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A couple of significant impairments

Editorial

After a tough year for spot power retailer Flick Electric as its business model stumbled in the face of sustained high wholesale power prices, Eastland Group has impaired the value of its 20.63 percent holding in the company by $1.8 million to a carrying value of $5.9m.

It also expensed $1.4m, as its share of Flick's losses over the financial year to March 2020.

Flick Electric was the first power company in the country to offer customers access to the wholesale price of electricity. Eastland Group has invested $10.6m in the Wellington-based retail electricity supplier, since an initial $2.2m purchase in 2015.

In October last year Z Energy made a $35m write down to its 70 percent holding in Flick, saying at the time that it reflected the fact Flick's customer numbers had fallen from 25,000 to 20,000 since May 2019, and its expectation that wholesale power pricing was unlikely to improve in the short term. (Since then pricing has remained volatile and higher than average.) Z’s chief financial officer said they still believed in the case for investing in Flick and in the half-hourly pricing signals its platform offered.

Z paid $46m for its stake in Flick in August 2018, and had revalued it upwards before making the write down nine months ago (a correction will run in tomorrow’s paper regarding the mistake made around this point earlier and in the print edition).

EGL owner Trust Tairawhiti also made a significant impairment during the year, of $2.93m, to its total equity holding acquired in Spectrum Group Ltd as it supported the integrated forest product company's bid to operate the Prime Sawmill — which ultimately floundered, and a new operator is now running the mill on a trial basis.

Trust chief executive Gavin Murphy indicated that the trial appeared to be going well, and that the write-off of its holding in Spectrum Group was a conservative approach. Asked if the trust was concerned it might not get back $2.8m it had lent to Spectrum to assist with its cashflow management, Mr Murphy seemed relaxed and said they retained good visibility into its operations.

Notes to the trust's financial accounts show it advanced $2.8m to Spectrum by way of convertible notes, with interest charged at 9 percent and capitalised on a monthly basis. The notes convert at the option of trust subsidiary Prime SPV (which reacquired the mill in April this year for $1.7m; $1.2m of that being a loan repayment) and were issued for a two-year period.