NZX takes $20 million hit on value of TZ1 post-Copenhagen

Monday 15th February 2010

A collapse in voluntary corporate participation carbon trading has forced NZX to almost halve the value of shares it holds in Markit, the UK-based firm that purchased NZX’s TZ1 carbon registry last June.

NZX booked a $53.6 million gain on the sale of TZ1 in its earnings for the six months ended June 30 last year, contributing to a record $60 million half-year profit. However, that gain was based on valuing the Markit shares as financial assets at fair value. NZX announced late Friday it was revaluing the shares from the US$37.1 million current carrying value to US$21.4 million.

"This accounting change will result in a NZ$19.9 million reduction in the gain on disposition of assets as held on the NZX balance sheet," the exchange said. In effect, this lowers the one-off gain recorded at the last half year to $33.672 million.

Under the terms of the sale and purchase agreement, NZX and Markit continue to jointly meet ongoing development costs for the carbon registry until the end of 2011, with the latest announcement clarifying that the deal was dependent on a "prospective 2012 performance payment from the sale" of TZ1.

"NZX is less confident that the baseline 2012 EBITDA number will be achieved under the 2009 sale agreement, to reach to US$37.1 million figures at which the asset has been valued to date.

"Therefore, the sensible business decision is to reduce the carring value of NZX's sale proceeds to the bottom of the range of possible 2012 outcomes, at US$21.4 million," NZX said in its market notification statement.

The writedown was a result of "the lower priority given to carbon trading on the global political and corporate agenda" following the failure of the global climate change summit in Copenhagen last December.

"Macro conditions have moved against carbon trading compared with where the world was when the registry business was sold. Whilst some corporates, including key New Zealand companies, continue to assign a high priority to environmental concerns, in general the lack of a global political agenda around carbon, coupled with the global financial crisis, has made such 'discretionary' expenditure a lot more contestable and scarce."

Lower industrial production had also lowered demand for voluntary carbon issuance activity, on which TZ1's revenue model depends.

TZ1 continued to lead the field in global customer acquisition, and was "very well-placed to benefit when the carbon agenda, and corporate willingness to commit voluntary spend in this area, return".

"The past 12 months was a planned, intensive growth phase for the carbon registry business, and that growth has been slowed by maco headwinds," said NZX, which is due to report full year results to December 31 on March 1.

Businesswire.co.nz

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