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2005

NEW ZEALAND IN 2010 − WHERE WILL WE BE?


NEW ZEALAND INC. SPEAKS

ACCELERATE YOUR WEALTH CREATION


ABN AMRO LAUNCHES WARRANTS

1
Issue One 05
4 CHANGING PERSPECTIVE
Mark Weldon
Chief Executive Officer, NZX

7 PERSPECTIVE
7 WANTED
Dr. Alan Bollard
Governor, Reserve Bank of New Zealand

8 INNOVATION
Brian Ward
Chief Executive Officer, NZBio

10 THINK LOCAL, ACT GLOBAL


Mark Franklin
Chief Executive Officer, Vector

11 A LUST FOR
ENTREPRENEURSHIP
Geoff Ross
Chief Executive Officer, 42 Below

12 CREATING THE ENVIRONMENT


FOR WEALTH CREATION
Bill Day
Chief Executive, Seaworks Ltd
Cover image;

Battle of San Romano, Paolo Uccello, 1445c. 13 A CULTURE OF SUCCESS


Uccello was a key figure in the development of Ian Narev
perspective, along with architect Brunelleschi who Managing Partner, McKinsey & Company
first developed the methods of portraying three
dimensional space. Uccello’s works were seen as ‘essays 14 BUILDING BETTER
in perspective’ and he represented the views of many
artists of the time. These include the sculptor Donatello,
BUSINESSES
Brian Gaynor
painter Masaccio and Alberti, who wrote a Treatise ‘On
Business Columnist, New Zealand Herald
Painting’ in 1435, documenting the method of using
mathematical or single vanishing point perspective.
15 SAVINGS
Lance Jenkins
The Battle of San Romano currently hangs in the Ufizzi Gallery Managing Director and Chief Executive Officer,
in Florence. Goldman Sachs JBWere (New Zealand)
2
17 SUSTAINABILITY AND Welcome to the first edition of OPEN for 2005.

INTEGRITY In this edition, we are delighted to be able to bring


Peter Townsend
you the views of some of New Zealand’s business
leaders on where they want to see the New Zealand
Chief Executive,
economy in 2010. We have called the edition
Canterbury Employers’ Chamber of Commerce
Perspective, and are featuring on our cover Uccello’s
Battle of San Romano. This image helped people to
18 SELF DETERMINATION, see how perspective actually worked – by making
SELF RELIANCE things further away appear smaller.
Dr. Roderick Deane The link to our edition and the economy in 2010 is
Chairman, Telecom quite simple, things that are far away – and may appear
small – can approach with rapidity. Moving towards
the future, and towards elements that are approaching,
19 BUILDING A NATION ON is a much smarter perspective than retreating.
PRIDE AND PASSION On reading each article you should gain some insight
Chris Moller
into what “NZ Inc” thinks is on our immediate
Chief Executive Officer, New Zealand Rugby
horizon. You will also notice that some common
Union themes emerge. Opinions seem to centre on
productivity, growth, building a culture of success
20 PRODUCTIVITY = POWER and ‘taking it to the world’. The opinions are diverse
Scott St John on what political and economic structures need to be
Chief Executive Officer, First NZ Capital in place, but united on the attitudes and mindsets
that will build an economy that is robust and well
21 FROM THE HEARTLAND geared to face our future.
Here at NZX, we are both challenged and excited
22 ABN AMRO INSTALMENT by the perspectives portrayed in this edition. We
see our role, as a provider of capital to companies
WARRANTS and investment opportunities to New Zealanders,
Aaron Milne as being an integral part of the solution. Our focus
Director, ABN AMRO Equities New Zealand Ltd has been – and will continue to be – on ensuring
our marketplace environment and operational
24 DIRECT MARKET ACCESS infrastructure is world class and capable of growing
Adrienne Quinn to keep up with the emerging potential of NZ Inc,
NZX Participant Relations Manager in their mission to take on the world.
We hope these Perspectives will offer you a fresh
26 SMARTSHARES LAUNCHES insight into the great potential of New Zealand
businesses and how we can work to ensure we are
SAVINGS PLANS creating the right environment for success.

27 NZX OPERATING METRICS


28 MARKETPLACE
Melissa Jenner
33 Q1-05 UPDATE NZX Communications

33
CHANGING
PERSPECTIVE
MARK WELDON
C H I E F EXECUTIVE OFFICER, NZX

The New Zealand business mindset has traditionally been that ownership is immaterial
and it makes no difference whether New Zealand ends up as an economy fuelled by
ownership, or by income. There may have been a blip in time when ownership versus
income could be viewed as a distinction without a difference, but that time is gone.

It is a truism that, for there to be any material increase Basic health – savings and deeper capital markets
in our standard of living, New Zealand companies must Right now the body of New Zealand, the economy, is pretty
develop lasting competitive advantage in global markets healthy, as can be seen in most of the numbers. To keep it
and, crucially, the benefits of that competitive advantage healthy over the medium term, however, a change of diet will
must accrue here. be required. At the bottom of the economic food pyramid,
To determine what needs to be done to make the New the base that maintains the heart pumping, is savings.
Zealand economy great in 2010 we therefore need to focus Improved savings outcomes will pump blood into both the
on what will give New Zealand businesses the best possible household balance sheets and company fortunes.
chance to develop advantages that will win globally. It is
The main structural change needed, which is currently
my belief that in 2010 sustainable competitive advantage,
being debated and addressed at the policy level, is to
and hence real economic returns, will for countries
create individual long-term savings accounts for all New
outside China/India/Brazil be driven almost entirely by
Zealanders, with contributions primarily coming out of
intangible assets like brand, patents and design, whether
workplace earnings. As a recent quote in The Economist
in children’s clothing, vodka or tourism. To me, creating
stated, “[in] New Zealand, personal savings rates are
these intangible assets, and ensuring that they are owned
negative as people borrow to consume more than they
here, should be the single goal of our private and public
earn”.
economic planning over the next decade.
Workplace superannuation needs to be introduced and be
The economy is a complex system like the human body.
made to work. For success, three things are needed:
This article focuses on what I believe will get the economic
body of New Zealand competing and winning on a global • a minimum level of compulsion,
level. A sick or unhealthy body can not run and leap. A • incentives available for those who choose to save
healthy and fit body can do all sorts of amazing things. beyond the compulsory amount, and

4
• a very simple framework that people can use easily and It is my bet that small countries with homogenous
be confident in. workforces will fall rapidly down the OECD ladder over
Based on numerous conversations, a plan that involved a the next 20 years compared to countries that effectively
mix of a targeted tax cut of about 1-1.5 cents in the dollar leverage diversity. An experiment conducted by a group
with an extra 1.5-3 cents directed from each person’s pre- in New York is instructive. Groups of business people
tax earnings into individual savings accounts, alongside a were clustered together to develop recommendations
range of incentives for workers to contribute further pre- on series of hardcore business issues. Similarly, groups
tax earnings on a matched basis by employers, would be of non-business people from wide ranging backgrounds
almost universally well received. While it would cost the (think Navy Seal plus fine arts major) were put together.
Government purse, it will result in a much healthier nation This latter group argued more, was much less affirming
at both the individual and company level as we position of how brilliant each other was, but got to much more
ourselves for our future. creative and insightful
If these actions are taken, recommendations.
households will be able Groupthink is the opposite
to provide for retirement, of creativity.
education and the passages Ultimately immigration
of life where individuals should both fill needs and
have no earning power and create opportunities. For
must use their individual example, immigration
balance sheets to get them from China will grow our
through. Productive business knowledge of that market
investment will also increase and, through informal
and, importantly, the suite networks, result in
of intangible assets that substantial trade. Similarly
will deliver us competitive with Brazil, which is
advantage will also increase
another of the world’s major
significantly. We have seen
economies that is hard to
the growth of a local savings
penetrate without local
pool fuel all of these positive
knowledge. New Zealand,
effects in Australia and in a
with its time zone position
myriad of other counties. It
between Asia and America,
will happen here.
is ideally situated to use
Strength and fitness significant immigration as
– growing the size and a strategic tool to deliver
diversity of the workforce a larger and more diverse
labour pool that in turn
With a healthy heart, the economy can start to grow some
delivers much stronger trade and innovation outcomes.
muscle. For me growing muscles is about getting our
labour pool right. There is no question that lack of labour Apart from trade and innovation outcomes, scale has its
availability and the right skill base is the biggest risk to our own virtues for our companies and their workers. New
medium term economic fitness. Zealand companies exhaust their local market quicker
New Zealand needs both greater mass and diversity in our than their competitors and thus can be forced to sell their
workforce to create the right environment for increased source of competitive advantage (their intangible assets)
productivity and core growth. Independent of any “political much too cheaply. A larger population, even a population
correctness” arguments there are sound economic reasons of 5 million (about the same size as greater Sydney),
to believe that, in a world where intangible assets and would create a much stronger base for our businesses
the ideas that create them are key, diversity is critical to and the conditions so that we could keep the benefits of
economic outcomes. success here.

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Performance – dominating global slivers and ownership If we continue to sell companies offshore, those learnings
and beliefs will never occur and we will end up as a call
Dominating global slivers
centre that can’t compete with the 2.5 billion people in
With a strong heart and good overall strength, the New India/China/Brazil. Unfortunately, as a recent Grant
Zealand economy will be able to compete and win. For New Thornton Global Business survey shows , New Zealand 1

Zealand, winning means that we develop deep expertise business owners have the highest expectation of a change
and become distinctive in a series of global slivers, niches in ownership over the next 10 years of any country globally.
and products where we can own and set pricing for a good Learning how to succeed cannot be found in a book and,
part of the category. Current New Zealand examples while it is intangible, it is very real. A good analogy from
would include Fisher & Paykel Healthcare, with its sport is the different approach of the Australian cricket
dominant global market share in high end medical devices team (winning) versus the New Zealand cricket team
for specialist situations, and luxury outdoor/beauty tourism (playing). The core skill difference is not technical ability,
(e.g. Blanket Bay, Huka Lodge). but the knowledge of how to win.
More broadly, these slivers could be product and In business the analogy is obvious. New Zealand companies
expertise, and should be consistent with an evolved New continually innovate and create amazing products. But,
Zealand brand which is based unfortunately, that is where we
on a much broader notion of mostly leave it. Unless we own
national distinctiveness than “The economy is a the wins, and build on those, there
just rugby and the outdoors. won’t be much real change. To do
This “NZ 2010” brand should complex system like the that we need to start a virtuous
have elements of Sir Edmund circle based on ownership.
Hillary (independent), 42 Below/
Karen Walker (cool and edgy),
human body. A sick or Ultimately I want to see New
Zealand as a country with a
Weta/Peter Jackson (creative)
and our ex-pats and business
unhealthy body can not distinctive reach right across
the globe, with the benefits of
stories like Fletcher Building,
Michael Hill and Pumpkin Patch run and leap. A healthy ownership coming back to New
(international and successful). Zealand, and each and every

Going forward we should aspire


and fit body can do all New Zealander participating in
the benefits of those outcomes.
to be the Swiss watch model,
where Swiss watches have
sorts of amazing things.” To achieve this, it is critical to get
savings and labour right and have
competitive advantage mainly
an ownership mindset. New Zealand can develop lasting
by virtue of being Swiss. Film is a good example. Real
sources of competitive advantage. What matters most is
success would mean that our individual brands (e.g. Peter
getting the settings right so that we can own the success in
Jackson, Richard Taylor/Weta) have been joined by others
New Zealand, and as a country, own the benefits of lasting
and created a national brand with a long-run competitive
competitive advantage.
advantage and global value proposition.

Ownership
Apart from ownership of intangible assets generating the
real wealth, ownership of these assets in itself creates a
Mark is the Chief Executive of NZX, and works closely
priceless intangible asset: the knowledge, of how to win.
with management to implement the Board’s strategies.
This knowledge, along with institutionalisation of success Mark is also a Director of Smartshares Limited and
and building a country where business success is in our Chairman of Link Market Services Limited.
DNA, creates a virtuous circle of knowing how to win and
achieving it. 1
Grant Thornton Global Business Survey, released April 2005

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PERSPECTIVE
WANTED
RESILIENT BROAD BASED GROWTH

NZX asked ”NZ Inc” (a selection of business


leaders in New Zealand) to give their perspective
D r. A L A N B O L L A R D
on where they see the economy in 2010. GOVERNOR, RESERVE BANK OF NEW ZEALAND

Contributors were asked their views on three main issues:

1. What would they like to see the economy of New Zealand What are the top three things that will need to change for
like in 2010? the New Zealand economy to be where you would like it to
be in 2010?
2. What in their opinion, would need to change, for this to
become a reality? I could get all technical about this, but in simple terms my
3. How would these changes impact the economy? top picks are:
• Increase labour productivity from roughly 1.5% p.a. to
Those who chose to give their views have been asked to be roughly 2% to keep growth strong.
as open and honest about them in the interests of providing • Get a good Doha WTO trade round, or failing that, get
the market some insight into what could be. Their views are
a NZ-US Free Trade Agreement.
published unedited.
• Increase our country’s overall savings rate in the
Contributions are from: medium-term.
• Dr. Alan Bollard, Governor, Reserve Bank of New Zealand
• Brian Ward, Chief Executive Officer, NZBio What would need to happen in order to facilitate these
changes?
• Mark Franklin, Chief Executive Officer, Vector
• Deepen our capital markets to work for New Zealand
• Geoff Ross, Chief Executive Officer, 42 Below
firms.
• Bill Day, Chief Executive Officer, Seaworks
• Don’t let our labour markets get increasingly inflexible.
• Ian Narev, Managing Partner, McKinsey & Company
• Private sector managers need to make quality decisions.
• Brian Gaynor, Business Columnist, NZ Herald
• Households need to invest in financial instruments
• Lance Jenkins, Managing Director & Chief Executive
other than housing.
Officer, Goldman Sachs JB Were
• Peter Townsend, Chief Executive, Canterbury Employers’ How would these changes impact the economy?
Chamber of Commerce They will help us get resilient broad-based growth, at
• Dr Roderick Deane, Chairman, Telecom New Zealand least equivalent to Australian levels, plus a good level of
• Chris Moller, Chief Executive Officer, New Zealand Rugby economic stability. Many of the other things that we want
Union for New Zealand will follow from this.
• Scott St John, Chief Executive Officer, First NZ Capital

In addition, we asked a selection of New Zealanders their Dr. Alan Bollard is currently Governor of RBNZ. His
views on the same topic. These range from an 18 year old previous positions include Secretary to the Treasury,
graduate to a retired Police Officer. Chairman of the NZ Commerce Commission and
Director of the NZ Institute of Economic Research. Dr.
NZX would like to thank all those that took the time to Bollard has also written a number of books on the New
document their perspectives. We appreciate your candour Zealand economy and worked as an economist in the
UK and South Pacific.
and are challenged by your views.
The views represented in this article are the express views of the author, and do not
necessarily reflect the views of NZX.

7
INNOVATION
A POWERFUL ECONOMIC DRIVER
BRIAN WARD

CHIEF EXECUTIVE OFFICER, NZBio

New Zealand will become recognised as an originator of Currently, the most severe constraint to exploiting our
businesses, products and services that are elegant, smart, and existing innovations is a lack of funds to move projects from
distinctive. Our companies will rely on innovation in their discovery to the ‘investor ready’ stage. The Government
products and services, business processes and models, and needs to apply serious public financial commitment to this
position themselves carefully within global value chains to stage, as its international counterparts have done.
maximise returns. As a consequence, intellectual property
The private sector also has a role to play. Funding for
will become more and more important. The recent growth
early-stage companies in New Zealand is presently very
of the New Zealand economy has come more from increased
limited. A relatively low portfolio allocation to high risk
labour utilisation than from increased productivity. Future
asset classes limits funding for new ventures, and in a
growth must come more from increased productivity, and
small market individual company setbacks can have
innovation will help to make this happen.
an inordinate influence on market sentiment. Success
The rise of the high performance exporter will breed success, but it is also a numbers game. In the
meantime, we need to back ourselves and feed more
Export-based companies will outperform other business
private capital into the pipeline.
categories; they will have a strong focus on growth and
increasingly be publicly listed. Recent New Zealand The rise of the high performance exporter depends on New
economic growth has been driven more by domestic demand Zealand moving beyond just recognising the importance
than by overseas demand (i.e. exports). Future growth needs of building exports, to targeting niche opportunities that
to be driven more by satisfying overseas demand. are high growth and high margin, where we can stake
a claim as world leaders. Niche businesses within the
Success will come from reaching outside of New Zealand
life sciences stand out in this regard. Fundamental to
early, with a determination to partner wisely and often.
this development is deeper insight by Government and
New Zealanders are famously self-reliant, but we can
businesses into opportunities of genuine competitive
do better by working with international partners, whilst
advantage where there are accessible channels to market.
maintaining our enterprising spirit.
The Government’s “Growth and Innovation Framework”
Innovation is the most powerful economic driver has begun to address this question.
There is no shortage of good ideas. New Zealanders, and Further progress is dependent on an entrepreneurial
particularly those involved in the biological sciences, are partnership between the public and private sectors and
internationally recognised as originators of world class an acceptance on both sides that the way forward is
basic and applied research. We could do even better if uncharted territory with uncertainties and risks, but if
public R&D investment rose from just below 1% of GDP we are intent on lifting our economic performance then
to OECD norms of between 2% to 5% of GDP. we must act with conviction. Government leadership is

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“New Zealand will become recognised as an
originator of businesses, products and services
that are elegant, smart, and distinctive.”

necessary to create an operating environment that favours its clusters, networks, partnerships and collaborations, but
high performance exporters. These companies need to government departments like the Ministry of Economic
have the opportunity to be on an equal footing with their Development and New Zealand Trade and Enterprise
international competitors and realise their full potential. are pivotal, bringing to bear their resources, skills and
If this means favouring high performance exporters over business-strengthening capabilities.
other businesses, so be it.
Economic Impact
The taxation system also needs adjustment to facilitate The economic benefits from these changes will be
the development of high growth companies. Their future significant. The private sector wins through greater
value as taxpayers will more than compensate for early export revenues, higher growth, higher margins, higher
concessions. Regulatory and compliance requirements value added products and services, enhanced competitive
must be streamlined because this is an overhead that advantage, greater scale and better paid jobs.
diverts resources from building the business. Within the
private sector, we need to improve our ability to aggregate The Government wins through increased taxation revenue
resources, build on individual and collective strengths, which means there is greater capacity to improve publicly
and create critical mass. funded services New Zealanders value, like better
healthcare, education, social services, and environmental
Leveraging international partners management. In addition, the economy will also have a
In the global marketplace there are very few areas where broader base from which to grow in the future.
New Zealand can hope to dominate the entire supply
chain, particularly given our distance from major markets.
To grow companies quickly and capture the value of new
technologies, New Zealand companies will need to be
Brian Ward is currently the CEO of NZBio, New
excellent at entering markets quickly and concurrently. Zealand’s biotechnology industry organisation. Over
Our companies need to develop the networks, skills and the last 20 years he has worked in a wide range of roles
experience to be among the world’s best at executing in the area of life sciences, both in New Zealand and
internationally.
sophisticated partnering arrangements to leverage
distribution channels, profile, insight and new business The views represented in this article are the express views of the author, and do not
options. Much of this responsibility falls to industry, with necessarily reflect the views of NZX.

9
THINK LOCAL, ACT GLOBAL
MARK FRANKLIN

CHIEF EXECUTIVE OFFICER, VECTOR

As a nation we need to ensure there is real openness for linked to business efficiency if they are to contribute to
investment. At present, there is no framework in place the country’s future success.
to give international investors long-term confidence
These changes will enable New Zealand to improve our
and certainty. We talk about the country being open for
place in the world and to enjoy a better standard of life.
investment, but too often contradict that by our reaction It is going to be difficult to move up from being in the
to proposed investments. bottom half of the OECD’s wealth index. But we can
We also need to continue to have a flexible labour market do this or, at least, have it as an objective. Hope is not a
structure, giving people greater freedom in the way good strategy.
they balance their work and life By making these changes, we
but without undermining the
efficiency of operations.
“New Zealand has to decide should be able to better compete
in the world, and we will become
In my opinion New Zealand whether we move proactively more innovative as a country. At the
is becoming over-regulated as or reactively, whether we moment individuals
we are full of innovative
but, because of our
increasingly there is a perception
that law and policy will solve lead the way and control our regulatory environment and lack
everything. This needs to change of flexibility in the labour market,
and the issues of regulation versus own destiny, or whether we innovation is not encouraged.
We also need to become more
competition need to be better are simply pulled along.” attractive to overseas skilled
understood.
labour given we are now operating
To a certain extent, these changes will occur by osmosis in a highly competitive world labour market.
as the world moves on. But New Zealand has to decide
whether we move proactively or reactively, whether we The country would also benefit from opening up
lead the way and control our own destiny or whether we investment opportunities and being an active player in the
simply are pulled along. global economy, with far greater control over our future and
economic wellbeing than if we try to resist and regulate
New Zealanders are generally aspirational, but we need to our way out of the global realities.
back up those aspirations with effective action. We need
to start acting as part of the global economy and have a
more thoughtful view about the balance of nationalism Mark Franklin was appointed CEO of Vector in 2003. He
has a Bachelor of Electrical Engineering from Sydney
versus harmonisation with Australia. We need to recognise
University and has extensive experience in the energy
the long term benefits of opening up opportunities to and technology sectors in New Zealand, Australia
international investors. and Japan. His previous leadership roles include
Chief Executive of Orion Energy in the Hunter Valley
There also needs to be a considerable change in attitude (Australia) and Asia Pacific General Manager of IBM
regarding labour reform and regulatory activity. Regulatory GSA for utilities.

control is a breeding ground for potential inefficiency, and I


The views represented in this article are the express views of the author, and do not
believe any regulatory or labour reforms need to be closely necessarily reflect the views of NZX.

10
A LUST FOR
ENTREPRENEURSHIP
GEOFF ROSS

CHIEF EXECUTIVE OFFICER, 42 BELOW

A healthy economy in simple terms is one that is selling


more than it is buying. A wealthy economy is one that is
selling frickin heaps. To make this happen the three fingers “We should be creating
that the Government needs to pull out are as follows:
companies that are big on
• Fast Start Tax Break for future exporters. The toughest
time for any export business is the start. Upfront costs
have been met but economies of scale are yet to be
the world stage, not just
achieved. So how about giving start up companies tax
incentives based on their overseas earnings growth
companies that are ‘quite big
instead of just punishing them for being productive.
The 0-10 million tax break would make New Zealand
for New Zealand.”
companies the fastest out of the blocks in the world.
• Encouraging a vibrant capital market. It’s a truth – a Auckland University does this really well. And there’s no
strong capital market is a necessary pillar for a strong reason their teachings can’t be formalised into the school
economy. If all New Zealanders were active in our
curriculum. Let’s stop copping out by using that ‘per
capital markets a huge amount of fuel would be added
capita’ phrase.
to our businesses. So let’s get Kiwis away from relying
on selling their house to fund their retirement and Also, lets get rid of OSH and any other hopeless
encourage them to be active in the sharemarket by not Government bureaucracies gone crazy. And start selling
taxing gains made on investments of any sort. New Zealand to the world on more than just mountains
• Education and having more Bill Gates/Rupert and movie sets. You actually can have a bloody good time
Murdochs per capita. In a typical effort to compensate here, it’s a fun, energetic place and a great place to party.
for our size, New Zealand often uses the expression We wouldn’t have a ‘Brain Drain’ if the brains were given
‘more per capita’. ‘We won more Golds per capita at the a good reason to stay.
Olympics’ or ‘We have more mobile phones per capita’.
Geoff Ross started distilling vodka in his Wellington
Well, into our country’s mindset we need to breed a
garage in 1996. He sold his first bottle in 1999. 42
lust for entrepreneurship, and a New Zealand culture BELOW has now won Gold in the World Spirits Awards
that wants to create the next Microsoft or Newscorp. and Gold at many other competitions. 42 BELOW is in 10
We should be creating companies that are big on the countries worldwide, and this list is growing. The Ritz
London, Beverly Hills Hotel, LA and more than 4,500
world stage, not just companies that are ‘quite big for of the best bars worldwide now stock 42 BELOW. 42
New Zealand’. BELOW is listed on NZX, and has over 40 staff placed in
key markets worldwide.
Let’s start by not paying teachers such crap money. Give
teachers the incentives and the resources to start teaching The views represented in this article are the express views of the author, and do not
our kids to reach for the stars. The ‘Spark’ programme at necessarily reflect the views of NZX.

11
CREATING THE ENVIRONMENT
FOR WEALTH CREATION
BILL DAY
CHIEF EXECUTIVE, SEAWORKS LTD

In 2010, I want to see a productive and growing economy introduction of constraints on the growth in government.
that creates opportunities and prosperity for all New This could occur through a regulatory constitution and tax/
Zealanders. Economic growth is not an end in itself, but spending limitations in the Fiscal Responsibility Act.
it is the key to lifting living standards. It is only through
Finally, we need to develop our human capital. We cannot
economic growth that our country can afford higher wages,
compete with other countries on
good schools, first-class health care,
the basis of our size or natural
better environmental protection,
as well as opportunities for future “The private sector must resources. But New Zealand can
compete with our minds and our
generations.
2010 is not far away. To build the
be the main engine of creativity. Our education system
has served us adequately in the
foundations for a stronger economy,
we need to think well beyond 2010.
economic growth, and past, but we need to aspire for
much more. We need higher
As the experience of the 1980s
and 1990s has shown, it can take
the Government must expectations, less regulation of
education providers, changes to
years before the beneficial effects
of policy reforms are felt in the
play a supportive role.” the way teachers are paid and
rewarded, and more choice and
economy. Equally, it takes time for competition across all levels.
the adverse effects of poor policy
decisions to filter through. New Zealand is small and isolated. A good policy
framework can provide us with an important source of
First, we need to put in place a policy environment competitive advantage over other nations. We also need
that encourages innovation, entrepreneurship and a change in attitudes, so that we become a nation that
wealth creation. The recipe for this is well known: clear celebrates business success.
property rights, a sound judiciary, good general laws,
low taxes, a flexible labour market and a generally light
level of regulation. The private sector must be the main
engine of economic growth, and the Government must
play a supportive role. Unfortunately, we have seen too Bill Day is the owner and Managing Director of
many policy decisions take us backward in recent years Seaworks Ltd, a specialised maritime company with a
– employment law, business regulation, taxation, welfare head office in Wellington and a branch in Dubai. Bill
studied law at university along with a BA and MBA. He
policies, to name just a few.
is also Vice Chairman of the New Zealand Business
Second, we need strong and effective legal and political Roundtable.

institutions. MMP has been in place for almost ten years.


The views represented in this article are the express views of the author, and do not
It is time to review the system. I would also like to see the necessarily reflect the views of NZX.

12
A CULTURE OF SUCCESS
IAN NAREV

MANAGING PARTNER, MCKINSEY & COMPANY

Our economy in 2010 harnesses the benefits of our small


size, rather than laments its shortcomings. It shows that we
can reduce the friction among different stakeholders that “The catalyst for
occurs in larger economies. We can build trust and focus
around a national vision that looks outward towards New
Zealand’s opportunities in the global economy.
the common
Three specific changes will stand out: vision is leadership.”
• Four or five of our companies will have expressed
the aspiration to be ‘global leaders’, and will be well
down the path to achieving their goal. Each will have accountable for achieving it. Each must also trust the others
identified a slice of the global economy in which it to play their part. The catalyst for the common vision is
can have competitive advantage, have developed leadership. The vision emerges through a concerted effort
and commercialised unique intellectual property in from a small but inclusive group of leaders that listen to
that slice, and be building the other intangible assets each other, bring the same level of analysis and discipline
necessary to achieve global pre-eminence, including to microeconomic and management issues as the New
global networks, talent, management disciplines and a Zealand Institute is bringing to macroeconomic issues,
high performance culture and have the mana to build support for the vision among
• We will have a vibrant private equity market that their peers.
efficiently matches foreign and local capital to
Five years will be too soon to see major changes. But leading
innovative start-up ventures in New Zealand. Foreign
indicators of the underlying health of the economy will be
venture capital will be easier to attract as a result of the
clear. The hallmark will be an all-time high in confidence,
burgeoning successes of our global leaders
that brings with it employment growth, a continuation
• We will have successfully negotiated critical free trade
of the trend for our top expat talent to return, increased
agreements, which unlock opportunities for our global
demand for locally produced goods and services, increased
leaders
foreign direct investment and a thriving NZX (a plug for
To facilitate these changes, we will need an underlying the editors of this publication).
culture that celebrates the early successes of the global
leaders and supports the next wave of global aspirants.
The culture will be based on a justified belief that the Ian Narev is the Managing Partner of McKinsey &
spoils of success will be shared and enjoyed throughout our Company’s New Zealand office, and one of the Asia-
communities. The starting point will be a common vision Pacific leaders of McKinsey’s global strategy practice.
Ian spent the first four years of his McKinsey career
for how our companies can capture global opportunities. in New York, after undertaking postgraduate studies
The vision must be shared by business leaders, capital in international law at Cambridge University and New
providers, the government and its agencies, labour, York University.

educational institutions, the media and the community


The views represented in this article are the express views of the author, and do not
at large. Each must understand its own role, and feel necessarily reflect the views of NZX.

13
BUILDING BETTER BUSINESSES
BRIAN GAYNOR
BUSINESS COLUMNIST, NEW ZEALAND HERALD

The main drivers of wealth and economic growth in a free The only really successful offshore acquisition by a New
enterprise society are business people and their companies. Zealand company, prior to Fletcher Building’s recent
With this in mind a number of developments are required moves in Australia, was Lion Nathan’s purchase of
if New Zealand is to improve its economic performance National Brewing. The Australian brewer was owned by
over the next five years. These include; the troubled Bond Corporation and Lion Nathan was able
to acquire it at a large discount to underlying value.
• Our top corporate leaders need to create great
companies instead of selling out and retiring to their New Zealand companies - Michael Hill International
yachts, golf courses or overseas is a good example - have been more
retreats at a relatively early age. “Our top corporate successful when they have adopted an
• Directors and management should organic growth strategy.
adopt a more measured and long-
leaders need to create
Shareholders also need to take a more
term approach to growth. The great companies instead proactive stance towards management
widely adopted big bang strategy
has not been successful, particularly
of selling out and retiring issues. It would be far more rewarding in
the longer term if shareholders changed
offshore. to their yachts, golf the management of a poorly performing
• Shareholders should play an active courses overseas retreats company instead of selling out to the
role in ensuring that companies first foreign buyer.
achieve their full potential. They at a relatively early age.”
should also have a longer-term The development of successful,
perspective and reject opportunistic bids from overseas internationally orientated companies, would be a huge
bidders. boost to the New Zealand economy because they would
One of the biggest problems with the New Zealand economy act as an inspiration and role model to the remainder of the
is that we are not creating enough great companies. We don’t business community.
have businessmen with the ambition of Rupert Murdoch of These successful commercial enterprises are the key
News Corporation or Frank Lowy of Westfield. to the future success of the New Zealand economy
Many of our successful business leaders are content as in a free enterprise environment it is private sector
to retire while still in their business prime. This is the companies, not the Government, which creates wealth
equivalent of a successful sports coach rejecting a national and economic growth.
position after achieving provincial success. Warren Buffett
and Rupert Murdoch, who are both 74, are still creating
wealth yet most of our successful entrepreneurs have
much more modest goals. In addition to being a business columnist for the New
Zealand Herald, Brian is Executive Director of Milford
Our directors and management also need to take a more Asset Management and Director of The New Zealand
realistic approach to growth, particularly overseas. Too many Investment Trust plc. Brian studied for B.Comm (Econ)
companies have adopted the big bank approach, namely at the National University of Ireland.

the debt financed acquisition of a large overseas company,


The views represented in this article are the express views of the author, and do not
instead of a more measured internal growth strategy. necessarily reflect the views of NZX.

14
SAVINGS,
INVESTMENT AND OWNERSHIP
LANCE JENKINS

MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER,


GOLDMAN SACHS JBWERE (NEW ZEALAND)

When NZX first asked me to put together some brief I am excited to say I returned to New Zealand with my wife
comments on a perspective for New Zealand, I was initially and two children in January of this year) I saw first hand
reticent. As someone who has been living in New York City the benefits of incentivised retirement plans, investment
for the past nine years I wasn’t sure I could be so bold as to plans and savings plans that are very much a part of the
put across a point of view. (I have been back in New Zealand American psyche. Savings, Investment and Ownership
for four months.) However on reflection, a fresh set of eyes are concepts that are embraced in the USA and it is no
and new perspectives as to how we approach business or accident that the US is also one of the richest nations in
the way we do things, can be genuinely helpful. the world. It is part of their cultural thread and US business
and Government understand that.
As a preface to my comments I believe New Zealand is a
one of the greatest places in the world. I am excited to be While the Government and opposition are currently
back, but like any business or country, there are always talking about an “ownership society” the concept of a
things we can do better to improve our lot as a society. savings programme for New Zealanders seems to me to be
a key requirement for future growth. David Skilling and
After careful consideration, I felt it was worthwhile to the NZ Institute have done some very interesting work
focus on those issues that: around this issue, and while not wanting to steal their
• I had either observed overseas or thunder, their belief that New Zealanders as a whole need
• I felt I had some insight into (from my time spent in to embrace ownership and savings as concepts to be taken
New York). from the cradle to the grave are ideals we should all be
Three key issues emerged, when thinking about focussed on.
opportunities for New Zealand: While we need a safety net for the less fortunate within
• The challenge of creating a culture of savings and our society, most of us function best when we feel we
investment have an ownership stake in society. Ownership does not
• Creating a culture of self reliance, and necessarily mean home ownership (of course it can) but
the idea that we have some “skin in the game” via savings
• Celebrating our successes, our leadership and our
entrepreneurs. or investment is a notion that motivates the majority of us
to do better and to stretch ourselves. In doing so, we not
There has been a good deal of discussion around these
only create benefit for ourselves and our families, we also
issues, but the need for an investment and savings culture
create a better New Zealand. After years of solid growth
within New Zealand stands out as arguably one of the in New Zealand, we need to use this current period to
greatest requirements for growth for our country. develop a culture of savings, investment and ownership. If
As someone who has spent the last nine years living in the not now, we will have lost an opportunity that is unlikely
USA, (despite press reports of a mass exodus out of NZ, to repeat itself for many years.

15
By way of example, one of the great wonders I was look to Government for relief in terms of benefits or other
able to witness while living in the US was the power of government handouts, instead of first looking at the source
retirement savings and the culture of investment that not of the problem. Throwing money at an issue without fully
only increased the wealth of that country (as those savings understanding what is causing the problem is never the
and investments were able to be used productively by long term solution and it is up to us as individuals (not
businesses), but also I saw first hand the wealth created by Government) to find our own solutions. As I have stated
retirees and the benefits they were able to enjoy. earlier, we need to have a safety net for those who are less
fortunate, however a safety net is what it should remain,
My wife, Melissa, grew up in Cape Cod, Massachusetts,
it should never become a crutch. Government has an
USA, and comes from a very modest background (as do
important role to play in encouraging behaviour that adds
I). Her father was an electrical lines repairman who spent
to New Zealand and our economy, and business should
most of his life working for the local electric utility, Cape
work closely with Government to achieve that outcome.
Cod Electric, retiring two years ago as a lines foreman for
It is an important leadership role for Government to create
that company. What was remarkable to me was seeing
outcomes that reward behaviours, and that benefit – not
the wealth that her father had accumulated throughout detract from – the economy. With an unemployment rate
his working life. This was a guy who probably earned no of 3.5%, we have a fantastic window to work on this ideal.
more than $50,000 in his best year, but who at the age of 60,
through investing and saving throughout his working life Finally I would add while the tall poppy syndrome is
now owned his home outright, and had a portfolio of stocks slowly being removed from our thinking, we need to do
and bonds worth approx $1 million. In addition he had sent everything we can do to celebrate our successes, learn
his child to a private university in Rhode Island, USA (if from our mistakes, and encourage our leaders in business,
we think our university fees are bad in New Zealand, they society, and Government to make the tough decisions. As
are nothing compared to private universities in America!). I have discovered in my previous role of managing our
Clearly saving and investing throughout one’s life does allow Goldman Sachs JBWere New York office and now working
even the average earner to create wealth for themselves, with the leadership team in New Zealand, it is always the
and allows business to productively borrow those savings in hardest and toughest decisions that need to be answered
order for the country as a whole to grow and expand. in order for business to continue to grow and develop.
By celebrating success and by rewarding leadership we
I use the example because often, when we think about develop a society that can take on the best.
savings and ownership, we assume it is for the wealthy,
We need to be careful not to become too comfortable
and clearly this is not the case. By encouraging young
with our current solid economic state and we should take
participants in our workforce to set aside income now and
this opportunity to plan for the long term. By creating
not consume it, the outcome for the individual and for the
ownership and investment cultures, by creating a culture
country is a large net positive. By creating a culture that
of self reliance and by celebrating success, leadership and
understands the basic benefits of investing and saving
entrepreneurship, we plant the seeds for long term success
throughout our working life is a something our country
for our country. Speaking personally, it is fantastic to be
must do in order for New Zealand to grow productively.
back in a country that appears poised to make the tough
My second issue fits nicely with the creation of a savings decisions to ensure continued growth of our nation and I
and investment culture. It is the issue of creating a culture feel privileged to be part of it.
of self reliance. New Zealanders have long held a belief of
self reliance and entrepreneurship, however while we are Prior to moving into the role of Managing Director
and CEO of Goldman Sachs JBWere (New Zealand) in
certainly doing well in this country, there does appear to
January 2005, Lance Jenkins was President of Goldman
be an underlying belief that the Government should be Sachs JBWere (New York) and has been a partner of
our first port of call for any issues we face. Goldman Sachs JBWere since 1999. Lance received
an MBA from New York University (Stern School of
The reality is the Government should always be the call Business) and has LLB and BCA degrees from Victoria
of last resort and that if we truly believed in a culture of University of Wellington.

self reliance, then that would be the case. My concern for


The views represented in this article are the express views of the author, and do not
New Zealand is that we as a society are all too willing to necessarily reflect the views of NZX.

16
SUSTAINABILITY AND INTEGRITY
PETER TOWNSEND

CHIEF EXECUTIVE,
CANTERBURY EMPLOYERS’ CHAMBER OF COMMERCE

What are the top three things that will need to change for the New for all employees and that linkages between educational
Zealand economy to be where you would like it to be in 2010? institutions and businesses are improved markedly.
• A significant shift across New Zealand with respect to • We need to start thinking about infrastructure issues
an understanding of the linkage between sustainable, strategically and long-term plans need to be developed
profitable business, community wellbeing and individual with regard to provision of efficient transport. It’s
welfare. Business success and people who are successful time to get real about the future of electricity supply,
in business need to be appreciated and lauded. We need transmission and conservation in this country and
a platform of sound and stable public policy on which to develop a workable long-term plan. With respect
build an environment conducive to business success. to water we need to ensure the tension between
• Ensuring that as many New Zealanders as is possible hydro-electric generation, irrigation, recreational, the
are in useful, productive, well-paid work so that we can enhancement of rivers, industrial use of water and
better harness the human resource capacity, increase town supply are worked through in the best interests
productivity and sustainably grow the economy at of the overall community and we need to look at the
a rate that will markedly increase per capita income. tradability of water rights.
This will enable us to better apply technology to our How would these changes impact the economy?
natural capital to create value.
• Understanding the role that business plays in sustainable
• Do a lot better in respect to our infrastructure and economic growth and what the raising of our per capita
utilities supply. Overcome the issues of increasing income will mean to all of us will reinforce the chance
congestion in our cities, improve the road/rail/shipping for business to succeed. The connection is compelling;
between our cities and ensure that we have adequate it is just not understood.
supplies of reasonably priced electricity and water to
• New Zealand is lagging in terms of its productivity
support our growing economy.
and its per capita income. We must break out of the
What would need to happen in order to facilitate these changes?
position of being a low wage economy if we are to offer
a reasonable standard of living to all of our citizens.
• Every politician at a local and central Government Increasing the contribution to the economy, made by
level must prioritise working on an environment that human capital, is fundamental.
will encourage sustainable, profitable business. We
• No economy can grow on suspect infrastructure. There
need to eliminate the cringe syndrome in New Zealand
is not much point talking about innovation and future
with respect to business and we need to ensure that
growth if the wheels are falling off your infrastructure.
businesses are operating on a platform of sustainability
and integrity so that good business practices are seen to
be the norm in this country. We also need to celebrate
our business successes. Peter Townsend has been the Chief Executive of the
Canterbury Employers’ Chamber of Commerce since
• We need to encourage family-friendly workplaces and a 1996. Peter also holds several corporate directorships
flexible, high quality labour relations environment. We and is heavily committed to a range of community
must reinforce a real commitment to, and belief in, good groups and initiatives in this region that are in harmony
educational outcomes and celebrate the importance of with the objectives of the Employers’ Chamber.

productive work in our economy. We must ensure that


The views represented in this article are the express views of the author, and do not
there is provision for continuous upskilling and training necessarily reflect the views of NZX.

17
SELF DETERMINATION, SELF RELIANCE
D r. R O D E R I C K D E A N E

C H A I R M A N, TELECOM NEW ZEALAND

What are the top three things that will need to change for the • More vibrant, faster growth economy.
New Zealand economy to be where you would like it to be in
• Better solutions to social challenges.
2010?
We also need to solve our massive infrastructure problems
• Deregulation rather than re-regulation.
(e.g. roading and electricity), which essentially need more
• Lower taxes and reduced size of government. market oriented solutions. These currently constrain
• Upgraded social policy (education, health, social welfare). growth and increase risks for the private sector.
What would need to happen in order to facilitate these changes?
• Government stops pretending it has all the solutions Dr. Roderick Deane is currently Chairman of
for all our problems. Telecom, Fletcher Building Limited, ANZ National
Bank Limited, Te Papa Tongarewa (the Museum of
• More self determination, more self reliance. New Zealand) and the New Zealand Seed Fund. Dr.
• More market oriented solutions. Deane is also a Director of the Australian companies,
Australia and New Zealand Banking Group Limited
How would these changes impact the economy? and Woolworths Limited.

• Greater productivity growth arising from restoration of


The views represented in this article are the express views of the author, and do not
flexibility and adaptability. necessarily reflect the views of NZX.

18
BUILDING A NATION ON

PRIDE AND PASSION


C HR I S MO L LE R
C H I E F E X E C U T I V E O FFIC ER , NEW ZE AL AND R UGBY UNIO N

From the outset I plead guilty to parochialism and bias,


given the organisation that I represent; however, I fervently
believe that New Zealand must change its attitude to
hosting major international events.
The economic impact of hosting, for instance, Rugby
World Cup 2011 would be to generate hundreds of
millions of dollars of net foreign exchange earnings for the
country and create a further multiplier effect right through
the New Zealand economy. In addition it would provide
the opportunity to showcase New Zealand to the world.
Following the 2000 Olympics, Sydney became, and still is,
the event capital of the world.
But it is about much more than just money and PR. It
concerns our national psyche and identity – our pride, our
passion and our belief in ourselves as a nation to achieve In summary my top three things that need to change for
the impossible. the New Zealand economy to be where it should be in
In all aspects of life, if we had an attitude of shooting for 2010 are to:
the stars, but only landed on the moon, our achievements • embrace event management with a passion,
as a country and the resultant flow on effect through the
• adopt a “can do” attitude as country through harnessing
economy, would be staggering. Indeed it would be a virtuous
all aspects of our national identity and
circle of achievement generating wealth, of reinvesting part
• ensure our education system assists the youth of today
of that wealth to achieve again at even greater heights,
to become the leaders of tomorrow.
which in turn would produce more wealth and so on.
Against this background the single most important
ingredient for successfully bidding for and winning the Chris Moller took up the position of CEO of the New
right to host major events is a “can do” attitude. As the Zealand Rugby Union on 30 January 2003. Prior to this,
adidas by-line says “impossible is nothing”. It also requires Chris was the Deputy Chief Executive of Fonterra and
Managing Director of NZMP. Chris is a graduate of
central and local government to take a leaf out of the book Victoria University of Wellington and has also attended
of Mayor Kerry Prendergast and her fellow Wellington the London School of Economics and the Advanced
City colleagues to recognise that the benefits of event Management Programme at INSEAD in France.

management principally flow to the host country and cities,


The views represented in this article are the express views of the author, and do not
with the event itself typically breaking even at best. necessarily reflect the views of NZX.

19
PRODUCTIVITY = POWER
SCOTT ST JOHN

CHIEF EXECUTIVE OFFICER, FIRST NZ CAPITAL

The growth of a nation’s wealth is determined by Infrastructure


productivity. This involves working smarter, and getting Years of under investment needs to be corrected.
more out of our resources. This could be promoted by Government recognises this, however the imperative of
creating incentives to train workers, apprenticeships, and change must be maintained. In particular, transport and
tax deductibility for worker training. New Zealand also energy must be addressed. The regulatory framework
needs the best ideas and technology the world has to offer. should be re-evaluated to look for bottlenecks to progress.
Trade distortions should be removed, and immigration Is the Resource Management Act working effectively, or
policy should have a greater bias towards skill based is it an unconstructive influence? Labour bottlenecks can
targeting. Higher productivity growth would deliver be remedied through immigration and training incentives.
stronger economic growth, with less inflation pressure, Private sector investment, or government/private sector
creating a richer nation overall. joint ventures should be welcomed. As a consequence, the
economy and businesses would run more smoothly.

Savings and Asset Accumulation


Encouragement of Savings in New Zealand currently has
some traction. The work of The New Zealand Institute
on household savings or the lack of, has highlighted the
importance policy as a lever to promote savings. The
Government is embracing the issue with the Stobo report
on taxation of investments, and the Harris report on
workplace savings. These both appear likely to receive
attention in the May budget.
Most particularly, New Zealanders must reduce their
reliance on offshore capital. Higher quality savings, with
better asset allocations should see the savings directed to
Strengthen Incentives
areas it is needed most. The consequence of this is to grow
To Move From Welfare To Work: The OECD recently the overall wealth of the nation.
recognised this as a priority for New Zealand. Too many
New Zealanders rely on public income support, and are
receiving mixed signals as to how to emerge from this Scott was appointed Chief Executive Officer of First NZ
reliance. This is largely achieved via tax policy. As it Capital in 2002. His experience in the finance industry is
extensive and includes roles as a Senior Equity Analyst,
stands, the difference between workers increasing their
Equity Salesman, Head of Equity Sales and Head of
take home pay, and potential loss of welfare support is not Equities. Scott joined First NZ Capital’s predecessor
compelling enough. A higher workforce participation rate company CS First Boston in 1993 following seven years
must also be achieved. New Zealand’s aging population at Hendry Hay McIntosh.

will see labour force growth moderate. Arresting this trend


The views represented in this article are the express views of the author, and do not
is important for growth. necessarily reflect the views of NZX.

20
FROM THE HEARTLAND
THE VIEWS OF NEW ZEALANDERS

“In five years time I will have graduated with a commerce degree
“Here is my wish list for New Zealand in 2010;
majoring in finance, and a physics degree. Also I will have a
student loan which I will be looking to start paying off. I will be • The number of current MP’s reduced to at least half the
faced with the decision of going overseas and gaining experience present number
or staying in New Zealand and begin paying off my student loan. • A complete overhaul of WINZ, with only the legitimate
For me to want to stay in New Zealand the New Zealand economy beneficiaries being catered for
must be in a strong position. For me, this would mean businesses • A substantial reduction in overseas debt
must be expanding and looking to employ young graduates. Also • A severe reduction in compliance costs
the Government must ensure there are incentives for young • An ANZAC currency scheme for use by New Zealand and
graduates to stay in New Zealand between now and 2010 to help Australia
strengthen the economy. Good, well paid jobs for young graduates • A realistic, but much cheaper, Defence Force
will only come when New Zealand businesses are doing well and • An independent traffic department with its own budget
expanding. Also, for me, I am interested in investing money in the
• A criminal justice system operating with sensible sentencing
stock market. I will be faced with a decision on which economy
culture
to invest my money in. For me to choose New Zealand in 2010 it
• An overhauled and properly administered employment
will be its past performance which I will be basing my opinion on.
contracts process.”
If between now and 2010, the New Zealand economy does well it
Bill Brien, former Police Officer, Chairman of Wellington Museums
will gain the attention of young investors like myself.
Trust.
So, for me, the three important things New Zealand needs to
do between now and 2010, are to ensure young graduates are
encouraged to stay in New Zealand and work off their student loan,
“New Zealand is all about people and places. We have to do all we
New Zealand businesses do well and expand to create well paid
can to ensure we keep our talent here and keep them motivated
jobs for young graduates and also for the New Zealand economy
to be clever and inspiring. We must ensure we are creating a
to be a good healthy option for young investors to invest in.”
country and economy that will provide young people a place
Montague Hare, Commerce & Science Student, Canterbury University,
to live, work, and a place that is competitive with international
18 years.
standards. This is about protecting our future.
Our people create products and places for New Zealand to
“I’m an investor in equities because I believe the stock market can attract world currency. Let’s make sure we think about the
provide a good return for someone like me, with a long-term view. ‘brain drain’ and work hard to afford the right opportunities to
But I’m also a member of the community I live in, and my take on young New Zealanders so they want to stay here and build great
the economy reflects that. I love the fact that New Zealand has one companies.”
of the lowest unemployment rates around. It means my neighbours, Dianne Jones, Gardener, 53 years.
my friends and I are more likely to have decent jobs – and the
confidence to put some money into savings and investments.
In the future, I’d like to see our full employment goal broadened “New Zealanders have to “think bigger”. Transport,
to include a real push for more productivity and higher skills – so telecommunications and energy production all need some serious
companies can afford to pay better wages as well as delivering decent attention if we want to keep our economy growing. Control of this
profits. I believe our success depends on our ability to build value crucial infrastructure needs to be brought back into New Zealand
through innovation and great New Zealand brands that can take on the and appropriate public money invested to ensure future economic
world. Commodities are important, but only as the raw ingredients. I’d growth is not constricted.”
love to see us develop an economy that reflected that.” Davin Murdoch, Business Owner, 38 years.
Matt Bostwick, Marketing Communications Manager, 31 years.

21
ABN AMRO INSTALMENT WARRANTS
A VEHICLE FOR ACCELERATING WEALTH CREATION

AARON MILNE
DIRECTOR, ABN AMRO EQUITIES NEW ZEALAND LTD

Much has been written of New Zealand retail investors’ enduring love affair with
real estate. Whilst exploring some of the reasons for this popularity, this article will
also look at whether ABN AMRO Instalment Warrants can offer the same potential
for accelerating wealth creation.

The father of modern security analysis, Ben Graham, stated


Investor A Investor B
“An investment operation is one which, upon thorough
analysis promises safety of principal and an adequate Purchase Price of Property $200,000 $200,000
return. Operations not meeting those requirements are
Equity Invested $200,000 $50,000
speculative.”1 With this in mind, we can explore the
Bank loan $0 $150,000
relative merits of investing in real estate against equities.
Registered Value (after 3 $231,525 $231,525
The case for investing in residential real estate is well years)
understood by New Zealand retail investors and is
evidenced by nominal house price inflation of 10% pa Return on Equity Invested* 15.7% 63.1%
since 1963.2 Aside from steady capital returns, what are the
* For simplicity, the return calculations above ignore any funding costs
other factors that make real estate so popular with New associated with the loan, as well as the effects of rental income.
Zealand retail investors?
Probably the single most important factor is an appreciation It is also relevant to consider the unique tax environment
that leverage is an integral part of any strategy for creating in New Zealand. The example above does not take into
wealth. The potential to generate significantly higher account funding costs, however it is important note the
investment returns through the use of leverage is best deductibility of interest costs incurred in generating
demonstrated using a simple example. assessable income. This, coupled with the absence of a
capital gains tax in New Zealand, has led retail investors
Assume two investors purchase a similar residential rental
to embrace the notion of negatively geared investment
property for $200,000, however one investor borrows
properties.
$150,000 to help fund the purchase. Further, assume both
properties appreciate 5% pa for the next three years. As Interestingly, investor willingness to borrow is matched
outlined below, Investor A earns a 15.7% return on the by the willingness of banks to lend against residential real
$200,000 equity they have invested. Investor B however estate. In conjunction with record low interest rates, these
earns a 63.1% return on the lesser amount of $50,000 they factors have helped fuel the property boom in New Zealand
have invested. and other developed countries over the past few years.

22
The question at this point is whether the principles New Zealand equities have posted gross average annual
outlined can be applied just as successfully to leveraged returns of 12.8% since 1932. Due to the lack of directly
investing in the equity market? The good news is yes, comparable figures in New Zealand, it is difficult to make a
and Instalment Warrants have been designed with these case that long run equity returns exceed those of residential
concepts in mind. real estate. Research findings overseas, however, confirm
that equities typically outperform other asset classes such
The recent introduction of Instalment Warrants offers retail
as property, bonds and cash over the long term.
investors access to one of the most popular investment products
in Australia. Since January 2001 to mid 2004, turnover growth The high gross dividend yields on offer in the New
in Instalment Warrants listed on the ASX has been 63% pa Zealand equity market are amongst the highest in the
with turnover now exceeding $2.1 billion pa. world, with 8% – 10% gross dividends not uncommon.
As a consequence Instalment Warrants will typically be
Similar to purchasing residential real estate with only
positively geared, meaning dividend income will exceed
partial capital outlay and borrowing the rest, Instalment
the funding costs. In this light, it is interesting to consider
Warrants allow investors to buy blue chip NZX shares by
that average rental yields are seldom above 5% once
way of two separate payments. In practice, the investor
maintenance costs, rates, insurances, management fees
pays approximately half the value of the share up-front
etc are taken into consideration.
and borrows the rest from the Instalment Warrant issuer.
As with any loan, the investor is liable for interest costs To conclude, the purpose of this article is not to detract
which in the case of Instalment Warrants are paid up front from investment in residential real estate. For the reasons
and represent a part of the initial payment. outlined above, it is has proven a compelling investment
class in a New Zealand context. Rather, leverage and
The popularity of Instalment Warrants in Australia can be
specifically Instalment Warrants issued over NZX
explained by the following factors:
shares should be viewed as an equally powerful tool for
• Leveraged exposure to the share price of the underlying accelerating wealth creation. Importantly, often with
equity superior returns.
• Full entitlement to dividend and imputation credit
income (for only partial capital outlay)
• Full deductibility of interest costs for tax purposes. 1
Ben Graham & David Dodds (1934) Security Analysis
Unlike Australia, however, New Zealand investors are 2
Mary Holm (1998) The Real Story: Saving and investing, now
generally not liable for capital gains tax on the sale of inflation is under control (commissioned by the RBNZ)
Instalment Warrants. 3
ASX (September 2004) – Investment Strategies Using Instalment
• Built-in downside protection arising from the fact the Warrants
investor does not have to repay the loan regardless of 4
ABN AMRO Research (May 2005) In the long run…..2004 Update
the underlying entity share price performance.
The views represented in this article are the express views of the author, and do not
As noted, the test for any investment should be safety of necessarily reflect the views of NZX.
principal plus the likelihood of an adequate return. To this
end, it is imperative that investors focus on established
blue chip companies operating in healthy industries. To
borrow a real estate analogy, blue ribbon areas tend to
experience less volatility in a downturn but also perform
more strongly in an upswing. The same principle generally
applies to equities.

23
DIRECT MARKET ACCESS (DMA)
ADRIENNE QUINN

NZX PARTICIPANT RELATIONS MANAGER

Liquidity, as everyone knows, is the lifeblood of markets. Who uses DMA?


A recent review of global markets, conducted by NZX, DMA is used by a variety of market participants and
indicates that a significant level of liquidity is driven investors to enter orders into the market and to access
by investors and traders who use Direct Market Access information directly from the trading engine. NZX Firms
(DMA). DMA was introduced into New Zealand by are able to provide many of their institutional and even
NZX in August 2004 and provides accredited DMA NZX larger retail customers with the ability to enter orders
Firms with the ability to offer both existing clients and straight into the NZX trading engine, without human
a much broader range of new clients, both domestic and intervention.
international, the opportunity to place orders directly into
the New Zealand marketplace. What are the benefits?
In order to introduce DMA, NZX has made a significant NZX believes the benefits of DMA are very large in terms
technology and regulatory investment. To date 10 NZX of growing market participation, overall liquidity and
Firms have been accredited and the trading volumes are increased information flow. The most immediate benefit
starting to grow. Figures quoted in our Market Update on will be an increase in the diversity of market participation.
page 29 show that 24.5% of all trades in March came from DMA enables direct trading activity and participation
orders placed through DMA. from a wider range of retail and professional participants
which has, until now, not been available. For example,
The following outlines more information on this
National Bank recently formed an alliance with First
exciting market enhancement and how NZX expects
NZ Capital Securities to implement DMA for their retail
this will develop and grow the overall liquidity of our
banking customers. This means that any order placed
marketplace.
into the National Bank online share trading platform by
What is DMA? banking customers can now be automatically submitted
straight to market via a DMA application as opposed to
Up until late last year NZX Trading Participants, or more
being manually routed into the market by an individual
specifically a FASTER Dealer, would have to key in orders
working for an NZX Firm.
to a proprietary NZX Trader Workstation (TWS) in order to
get orders into the Market. This is a manual process which What are the risks? If an order comes directly from a
is both slow and limiting in terms of volume and capacity. customer, who monitors the order flow?
With DMA, NZX Trading Participants are now able to The order is monitored by an accredited DMA Dealer
place orders to buy and sell shares and other securities within a participating NZX Firm. The Dealers and Firms
directly into the New Zealand market, via specially have undertaken tests with NZX to demonstrate they
designed software applications. This software is technically are technically proficient in using DMA and are bound
confirmed by NZX in order to confirm its technical by the NZX Participant rules relating to DMA. NZX is
efficiency in the market. (The software application can able to monitor order activity and flow, and if there are any
reside on the desktop of an NZX Advisor working within concerns, NZX has the ability to turn off the access to the
an NZX Firm, or on the desktop of a client authorised by NZX Trading System via the DMA application until the
the firm to have direct access to the markets.) issues are resolved.

24
Why would an investor or fund manager want to switch What is an Independent Software Vendor (ISV)?
to DMA when they already have a good relationship with An ISV provides technically conformed software to NZX
their NZX Advisor?
Participants, to enable DMA. The role of an ISV is to
There is no need for the relationship between the investor provide varying features and functionality to enhance
and their NZX Advisor to change that much due to the trading. NZX currently have two accredited NZX ISVs
introduction of DMA. NZX Firms will simply be able to (IRESS and SecuritEase).
execute orders more quickly and easily on behalf of their
clients, through having multiple inputs for market orders. Will we see more ISVs entering the NZ Market?
NZX Firms will also, at their discretion, be able to give NZX would like to see more ISVs develop open interfaces
some clients authorisation to enter orders directly into the solutions to NZX, especially those from overseas
market. marketplaces which will facilitate more international
order flow. ISV applications play a critical role in offering
Who is using DMA applications?
an entire product suite to help NZX, NZX Firms and the
Since the introduction of DMA in August 2004, 10 of trading community work smarter.
NZX’s 16 Trading Participants have now been accredited
to make use of DMA within their firms. These Firms are: To ensure that all ISVs software is compliant, NZX
mandates that ISV applications undertake a technical
• CitiGroup Global Markets (NZ) Limited conformance to meet the minimum requirements defined
• ABN AMRO New Zealand Ltd by NZX to support DMA.
• Macquarie New Zealand Ltd
• Goldman Sachs JBWere (NZ) Ltd
• First NZ Capital Securities Limited
• Forsyth Barr Ltd For more information on DMA trading, please contact
• Deutsche Bank Securities New Zealand Ltd Adrienne Quinn, NZX Participant Relations Manager,
• Direct Broking Ltd at adrienne.quinn@nzx.com
• UBS New Zealand Ltd
• ASB Securities Ltd
How many trades are implemented via a DMA
application?
One quarter (24.5%) of all trades on NZX markets in
March 2005 were the result of orders placed through a
DMA application. NZX expects this to continue to rise as
Participants increase their use of DMA trading facilities.

What other countries have DMA? Did NZX look at these


examples?
Most exchanges globally take advantage of Independent
Software Vendor (ISV) applications. All the exchanges
NZX researched when preparing to bring DMA to the
New Zealand market had seen positive results on the back
of DMA implementation and overall growth in liquidity
and participation.

25
SMARTSHARES
LAUNCHES SAVINGS PLAN
Over the last 18 months there has been a growing
Regular savings directly into Smartshares - what a difference it could make!
level of discussion on New Zealanders’ savings habits. $16,000

$15,000
especially regarding our rate of savings and our attitudes $14,000

towards savings. $13,000

$12,000

A recent survey of all Smartshares investors revealed $11,000

$10,000
a great deal of interest in saving directly into the $9,000

sharemarket in a simple and easy manner. Most investors, $8,000

$7,000
especially those with little time or money, find it difficult $6,000

to make regular investment decisions. Finding a solution $5,000

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5


was a ‘no brainer’ for the Smartshares team who recently $5,000 base amount invested + $100 a month (net of tax) $5,000 base amount invested (net of tax)

launched the new Smartshares Savings Plan across all


Please note this graph is for illustration only and does not provide any views to the possible
the products - TENZ, MIDZ, FONZ and MOZY. returns of Smartshares. This example assumes a gross return of 10%pa over five years based
on 6% dividend yield and 4% capital gains (all dividends reinvested net of tax).
The plan enables investors in Smartshares to make
monthly contributions directly into Smartshares at no
cost.* The minimum contribution is just $50 per month This scenario shows that an investor would have
with the flexibility to stop, restart, increase or decrease $14,541 in their Smartshares fund in five years, starting
savings amounts at any time. with an initial $5,000 investment and adding just $100
each month, through the Smartshares Savings Plan.
One of the great advantages for first time investors If the investor were to contribute $200 per month
is that it provides a low cost, easy way to invest in the this investment would grow to $21,736 reaching their
sharemarket. It allows people to decide in advance how investment goal even faster.
much they want to save, pay by direct credit into the
Smartshares fund of their choice, and forget about it. It is
hoped that this initiative will also increase sharemarket Units in TENZ, MIDZ, FONZ and MOZY Smartshares have been
participation amongst New Zealanders who currently accepted for quotation by New Zealand Exchange Limited and will
be quoted upon completion of allotment procedures. However, the
lag far behind Australians in this area of savings.
Special Division that regulates NZX Funds Management Limited takes
Industry commentators have been very supportive of the no responsibility for any statement in this advertisement.

Smartshares Savings Plan to help the first time investor. *The 25 cent transaction fee as outlined in the Investment Statement
Mary Holm, a prominent business writer for the New is currently being waived by NZX Funds Management Limited.
Zealand Herald stated recently “…It’s a particularly good
way to invest via a share fund – which is the best higher-
risk, higher-return vehicle for those with a small amount JOINING THE SAVINGS PLAN
of money.”
To join the plan, Smartshares investors simply need to
Our example here illustrates how a modest contribution order an investment statement from the Smartshares
of $100 per month into Smartshares can help a first website (www.smartshares.co.nz) or call 0800 80 87 80.
time investor reach their investment goals sooner.

26
smartshares
NZX Operating Metrics - Quarter 1 2005
NZX metrics are available on a monthly basis and can be found at www.nzx.com/aboutus/investor/metrics

MARKET CAPITALISATION ($m) INDICES

Q1 Change % of GDP Q1 Change

All Domestic Equity 63,246 17% 52% NZSX 50 Index 3,039 17%

NZSX 62,791 16% 51% NZSX 50 Portfolio Index 1,662 20%

NZAX 455 109% n/a NZSX 15 Index 5,617 17%


NZDX 6,549 9% 5% NZAX ALL Index 1,202 17%

TRANSACTIONS - NUMBER TRANSACTIONS - NUMBER ‹ $50k


Q1 Change Q1 Change
NZSX 154,248 13% NZSX 137,640 11%
NZDX 4,970 -23% NZDX 3,854 -24%
NZAX 1,275 152% NZAX 1,267 151%
Total 160,493 12% Total 142,761 10%
Daily avg 2,675 15% Daily avg 2,379 14%

Direct Market Access 35,553 n/a

TRANSACTIONS - VALUE OVERALL ($m) TRANSACTIONS - ANNUALISED VELOCITY


Q1 Change Q1 Change
NZSX 6,633 15% NZSX 10 Index 55% 5%
NZDX 387 -24% NZSX 50 Index 41% -6%
NZAX 7 193% NZSX All Index 39% -4%
Total 7,027 12%
Daily avg 117 16% ORDER NUMBERS
Q1 Change
229,497 8%
Daily avg 3,825 12%

ISSUERS PARTICIPANTS
Q1 Change Added YTD Q1
Companies Trading & Advising Firm 16
NZSX Domestic 141 4% 0 Advising Firm 11
NZSX Dual Full 3 50% 0 Delivery & Settlement Participants 18
NZSX Overseas 55 -4% 0 FASTER Participants 2
NZAX 22 83% 0 Futures & Options Participants 5
NZDX 42 11% 0 Sponsors 40
Securities
Debt 85 5% 1
ETFs 6 50% 0 MARKET DATA
Warrants 8 -20% 0 Q1
Q1($m) YTD ($m) Primary Data Distributors 18
New equity raised $487 $487 Real Time Data Terminals 6,944
New debt raised $152 $152

SMARTSHARES LINK MARKET SERVICES


Q1 Change Q1
Funds Under Management ($m) 181 114% Total Issuers 114
Holders 10,506 157% Listed Issuers 71
Number of Funds 4 300%

NOTES:
1. All figures are measured at the end of the last trading day or for the duration of the quarter.
2. Change refers to the change since the same period in the previous year
3. All Domestic Equity Market Capitalisation includes all securities quoted on the NZSX and NZAX markets of New Zealand, Incorporated Issuers and Dual Listed Issuers.
The Market Capitalisation of Dual Listed Issuers is calculated according to the proportion of revenue generated in New Zealand.
4. Market Capitalisation for the NZDX is the total nominal (face) value of all quoted securities excluding New Zealand Government Stock.
5. Number of Direct Market Access trades includes any trade that involves at at least one Direct Market Access side
6. The number of orders is the number of new orders. It does not represent any ammended orders nor does it consider the number of trades that results from it.
27
MARKETPLACE
Quarter ended 31 March 2005

Trades on all NZX markets


Top 10 - by value of trades ($M) Top 10 - by number of trades
Q1 04 Q1 04
MAJOR MARKET EVENTS Firm Value (%)
(%)
Firm Trades (%)
(%)

• Fletcher Building Ltd raises $141 million in an First NZ 1,387 19.7 (22.1) First NZ 27,511 17.1 (15.7)
institutional book build, to fund the acquisition of GSJBWere 1,207 17.2 (22.0) ABN AMRO Craigs 20,293 12.6 (12.7)
Amatek Holdings Ltd in Australia.
UBS 883 12.6 (14.6) GSJBWere 18,283 11.4 (10.4)
• Macquarie Goodman Property Trust embarks on
ABN AMRO NZ 856 12.2 (9.3) ASB Securities 18,205 11.3 (8.6)
a capital raising of $231 million via a placement,
institutional book build, and entitlements offer to Macquarie 786 11.2 (7.1) Forsyth Barr 17,653 11.0 (12.3)

existing shareholders. The funds will be used to Citigroup 745 10.6 (9.5) Direct Broking 15,304 9.5 (6.3)
acquire a portfolio of property assets from Macquarie
Forsyth Barr 494 7.0 (5.7) Macquarie 12,979 8.1 (6.8)
Goodman Group.
ABN AMRO Craigs 301 4.3 (3.6) UBS 8,405 5.2 (4.4)
• Tower Ltd completes a scheme of arrangement to
distribute shares of subsidiary Australian Wealth ASB Securities 160 2.3 (1.8) ABN AMRO NZ 7,883 4.9 (4.9)

Management to all shareholders. Direct Broking 129 1.8 (1.5) Citigroup 6,495 4.0 (4.6)
• Tenon delivers a capital repayment of $321 million to
shareholders. The distinction between Tenon Ordinary
and Tenon Preference shares is removed. GLOBAL INDEX RETURNS
Global markets, as measured by the MSCI Indices,
• Wrightson completes a full takeover of rival rural
showed mixed returns this quarter. The Australian market
services company Williams & Kettle. Williams &
withstood a weak March to give an overall positive return
Kettle is delisted.
for the quarter. Pacific and European markets were also
• AMP acquires 10% of Capital Properties NZ via a stand
up, but the strengthening of the New Zealand dollar
in the market.
against the Yen and Euro dampened the returns available
from these markets in New Zealand dollar terms.
NZX FIRMS
The increase in trading activity has allowed most
NZX Firms to increase their absolute trading turnover ����������������������������������������
compared to Q1 2004. The biggest increases in market ����

share were recorded by ABN AMRO NZ, Macquarie and ����

Forsyth Barr (in terms of value traded) and by First NZ, ����

ASB Securities and Direct Broking (in terms of number of ����

trades). The market share statistics for NZX Firms on all ����

����
NZX’s markets this quarter were:
�����

�����
Source: MSCI

�����
�� ��������� ������� ��� ������

�������������� ���

28
DIRECT MARKET ACCESS
A major development for NZX this quarter has been the
uptake of Direct Market Access (DMA) by NZX Firms.
DMA has opened the way for the development of software
that interacts directly with NZX’s trading system. This NZSX MARKET - TRADING ACTIVITY
new technology allows the streamlining of order processing Trading activity on the NZSX Market has been up this
at NZX Firms and the implementation of automated quarter. February and March 2005 were the two busiest
algorithmic trading. months since 2001 in terms of the number of trades (2806
DMA makes it easier for participants to access the markets, and 2675 average trades per day respectively). Value of
which will have positive spin-offs in terms of liquidity, trading was also high, averaging over $114 million per day
demand for New Zealand securities and new listings. in both February and March.

��������������������������� ����������������������������������������
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In March 2005, 14,300 trades were executed using DMA NZSX MARKET – TOTAL RETURNS
technology (with a DMA order on the buy side, the sell
The market retreated slightly in the March 2005 quarter,
side or both sides). This represented 24.5% of all trades
on the back of weakening macroeconomic indicators and a
in March.
small number of below expectation profit announcements
The value of DMA trades in March 2005 was $114 million, in March. This quarter is the first time the NZSX 50 Index
4.6% of total value traded. Thus far DMA has been used has delivered a negative quarterly return since March
mostly in environments where there is a large volume of 2003.
small value trades.
The market is still well above its 2004 levels. 12 month
If we consider only on-market equity trading (i.e. returns for the NZSX Indices vary from 14.0% for the
excluding debt trading and off-market negotiated deals), NZSX 10 Index to 29.4% for the small-cap NZSX SCI
DMA activity accounts for 29.4% of the number of trades Index.
and 15.4% of value traded in March.

29
NZSX 50 Index
�������������
Top 10 Positive Contributors
����
Security Index Last Q1 05 Q1 Index 12 Month
���� weight price Return impact Return
���� (%) ($) (%) (points) (%)
Independent 4.20 6.00 7.16 8.58 27.3
����
Newspapers
���� Fletcher Building 6.50 6.64 3.48 6.95 60.6
���� Auckland Intl Airport 5.47 8.10 4.28 6.84 30.0
���� Telecom Corp of NZ 26.06 6.06 0.72 6.05 14.1
���� Waste Management 1.35 6.12 12.50 4.67 45.7
NZ
����
��������������������������������������������������������������������������������������������������������� Pumpkin Patch 0.77 3.28 20.88 4.04 -
Contact Energy 8.29 6.50 1.56 3.45 23.8
The Warehouse Group 1.31 3.97 9.37 3.31 -2.8
Sky Network TV 1.25 6.43 7.49 2.70 25.9
Mainfreight 0.38 2.65 17.78 1.71 56.2
NZSX Market - Total Index Return
Index Value Q1 2005 (%) 12 Months (%)

NZSX 50 3039.08 -0.8 17.2 NZSX 50 Index


Bottom 10 Negative Contributors
NZSX 15 5617.40 -1.1 17.4
Security Index Last Q1 05 Q1 Index 12 Month
NZSX 50 Portfolio 1662.01 -1.7 20.0 weight price Return impact Return
(%) ($) (%) (points) (%)
NZSX 10 3316.06 -0.6 14.0
F&P Appliances Hdgs 1.73 2.97 -30.93 -23.16 -26.6
NZSX MidCap 6540.44 -0.6 23.7
F&P Healthcare Corp 3.36 2.99 -7.72 -8.46 32.4
NZSX SCI 19485.24 -2.1 29.4
Sky City 4.55 4.92 -5.34 -7.80 21.1
NZSX All 3158.99 -0.8 20.3 Entertainment
Tower 1.26 1.77 -16.29 -7.22 16.3
Carter Holt Harvey 5.70 1.97 -3.02 -5.58 -20.7
NZSX 50 INDEX Promina Group 2.13 5.45 -6.03 -4.10 31.8

Of the 50 securities in the NZSX 50 Index, 23 gave a Nuplex Industries 0.81 4.97 -12.06 -3.44 18.1

positive return this quarter. Overall, the NZSX 50 Index Guinness Peat Group
Plc
3.08 2.08 -3.02 -2.96 14.6

fell by 0.8%, or 25.8 index points. Lion Nathan 0.54 7.84 -15.43 -2.96 17.4
Cavalier Corporation 0.40 3.80 -16.71 -2.47 -15.9
The securities which had the biggest impacts on the Index
were Independent Newspapers (which pushed the Index
up 8.6 points), Fisher and Paykel Appliances and Fisher NZSX SCI INDEX
and Paykel Healthcare (dragging the Index down 23.2 There were a number of strong performers among the small-
points and 8.5 points respectively). cap stocks this quarter. NZ Finance Holdings, which listed
after an IPO in October 2004, doubled in price this quarter,
The poorer performing securities this quarter were mainly
partly due to popularity with strategic shareholders.
stocks that have given strong returns over the past year.
Of the bottom 10 negative contributors this quarter, seven NZSX SCI Index
have still given positive 12 month returns, all in excess of Top 10 Performers
14%, despite their poor performance this quarter. Security Last Q1 05 12 Month
price Return Return
($) (%) (%)
NZ Finance Holdings 0.82 105.0 -
Training Solutions Plus 0.002 100.0 0.0
Vertex Group Holdings 2.06 31.2 54.1
NZ Refining Co 34.50 17.8 145.9
CDL Investments NZ 0.37 15.6 48.0
Cadmus Technology 0.30 15.4 160.9
Metlifecare 3.90 14.1 72.6
Allied Farmers 2.88 13.7 92.1
Toll NZ 3.05 13.0 117.9
Mooring Systems 4.45 12.7 18.4

30
NZSX SCI Index NZAX Market – Total Returns
Bottom 10 Performers Bottom 10 Performers
Security Last Q1 05 12 Month Security Last Q1 05 Six
price Return Return price Return Months
($) (%) (%) ($) (%) (%)
New Image 0.07 -64.8 -77.6 RetailX 0.08 33.3 -60.0
Widespread Portfolios 0.017 -39.3 -37.9 Livestock Improv Corp 1.30 20.6 10.9
Genesis R&D Corp 0.28 -37.8 -56.9 Just Water International 0.94 20.4 23.5
Apple Fields 0.03 -33.3 0.0 Ashburton BS Ordinary 4.30 12.9 25.9
Life Pharmacy Limited 1.35 -32.5 -3.6 Wool Equities 0.72 12.5 50.0
Broadway Industries 0.80 -28.6 -16.8 Comvita 2.20 6.1 -7.1
Aust Prop Hldgs Group 0.03 -28.6 -40.0 Eastern HiFi 0.96 4.3 -
KidiCorp Group 0.18 -28.0 0.0 Loan and Buildng Society 4.56 3.6 16.8
Blue Chip New Zealand 0.90 -25.0 -44.4 Ashburton BS Preference 1.26 1.5 15.5
Heritage Gold NZ 0.083 -24.5 -16.2 Oyster Bay Mlb Vineyards 2.74 1.5 2.6
Speirs Group 1.20 0.0 37.4
Satara Co-op Group 1.18 -2.3 -
The NZ Wine Company 1.90 -5.0 -2.3
NZ Wool Services Intl 0.50 -7.4 -4.9
Zintel Group 1.00 -9.1 -18.9
Seeka Kiwifruit Inds 4.50 -9.6 -0.6
Southern Travel Holdings 1.08 -11.3 -
Cynotech 0.22 -15.4 50.4
Windflow Technology 2.50 -16.7 -20.4

NZAX MARKET - TRADING ACTIVITY Connexionz 0.50 -24.2 -

The NZAX Market has matured significantly since its Solution Dynamics 1.08 -32.5 -10.0
A2 Corp 0.22 -45.0 -56.0
launch in November 2003. There are now 23 Issuers with
The CACI Group 0.18 -50.0 -47.1
securities listed on the market. The growth in the market
can be seen in the number of trades and value of shares
traded, which are up 150% and 190% respectively this NZAX ALL INDEX
quarter as compared to the same period in 2004. The NZAX All Index followed the NZSX Market indices
down this quarter, down 4.5% to 1202.21. The 12 month
return on this in Index is 17.3%.
����������������������������������
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�������������������� ����������������������

NZAX MARKET - TOTAL RETURNS


The following table highlights the growth in value
generated for shareholders of NZAX securities for the past
quarter and the previous six months.

31
NZX DEBT INDICES
NZX calculates a range of government bond, corporate bond
and bank bill indices designed to track the performance of
fixed interest securities in New Zealand. The table below
shows the performance of the main indices to the end of
NZDX MARKET - TRADING ACTIVITY March.
Trading on the NZDX Market has been moderate this
quarter.
NZX Debt Indices - Returns
Returns 31 March 05 Data
Index Q1 05 12 Months Yield Mod.
���������������������������������������� (%) (%) (%) Duration
�� ���
NZX NZ Government Stock 0.53 3.86 6.24 4.04 years
�� ��� Index
�� NZX Corporate Investment 0.76 4.49 7.13 2.50 years
���
Grade Bond Index
��
�� NZX 90-Day Bank Bill Index 1.65 6.42 7.08 n/a

��


��
The raising of interest rates in the past year has weakened
� �� the market value of existing bonds, resulting in low

������������������������������������������������������������������������������������������������������������������������������������
� 12 month returns for the NZ Government Stock and
�������������������� ����������������������
Corporate Bond Indices.
A significant event for NZX NZ Government Stock
Index this quarter was the maturity of the February
NZDX MARKET - NEW LISTINGS 2005 Government Bond, which lengthened the modified
The first quarter of the year is usually quiet for new listings, duration of the Index by about 0.6 years.
however there was one new security quoted on the NZDX
Market this quarter.

NZDX New Debt Securities Quoted


Issuer Security code Date Security type Interest Maturity date
listed rate
Infratil Ltd IFT090 1/03/05 Infrastructure 8.50% Feb 2020
Bonds

32
Q1-05 UPDATE
Corporate Accreditation of NZX Market We believe that the outcome has been extremely beneficial
Participants in that NZX now has detailed information relating to, as
well as a greater understanding of, the composition and
Corporate accreditation is one of the pillars of the activities of its Participants. Furthermore, Participants
regulatory supervision conducted by NZX in respect of are likely to have a much greater understanding of their
its Market Participants (commonly known as Broking regulatory responsibilities having undergone the process.
Firms). The road to successfully attaining corporate During the process, each Market Participant had to
accreditation commences with submitting an application demonstrate that they had:
form and providing a number of prescribed documents
• Professional indemnity insurance
which contain details of the Firm’s business, key staff,
procedures, systems and controls. The application process • Written compliance procedures
also requires the principals (i.e. the directors, partners or • A designated, independent compliance resource to
the sole trader him/herself) of the Firm to make certain provide compliance oversight
undertakings to NZX to the effect that they are fit and • Written business continuity and emergency
proper to hold that position and they will ensure that the arrangements.
Firm will comply with its regulatory obligations. Any new NZX freely admits that it has deliberately raised the bar of
Firm seeking to become a Market Participant will need to what it takes to become and remain a “member” of NZX
undergo this application process. (as was the terminology used prior to the demutualisation).
Under the NZX Participant Rules, which came into effect We believe that this has greatly enhanced the section of the
on 3 May 2004, all existing Firms had to apply to attain financial services industry for which NZX, in exercise of its
the newly created designation of Market Participant. This function as a “Self-regulating Organisation” is responsible.
application had to be made by 3 November 2004, the end NZX wishes to congratulate all Firms that have successfully
of the transitional period for the new Rules. NZX has now attained the designation of NZX Market Participant.
completed processing all of the applications received from Accreditation for existing Firms was by no means a
existing Firms and made determinations in respect of all formality. In this regard, we note that not all applications
of the applicants. A list of Firms accredited as Market were successful. We firmly believe that using the NZX
Participants (and NZX Sponsors) is provided on the NZX brand, as Market Participants are entitled and encouraged
website in the ‘Market Participants’ section. to do (whether in signage or stationery), will provide a
Given its fundamental importance, the application process mark of quality and is an achievement to be proud of.
for all existing Firms was a meticulous one involving
a considerable amount of work for both NZX and the
applicants. We acknowledge the hard work performed by
the applicants prior to the submission of their application.
We wish to thank all applicants for this.

33
NZX Submissions

NZX takes a proactive role in commenting on, and


informing people of, issues which affect New Zealand’s
Link Market Services economy. OPEN is one communication tool which we use
for this purpose and in addition, NZX prepares submission
Towards the end of last quarter NZX and ASX Perpetual documents on specific issues. This quarter, NZX
Registrars Limited (ASX Perpetual) announced that produced a submission on the Unlisted Securites Market
they had formed a joint venture to offer full registry to the Minister of Commerce. Previous submissions have
and employee share plan administration services to the been on the Stobo Report and the Report of the Savings
New Zealand market. Link Market Services Limited Product Working Group. These submissions are available
(headquartered in Auckland) was created as the company on the NZX website in the ‘About NZX’ section under
to deliver these services. ‘Presentations and Consultation Documents’.
NZX and ASX Perpetual each have a 50% stake in Link
which has also acquired BK Registries Limited New
Zealand’s second largest registry business. Link seeks to Advertising with NZX
deliver a premium level of service to New Zealand issuers
(and a seamless service to dual-listed entities) based on NZX is now offering online advertising through the NZX
ASX Perpetual’s leading edge share registry system. website. Advertising on our website offers you a prominent
position on one of the top ten financial services websites in
New Zealand (source: Neilsen Netratings, Nov 2004). The
advertising options include banner and island placements
on selected pages of the NZX website.
In addition, print advertising is an option in OPEN.
Advertising in OPEN puts your message in front of
Introducing i-Search approximately 4000 (as at November 2004) key individuals
including CEOs, NZX Market Participants, lawyers,
This quarter NZX launched i-Search, a new online database investment bankers and other interested parties. For more
tool which provides to access NZX market announcements. information about advertising and rates please visit the
i-Search information is searchable on multiple levels and NZX website’s ‘Contact Us section’.
includes the original company documents. This provides
an invaluable tool for building and maintaining a picture of
what is happening with NZX Listed Issuers.
i-Search is updated in real time and also contains historic
market announcements which include directors’ and
officers’ disclosures and substantial shareholder details, as
well as the full financial disclosures required by the NZX
Listing Rules.
If you are interested in finding out more about i-Search
please see our website (www.i-search.nzx.com). Free trial
subscriptions are also available, email data@nzx.com to
find out more.

34
The source for market information

i-Search is a new online


database service from NZX which
provides access to all market
announcements.

i-Search provides searchable


information and includes the
original company documents.

www.i-Search.nzx.com

Special offer
Try i-Search free for one month.
To trial i-Search or for more information please

call the Market Data team on +64 4 436 2879 or

email data@nzx.com.

35
To advertise here, contact open@nzx.com
If you have any comments or feedback on this publication, or would like to be added to the
OPEN mailing list, please email open@ nzx.com.

This newsletter is provided with the understanding that neither NZX nor its representatives NZX, ASB Tower
are engaged in rendering professional advice or services. NZX and its representatives make Level 9, 2 Hunter Street
no warranties, express or implied, as to the accuracy of the content of this newsletter. PO Box 2959
Neither NZX nor its representatives shall be liable for any direct, indirect, consequential or Wellington, New Zealand
other loss arising from the use of this newsletter or any information contained herein and/or P: +64 4 472 7599
further communications in relation to this newsletter. If you wish to unsubscribe from the F: +64 4 496 2893
OPEN mailing list please email us at open @ nzx.com W: www.nzx.com
36 Zealand Exchange Limited, 2005
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