Big boys don't always have the answers for the small players

Friday 7th September 2001

The last days of winter and the first days of spring are supposed to get people's blood stirring. They may have had a similar effect on companies, assuming such legally created entities contain vital fluids.

August ended with several noteworthy matters, ranging from the intriguing through the unusual to the weird.

The address of Horizon Energy Distribution's chairman Colin Holmes to his company's annual meeting was in the intriguing category. He told shareholders they could continue to have confidence in their investment in "Whakatane's only public listed company." Before noting that important piece of the Bay of Plenty's social fabric, Mr Holmes took swipes at other parts of corporate New Zealand.

A top-20 list of New Zealand companies measured on total return for the year ended June 30 included Horizon at number 20, the only electricity company in the list.

Mr Holmes said smaller companies dominated the list and it was interesting to reflect, in Horizon's second year as a standalone lines company, on the role industry players had as major shareholders in the company since its formation.

"We have had FCL, Power NZ and United Networks. All have came with promising expertise, technology and economies of scale. Seldom did we see anything eventuate."

There was more. "What company has found when it has investigated initiatives such as contract management, or joint venture management, is that our costs are generally lower than those offering to do it for us, our practices are as good as, or better, and any short-term advantage offered will come at a cost later on."

While those comments came from the chairman of a relatively small utility operating out of Whakatane, which is hardly a major source of corporate firepower, they deserved extensive publicity.

It seemed Mr Holmes was effectively saying there are a lot of busybodies out there in big companies, or advising big companies, who know what is best for everyone else. That was worth saying, because the busybodies regularly come unstuck. It was also worth noting that, coincidentally, the Horizon annual meeting was held a few days before publication of Battle of the Titans, which tracked the rise and fall of Fletcher Challenge, an organisation often knowing what was best for everyone else (see page 53).

Recent government activity in the business world covered the intriguing and the weird. The jockeying over who should own how much of Air New Zealand, whether the government should lift the overseas-ownership cap on the airline and the question of government financial participation, directly or indirectly, was unresolved at the time of writing.

The shareholding cap issue did not involve any government financial commitment and any decision on that matter will be based on straight-out pragmatism.

Financial involvement was a different matter. It raised the old question whether it is a legitimate function of government to bail out private sector companies.

A National Business Review-Compaq poll (July 13) showed 42% of those polled said if it became clear the airline could not continue without significant financial backing they would choose the option of government investment.

At least the government would apparently have public support if it became financially involved, but it is a certain bet no other company would be allowed to cite an Air New Zealand case as a precedent for taxpayer assistance.

The government has become financially involved in other activities that impinge on private sector operations through its decision to support the as yet unnamed "People's Bank." The latest development went beyond intriguing to weird when former prime minister and ambassador to the US Jim Bolger was named as its chairman.

Opposition leader Jenny Shipley seemed somewhat exasperated when she commented on the appointment on Tuesday. Investors in the Australian-based banks operating in New Zealand have an additional reason to watch Mr Bolger's stewardship. The People's Bank is supposed to provide a competitive alternative to the organisations in which they are shareholders.

The lack of comment about the high earning rates of telecommunications companies in the current Australasian reporting round was an unusual and intriguing feature of the sharemarket.

New Zealand's Telecom earned 32.3% on shareholders' equity in the year ended June 30, after taking $268 million of unusual items to account. The company's consolidated profit from ordinary activities before tax as a percentage of revenue (a ratio required to be disclosed in reports of Australian companies, but not for New Zealand groups) was 21.4%. Its Australian counterpart, Telstra, earned 30.7% on shareholders' equity and the pre-tax profit to revenue ratio was 27.3%.

The returns on equity were good news for shareholders and put both companies well ahead of the pack, a point that was worth examination.

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