Auditor-general Greg Schollum has told the country’s 12 port companies their performances can’t be compared, largely because of their different approaches to property valuation.
But he also said, in a letter to the companies last week, his office hadn’t identified any issues with the governance of investment properties.
The auditor-general’s complaint is unlikely to result in a hurry to change accounting practices because he hasn’t identified any malpractice or intent to deceive, just differences.
Mr Schollum wrote to chairs & chief executives of the port companies, saying their different approaches “mask the underlying performance of many entities in the sector and make them difficult to compare. We are concerned that this affects the ability of shareholders, Parliament & the public to assess the performance of the individual port companies & the sector as a whole…
“For the year ended 30 June 2017, the port sector generated an average return on equity of 8.9% [unadjusted for one-off events]. However, there is significant variation in what individual companies generated. In 2016-17, the returns generated by individual companies varied between 2.3% & 26.1%. This variability in reported returns is not new and is noted in other publications, such as Deloitte’s annual New Zealand ports & freight yearbook.
“Some of the variability in the reported returns is because port companies do not value their property, plant & equipment consistently. 9 of the 12 port companies measure some asset classes at fair value. However, these 9 port companies do not consistently measure the same asset classes at fair value. These differences have a significant effect on the return on equity reported…
“Port companies continue to invest heavily in their businesses and spent about $290 million in capital expenditure in 2016-17. Because of the different valuation approaches, it is difficult to form a view about whether this capital expenditure was a good use of shareholders’ funds.”
Mr Schollum said investment properties amounted to 13% of the port sector’s total assets, typically assets such as tenanted commercial buildings, worth $670 million a year ago.
“5 port companies have built up investment property portfolios that are greater than $20 million. Some, such as Port Otago Ltd & CentrePort Ltd, have clearly separated their investment property activities from operational port activities by holding & managing the investment properties through separate specialised subsidiaries & associated entities.”
Attribution: Auditor-general’s release.