NGAI TAHU RESULT DISAPPOINTING AND LACKING CLARITY

This is the press release on Ngai Tahus result. We have tried to give some clarity to the "spin"

Tribe Well Positioned Despite Volatile Operating Climate

Te Runanga o Ngai Tahu has announced a net surplus of $13.3m for its commercial entities amid a climate of testing global market conditions.

As ever is hard to fathom what the real result is - however on the face of it, Ngai Tahu returned $13m on $513m of assets, or 2.5%. If you'd put the money in the bank at (say 7%) at the start of the year you'd have made just shy of $36m - so for the benefit of having the smart guys in charge we lost $23m.

In an announcement today, Te Runanga o Ngai Tahu Kaiwhakahaere, Mark Solomon, says that the results are pleasing in light of the difficult economic operating climate and reflect the strength of the balance sheet and its underlying assets.

"While the financial picture is not what we would desire, given the environment of the past year I deem our performance is as good as could be expected. We were in the fortunate position of having a strong balance sheet coming into the recession. Our collective tribal assets are strong, we have grown our equity by $13m to $526m, reduced our term debt and have positioned ourselves well to take advantage of growth periods ahead. In addition we generated a cash flow (after distribution) of $25 million from operating activities.

However the issue of distributions and how they work as well as cash flows is unsure given Ngai Tahu's spread of holdings, let alone their valuation basis and taxation advantages. However if we are really kind, let's say they actually "made" $25m (from the group distribution of $22m and debt reduction of $3m) - well you're still short of the risk free rate of $36m as above. Of course that approach would mean there are a bunch of people in Te Wai pounamu house who wouldn't have got paid.....

"I believe the results are a reward for our intergenerational policies and conservative approach to financial investment. While our profits were well down on the previous year, we have still registered a profit and have been able to honour our commitment to Ngai Tahu Whanui. Our different business sectors have performed ahead of many of their competitors in these difficult times."

Ngai Tahu Holdings Corporation Chair, Trevor Burt says, "While the past year has been our most challenging yet, the Group delivered a positive result at both the operating profit and net surplus level. The cash flow result of $25 million from operating activities is particularly pleasing.

"These results have largely been achieved due to the commitment and maturity of our team in hitting the challenges head on and making the tough calls that have positioned us well for the future."

And that forex policy looks a ripper

So let's be a bit less generous and say that the expected return from any commercial venture should be as a premium over that risk free rate from the point of view of an investor - the debate then focuses on what that premium should be, ie how high is the risk, and for example an SOE in the international sector might look to have a rate of just over 10% which could be a target for the Seafood company (though I'd suggest nearer 12% would be a minimum) and then the gap on the performance becomes quite stark.

Simply put, the performance of any commercial entity that is subject to political interference will always underperform over the medium to long term.

This sentiment has been echoed by Te Runanga o Ngai Tahu CEO, Anake Goodall,

"Across the board there has been a commitment to work together to ensure the interests of our 45,000 plus stakeholders were protected as much as possible against the impact of the recession. Of particular note, we've managed to reduce expenditure by 11% without damaging the integrity of the underlying programmes and Ngai Tahu Holdings Group reducing our term debt by $3m.

"There is no denying that we have endured some difficult times over the past year but we have learnt from each of our challenges and as a result have reflected and refined our operations to put us in good stead moving forward."

Ngai Tahu Holdings Group Subsidiary Results in brief:

The downturn in the property sector impacted significantly on Ngai Tahu Property with an operating EBIT of $15.6m, a decrease of $3.5m on the previous year.

Ngai Tahu Seafood, while struggling with the volatility in the exchange rate which resulted in exchange rate losses of over $6m, managed to report its best ever underlying trading result, up 12% on the previous year. The result was an operating EBIT of $4.7 million. In response to the foreign exchange issues, a full review of its hedging policy has been undertaken and the necessary measures put in place to avoid a repeat in the future.

The full impact of the global credit crisis hit just prior to the beginning of the peak tourist season creating huge challenges for Ngai Tahu Tourism. However they still managed to deliver a net surplus of $6.4m, (down $2.1m on the previous year) and an operating EBIT ahead of forecast of $5.3m.

Ryman Healthcare continues its long-standing tenure as one of our leading investments and despite the economic environment delivered another strong performance resulting in a 1% increase in share price over June 2008 and dividends of $2.1m.

"While all of our entities have felt the impact of the operating climate, I am proud of how they have responded to the challenges and am confident that with our strong balance sheet we are well positioned for growth when the upturn comes," says Trevor Burt. Ngai Tahu Holdings Group delivered a distribution of just under $22m to Te Runanga o Ngai Tahu.