Strong annual result from DCHL

Strong annual result from DCHL

Dunedin, 6 October 2016 - Dunedin City Holdings Limited (DCHL) has recorded a 57% profit increase, announcing its annual result for the year ending 30 June 2016 today.

The after tax profit of $20.3m (including a positive revaluation of City Forest assets) for the June 2016 year was well up on the previous profit of $12.9m.

DCHL Chair Graham Crombie says the result is a continuation of solid returns for the group.

“This is a strong result which reflects the hard work and focus of staff and directors of the DCHL group of companies.”

DCHL has distributed $11.2m to the Dunedin City Council (DCC) and subsidiaries outside the DCHL group: $5.9m in interest and $5.3m net in subvention payments.

No dividend was distributed for the year as forecast in the group's statement of intent.

“With subsidiaries embarking on a substantial reinvestment programme, it’s prudent to ensure a balance between distributions and using internally generated surpluses to fund reinvestment,” Mr Crombie says.

Total assets employed by the DCHL group sit at $1,143m. This compares favourably with group borrowings, which have decreased from $598m at June 2015 to $581m at June 2016.

While a number of group companies had lower debt levels that the previous year, Aurora Energy recorded an expected increase due to its capital investment programme.

Cash from operations remains strong at $31.6m. This was after budgeted subvention payments of $7.9m to Dunedin Venues Limited.

“The ability of the group to maintain strong operational cash flows is important to meet future dividend and capital investment requirements.”

DCHL had signalled via its annual Statement of Intent that distributions to the DCC would increase marginally over the next three years. With planned capital investment by Aurora, it is prudent that Aurora reduces dividend distributions to ensure the funds are invested into capital while maintaining an appropriate equity to total assets ratio. This impacts on the distributions DCHL can make to the DCC as some funds will need to be retained to continue the maintenance programme.

“The outlook for the next few years is favourable. Capital investment by Aurora will provide financial and operational stability for the company, Delta continues to grow core contracts and growth in the tourism market will be good for the Taieri Gorge Railway. A continued favourable interest rate environment will assist in reducing the cost of debt for Dunedin City Treasury Limited, and assist City Forests to continue operating well in the global market.”

Highlights

· At 30 June 2016 the group acquired the ownership of Dunedin Venues Limited and Dunedin Venues Management Limited. The assets of these two companies form part of the DCHL group while the operating result for the year remains with the DCC.

· Total borrowings across the group have reduced by $17m to $581m.

Individual results

Aurora Energy Limited made substantial progress during the year to meet growing consumer demand, while continuing renewal of assets due for replacement. The company ended the year with an after tax surplus of $6.5m. The company invested $37.2m in capital projects, including completion of a number of new sub-stations, overhead line upgrades, power pole replacement and progress on the longer term network system control and communications upgrade. Over the next decade Aurora Energy plans to spend $417m on preventative maintenance and renewal investment for the Dunedin network, and investment to cater for growing demand on the Central Otago network.

City Forests Limited had a successful year, with an excellent trading result (surplus after tax $16.0m) supported by strong cash flows ($11.8m operating) allowing the company to provide a record dividend payment. Strong demand from both the domestic and export markets was the primary driver for this.

Delta Utility Services Limited ended the year with an after tax surplus of $4.7m. The year was marked by steady demand for core services in the energy and environmental sectors.

Taieri Gorge Railway Limited ended the year with an after tax surplus of $137,000 on the back of good growth on the Taieri Gorge and Seasider train services.

Dunedin Venues Limited and Dunedin Venues Management Limited joined the group effective 30 June 2016. As such their operating results are not included in the DCHL group for the year.

Dunedin International Airport Limited achieved an operating surplus of $1.9m for the year, up on $1.7m surplus for the previous financial year. The company paid a dividend of $704,000 during the year, up from $640,000.

Dunedin Venues Ltd (DVL)/Dunedin Venues Management Limited (DVML)

Property, plant and equipment of $187.091m was added to the DCHL group following the acquisition of DVL and DVML on 30 June 2016. This includes $185.025m related to Dunedin Venues Limited (Forsyth Barr Stadium) and $2.066m related to Dunedin Venues Management Limited.

After its acquisition the group recorded the stadium assets using DVL’s financial statements, on a public benefit entity basis. In consolidating DVL into the for-profit group financial statements for the first time at 30 June 2016, the group was required to initially record the stadium assets at carrying values that are supported by a valuation on a commercial basis.

It is possible a commercial-based valuation of the stadium assets could be materially lower than the carrying value recorded in the group’s statement of financial position. The stadium is a unique asset with no active market to make a reasonable assessment of fair value between a willing buyer and seller. While it is possible to identify certain cashflows with stadium assets, its primary purpose is to provide public benefit for which there are limited or no directly attributable cashflows within the group. As such, the nature of existing cashflows within the group do not necessarily represent commercial cashflows for the purposes of undertaking a discounted cashflow calculation to assess fair value. These factors mean that establishing a commercial value using a market value or discounted cashflow approach involves significant assumptions and estimates which are highly uncertain, so the group could not determine the value of the acquired stadium assets on a commercial basis.

As a result Audit New Zealand has issued a qualification in its Independent Auditor's Report related to the stadium asset valuation.

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