Forecast CRI performance trends

This section provides an overview of the general trends identified in the CRIs’ 2008/11 strategic plans for the three-year period from 1 July 2008 to 30 June 2011. These trends are general only and do not necessarily apply across all the of the nine CRIs.

Strategic trends

Continuation of 2007/10 strategies

The 2008/11 strategic plans for all the CRIs are essentially a continuation of the strategies outlined in their 2007/10 plans.  In 2007/10 the general strategic trends that were identified included sustainability as an emerging area of research, broader community participation, growing commercial revenue, and increased collaboration with universities.   In 2008, for many of the CRIs it is ‘business as usual’ with a stronger alignment to government goals, increasing levels of capital expenditure, and reinvestment to develop capability to increase earnings from other revenue sources. 
 

Increasing importance of staff recruitment and retention

All the CRIs have identified their people as a core source of strategic advantage and, as such, workforce planning can be seen as an integral part of all 2008/11 strategic plans.  The current challenges in recruiting and retaining staff, the pressure to pay good wages and the increasing number of overseas recruits all contribute to the increasing importance of human resources to the CRIs. 

Examples include the implementation of flexible employment packages and leadership development programmes.  Some of the CRIs hope to develop strategic relationships with other CRIs and tertiary education institutes to enhance opportunities for staff exchanges and upskilling as well as recruiting high-quality graduates.
 

Development of industry relationships

Development of relationships with industry partners is an important feature of all CRIs’ strategic plans. 

For example, HortResearch has a sector-wide strategy based on achieving results for the horticultural industry as a whole.  A key initiative for IRL in 2008/09 is to effectively engage with industry in novel ways to deliver research solutions and exploit technological opportunities.  One of the key goals driving the implementation of Landcare Research’s science and technology strategy is to achieve strong partnerships for outcomes with key end users.  The company plans to foster a customer-oriented approach to the management of business relationships with all customers.
 

Climate change as an emerging area of focus

With all CRIs involved in the creation of the New Zealand Climate Change Centre in late 2007, climate change can be identified as one emerging theme in the 2008/11 strategic plans.

For example, Landcare Research identifies climate change as one of its three substantial challenges, cross-cutting all of the company’s science scope and focus.  Enhancing its research capabilities in environmental sustainability and climate change is a core goal of GNS Science.  A desired outcome of NIWA’s core business is that New Zealand is well prepared for, and adapts effectively to, the impacts and opportunities afforded by the country’s current climate and future climate variability and change. 

Financial trends

Increasing commercial revenue

The CRIs forecast cumulative growth in total revenue by 20% over the three-year period from 2008/09 to 20010/11 compared with 2007/08. This compares with 17.6% total revenue growth during the previous three-year period (from 2007/08 to 2009/10 compared with 2006/07).  In terms of revenue breakdown, the proportion of income from FRST and the CRI Capability Fund is expected to reduce to approximately 44% by 2010/11 from 46% in 2007/08, as the CRIs’ other revenue grows at a higher rate.  Other revenue is mostly commercial fee-for-service work for public and private sector clients but also includes some revenue from commercialisation activities (for example, royalty income and the sale of goods and services) and income from the sale of assets (for example, land). 
 

Returns at viable levels

The average return on equity (RoE) in the CRI sector is expected to remain relatively stable over the planning period with an average return of approximately 4%.  This return is comparable with returns in past years.  Of the nine CRIs, three are forecasting an average RoE that meets or exceeds the 9% target over the three-year period.  For the remaining CRIs, although their forecast returns do not equate to the 9% RoE expectation, they are still at a level which, in our view, is adequate to maintain financial viability.  Most of the CRIs are forecasting low returns due to high levels of reinvestment.
 

Falling dividends and rising debt levels

Over the next three years, dividends of $6 million in total (excluding those paid for the KAREN network) are forecast to be paid.  Many of the CRIs have plans to reinvest any surplus cash into commercialisation activities, other investment projects and/or capital expenditure and, hence, are forecasting little or no dividends. 

Debt levels in the CRIs are forecast to slightly increase over the planning period.  This is primarily due to many of the CRIs planning to take on debt to increase capital expenditure.  Investment in capital expenditure is a contributing factor to the low levels of forecast dividends and the rising levels of debt.  We do not see this as an issue as the proposed investment into building development is necessary for the CRIs to meet their growing science outcomes, to fulfil the need to offer improved working conditions in the competitive recruitment market, and to pursue commercialisation opportunities.