Strong year for the DCHL group

Strong year for the DCHL group

The Dunedin City Holdings Ltd (DCHL) group recorded a net surplus of $15.5m for the year ending 30 June 2018.

DCHL Chair Graham Crombie says the result is a continuation of solid performances by the group, led by a strong year at City Forests Ltd.
“This is a strong result which reflects the hard work and focus of staff and directors of the DCHL group of companies.”

2017/18 highlights
• The group returned a before tax profit of $24.3m
• Aurora Energy Ltd completed its first year as an independent business and continues to invest heavily in its network, with capital expenditure of $78.4m
• City Forests Ltd’s surplus increased by $5.6m from last year, and the company paid a record dividend
• Delta Utility Services Ltd has returned a $4.3m surplus to the group, in line with forecasts, due to steady demand, retaining long term contracts and securing new work.
• Dunedin City Treasury Ltd achieved a pleasing reduction in funding cost of approximately 0.69%, equating to a saving for the group of approximately $4.1 million, based on average term borrowings over the past year.
• The continued increase in visitors to the city is having a positive impact on Dunedin Railways Ltd’s results, although a rainfall event in July 2017 had a significant impact on the company’s results this year. The company’s new name Dunedin Railways Ltd (changed from Taieri Gorge Railway Ltd) better reflects the wider operations of the company and has been well received.
• Dunedin Venues Management Ltd recorded an operating profit before tax of $0.9m largely due to the strong programme of content at Forsyth Barr Stadium over the period
• Dunedin International Airport Ltd experienced its busiest year on record, and welcomed its millionth passenger. New landing charges have resulted in increased aeronautical revenue, up 40% from the previous year
• Debt remained static for most entities within the group. Aurora Energy Ltd’s debt rose in line with its increased capital expenditure programme

DCHL has distributed $5.9m directly to the Dunedin City Council (DCC) by way of interest, in line with the Statement of Intent expectations.

No dividend was distributed for the year as forecast in the group's Statement of Intent. This reflects the capital investment programme Aurora Energy Ltd continues to undertake.

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

DCHL’s assets sit at $1.2b. This compares favourably with group borrowings of $613.2m (excluding shareholder’s advance).

Cash from operations remains strong at $31.9m.

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

While most companies’ debt remained relatively static, the group’s overall debt increased over the year, as forecast in the Statement of Intent. This was principally driven by Aurora Energy Ltd’s increased capital expenditure.

“The outlook for the next few years continues to be positive, considering the significant investment within the group.

“The capital investment by Aurora will provide financial and operational stability for the company, and Delta’s core business remained solid throughout the year.

“A continued favourable interest rate environment will assist in reducing the cost of debt for Dunedin City Treasury Ltd and therefore the Group, and will assist City Forests to continue operating well in the global market.

Individual results
This year Aurora Energy Ltd completed its first year as an independent business, with a new team and focus. In 2017, Aurora Energy set out a multi-year plan of asset renewal and investment to ensure that the network remains safe and reliable for the long term. Those plans turned into action this year, with the company spending record levels in replacing, upgrading and maintaining its assets. Its total capital expenditure was $78.4m, $33.2m higher than the same time last year. The company ended the year with an after-tax surplus of $0.4m.

City Forests' surplus for the year once again increased substantially from that recorded the previous year. A pre-tax surplus of $33.1m was generated compared to $27.5m the year before. The increase in surplus is due favourable market conditions, including domestic demand, and also the revaluation of forestry assets. This contributed to a larger distribution than forecast.

Delta Utility Services ended the year with an after-tax surplus of $4.3m. The year was marked by steady demand for core services in the electrical and environmental infrastructure sectors, with the company retaining long-term contracts and securing new work.

Dunedin City Treasury Ltd has continued to reduce the cost of funding for the group over the 2018 financial year. The company achieved a pleasing reduction in funding cost of approximately 0.69%, equating to a saving for the group of approximately $4.1 million, based on average term borrowings over the past year.

In December last year, Taieri Gorge Railway Ltd changed its name to Dunedin Railways Ltd to better reflect the wider operations of the company. In July 2017, a rainfall event over two days caused extensive slips and washouts. The required repairs and loss of income had an impact of approximately $0.5m. The company’s surplus before the one-off flood costs was slightly above that of the prior year, at $0.2m. The improvement reflects the continued increase in visitors to the city.

Dunedin Stadium Property Ltd experienced an operating loss, as budgeted. The after-tax loss was $7.6m, which recognised the depreciation charge on the stadium. During the year the asset management plan was reviewed and an appropriate budget for future years was approved to ensure that the assets are maintained at an operational level.

Dunedin Venues Management Ltd’s after-tax surplus for the 2018 financial year was $0.9m. This represents an increase of $0.5m on their 2017 result. This result is largely due to the strong programme of content at Forsyth Barr Stadium over the period, which included an All Blacks Bledisloe Cup Test, Stevie Nicks and the Pretenders, Roger Waters, Robbie Williams and three Ed Sheeran concerts.

Dunedin International Airport Ltd has experienced its busiest year on record, welcoming its millionth passenger. The impact of new landing charges has contributed to the company’s increased aeronautical revenue, up 40% from the previous year. The Company recorded a post-tax surplus of $3.4 million, with a dividend of $0.7m paid to Dunedin City Holdings Ltd.

DCHL audit report
The addition of Dunedin Stadium Property to the group in 2016, meant a financial reporting inconsistency arose.

As in 2016 and 2017, Audit New Zealand has issued a qualification related to the stadium asset valuation within the group accounts.

While it is possible to identify certain cashflows, the stadium’s primary purpose is to provide public benefit. 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.

© Scoop Media