Iwi honing their smarts
IN unique and challenging circumstances, iwi are demonstrating their ability to balance risk and reward to deliver strong commercial outcomes, ANZ head of Maori relationships David Harrison says.
An analysis by the ANZ of 31 postTreaty of Waitangi settlement iwi and hapu showed an average return on assets of 8.2%.
By comparison, New Zealand’s largest listed companies had an average return on assets of 7.7% and the five largest listed property trusts an average of 5.6%, for the same period.
However, excluding extraordinary items, iwi and hapu underlying returns halved to 4.3%.
Most top performers had less than 25% of their assets in cash and managed funds, generating average underlying returns of 6.5%. Conversely, a couple of top performers achieved underlying returns of 5.7% through almost exclusively investing in managed funds and keeping commercial overheads to a minimum, Mr Harrison said.
Te Tirohanga Whanui — the annual ANZ Maori Business research series — this year collaborated with 31 iwi and hapu with a combined asset base of $4.6 billion.
The report showed clear evidence of a trend whereby iwi were moving from asset holdings in cash and managed funds to more direct and active investment over time.
‘‘For New Zealand businesses looking for ‘transition of ownership’ solutions, a thriving iwi/Maori business sector offered new options with a real point of difference.
‘‘Iwi are looking for opportunities to invest locally and, in a capitalconstrained environment where we look overseas for investment, that is a great story for New Zealand.’’
There was much more collaboration among iwi, not just in sharing information but also to gain the scale needed to target bigger deals, he said.
The report, which delivered a new series of industry averages to help iwi review their investment strategies and planning processes, also highlighted their low debttoequity ratios, average bank debt being 14% of total assets, reinforcing the measured approach being taken by most iwi.
‘‘There is still headroom for iwi to use more external funding, within prudent levels, to help accelerate their growth.’’
Despite the amount of assets held by iwi, the median assets per tribal member amounted to just $9000. Mr Harrison said that highlighted the enormity of the challenge faced to sustainably grow and leverage those assets for all future generations.
Reviewing the rates of return offered by the iwi, Mr Harrison said the highest results were primarily driven by oneoff asset sales, revaluations of property, land and carbon credits, and settlement proceeds.
The average operating return on assets was consistent across entities of different sizes, but results varied increasingly as the time from settlement increased.
Iwi which were more than six years on from settlement had the highest average operating return on assets at 5.6%.
Of those with the highest operating returns on assets, most held less than 25% of their assets in managed funds and cash. Conversely, a couple had almost fully invested in managed funds and ran lean cost structures.
The lower operating returns on assets were being driven by either large cash holdings or lowreturning property and agricultural investments.
Earnings before interest and tax (ebit), including extraordinary items, was on average $753 per tribal member and the median was much less, due to the wide spread of results, he said.
Most iwi indicated they were on the path to consolidation and aiming to become a single commercial entity which managed all its commercial assets, or at least had a single board encompassing both their commercial subsidiary and mandated fisheries asset holding company.
However, 13 still had the majority of their commercial assets held at the parent Post Settlement Governance Entity (PSGE) level, Mr Harrison said.
Three had transferred the majority of assets to their commercial subsidiary yet still retained substantial assets at parent PSGE level.
Eleven had a single consolidated commercial entity or holding company managing all their
commercial assets.
Five iwi held commercial assets in more than one commercial subsidiary or holding company but governed those with a common board.
There was an array of approaches when it came to capitalising on tax
advantages, he said.
Twothirds of parent PSGE entities were Maori authorities. Half of those elected their commercial subsidiaries to also be Maori authority status, while the other half used a mix of a standard company, limitedliability partnerships and ‘‘lookthrough’’ subsidiaries.
About onethird of PSGEs were charities with charitable subsidiaries.
‘‘Balancing tax efficiency with operational efficiency was a common challenge, with many seeking professional review or advice on their structure.
‘‘A key issue was having Maori authority tax credits trapped and unutilised within the overall group.’’
Reviewing the capital structure showed iwi balance sheets had low levels of debt with the vast majority of assets funded by equity. On average, liabilities represented only 9% of equity.
Low debttoequity ratios were driven by low bank borrowings — a product of cash received through settlements combined with prudently conservative risk appetites, Mr Harrison said.
Eleven participating iwi reported term bank debt. The average bank debt to total assets was 14%, the highest 29% and the lowest 3%.
In comparison, the 30 largest New Zealandlisted companies had 24.5% debt to total assets and the five largest New Zealandlisted property trusts had a 31.6% ratio.