for the June 2016 year compared with $113.3m for the previous year.

However, the company emphasises its net profit before net changes in the fair value of financial instruments, which was $192.9m in 2015-16, a decrease of 0.9 per cent compared with 2014-15.

The company, which has assets of $5.8b, expects its future performance to be in line with its second 5-year Regulatory Control Period agreement with the Commerce Commission, which commenced in April this year.

One of the more interesting aspects of the 48 Crown commercial entities, including the 10 covered in this column, is that they receive little attention and scrutiny even though a large percentage of the population would be appalled if there was any suggestion that they be partially privatised.

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford Funds Ltd holds shares in Transpower New Zealand bonds on behalf of clients.

Disclaimer: This article originally appeared in the NZ Herald and is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so should not be viewed as investment or financial advice. If you require financial advice we recommend that you speak to an Authorised Financial Adviser.