"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 per cent, although that represents an improvement on the negative 8.2 per cent 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 per cent dividend yield combined with a 3.5 per cent 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 per cent.
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 per cent 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 per cent, 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."
