PRESS RELEASE: 30 November
2020
Dunedin City Holdings Ltd:
2019/2020 Annual Result
DCHL
group records smaller loss than forecast in challenging year
The Dunedin City Holdings Ltd (DCHL) Group
has recorded a net loss of $5.3 million for the year ended 30 June 2020,
significantly lower than the $14.6 million loss forecast.
“As for many entities, 2019/2020 has
been a challenging year for the DCHL group. While the full year financial
results for the year are better than forecast, all companies have faced new
challenges and difficult decisions,” says DCHL Chair Keith Cooper.
“The group result reflects the lower
than forecast loss at Aurora Energy and the unexpected hibernation of Dunedin
Railways Ltd, with those losses offset by surpluses at City Forests and Delta,
and by continued reduction in cost of funds across the group.”
Covid-19 severely impacted the
group’s tourism and travel-related businesses in the final quarter of the
year, particularly Dunedin International Airport Ltd, Dunedin Venues Management
Ltd and Dunedin Railways Ltd. Other group companies were also impacted by
Covid-19, but this impact was generally limited to New Zealand’s lockdown
period.
DCHL has
distributed $5.9 million 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 Cooper says. “This
re-investment is essential to building sustainable future earnings and
restoring dividends to Dunedin City Council.”
The group’s
overall debt, managed by Dunedin City Treasury Ltd (DCTL), increased over the
year, as forecast. This was principally driven by increased capital expenditure
at Aurora Energy Ltd and DCC. DCHL debt also increased as a result of Dunedin
Railways’ transition to hibernation. Most other companies’ debt
remained relatively static. The continued reduction in the cost of the
group’s funds over the year was welcome in the context of increasing
debt.
Group term
borrowings total $790 million (excluding shareholder’s advance). This
includes $244 million DCC debt, $86 million stadium debt, and operating company
borrowings of $380 million. Group debt compares favourably with the book value
of DCHL’s assets, which now sits at $1.46 billion (FY19: $1.35 billion).
The impact of historically low global interest rates can be seen
in DCTL’s accounts.
DCTL manages the Group’s
debt in accordance with the Treasury Risk Management Policy. This Policy
requires the Group’s debt to be hedged within minimum and maximum limits,
to protect Dunedin ratepayers and companies against the impact of a sudden
increase in interest rates. The Group’s debt book is currently hedged to
near minimum levels, reflecting the outlook for continued low interest rates.
Historically low
global interest rates mean DCTL’s balance sheet records a negative impact
from the fair value (“mark to market”) adjustment of its hedging
activity. The negative impact of $56m does not have an impact on DCTL’s
viability. The Group’s cost of funds over the 2019/2020 year was a record
low 3.36%.
Group
cash from operations remains strong at $22 million.
“The
ability of the group to maintain strong operational cash flows is important to
meet future dividend and capital investment requirements,” Mr Cooper
says.
Individual
results
Aurora
Energy’s
financial performance for the year continued to reflect the investment demands
of major infrastructure renewal, the current shortfalls in historical regulated
revenue allowances administered by the Commerce Commission and the additional
costs of operating as a standalone company. Underlying financial performance
measures compared favourably with forecasts for the year aided by strong use of
system revenues and customer contributions to growth-related network
connections.
Capital
expenditure of $53.6 million was invested in new and replaced network assets
across the Dunedin, Central Otago and Queenstown Lakes areas during the year.
The company recorded a net loss after tax of $4.2 million (FY19: loss $10.9
million) compared with a forecast loss of $18.2 million.
City
Forests had a
satisfactory year delivering an after-tax profit of $12.7 million. The results
were in line with budget, but less than the previous year, mainly a result of
deferred harvesting due to Covid-19. City Forests still made a strong financial
contribution to the DCHL group through $4.5 million in dividends (FY19: $8.0
million).
Managing
workflow challenges in the first half of Financial Year 2020 and global
disruption with the outbreak of COVID-19 proved difficult for Delta and
impacted the company’s ability to meet some targets. Significant action
in the second half of the year resulted in an adequate financial performance
overall and an improvement on FY19 results.
Delta
recorded a net profit before tax of $2.2 million in FY20, a moderate increase
on FY19’s $1.7 million, however significantly below budget for the year
of $3.7 million. Total revenue was $100.4 million in FY20 (budget $97.1
million). Operating revenue at $95.8 million, excluding the New Zealand
Government Wage Subsidy due to COVID-19, fell just short of FY19 levels ($97.5
million) and budget expectations ($96.7 million).
Dunedin
Stadium Property Ltd (DSPL) experienced an operating loss, as budgeted. The loss of $8.2
million (FY19: $7.0m) was a little higher this year as DSPL did not receive
subvention payments from companies within the Group. Subvention payments are
dependent on the ongoing profitability of DCHL group companies.
Instead,
DSPL has tax losses to carry forward for the current year, which the company
intends to transfer to the DCC Group in future years by means of a subvention
payment and tax loss offset. DSPL provided temporary rent relief to DVML during
the final quarter of the year. DSPL was still able to reduce term debt by $1.9
million.
Dunedin
Venues Management Ltd (DVML) had been enjoying a successful year until the outbreak of
COVID-19 on New Zealand’s shores. DVML had had a strong concert line-up,
with Fleetwood Mac, Elton John, Queen and Adam Lambert and Dunedin’s own
SIX60. Dunedin City benefited to the tune of $41.5 million in economic impact
from major concerts alone. Conference delegates assisted the city’s
economy too, contributing $3.3 million of economic impact. This is represented
by 4,040 delegates attending 21 multi-day conferences.
The
impact of the Covid-19 pandemic on DVML was instant with income halted overnight
resulting in a disappointing final financial quarter. DVML recorded a net loss
after tax of $.05 million for the year, down on their 2019 net profit after tax
of $0.2 million.
Dunedin
Railways
entered the 2019/2020 year with a focus on developing a sustainable business
model. The company was forecasting ongoing losses and had signalled additional
equity would be required to ensure the ongoing viability of the business. The
Dunedin Railways board were focussed on preparing a business turnaround plan
and developing a sustainable business model for discussion with shareholders.
In
context of its existing challenges, Dunedin Railways was unable to weather the
forecast impacts of Covid-19 on the tourism sector. In April 2020 Dunedin City
Council (DCC) agreed that Dunedin Railways be put into hibernation as an
alternative to complete closure of the business.
As part
of this change, the Otago Excursion Train Trust (OETT) decided to sell its 28%
shareholding in Dunedin Railways to DCHL. DCHL has been the sole shareholder of
the company since April 2020. The company’s full year loss of $6.6
million (FY19: $0.1 million loss) reflects the operating loss plus the cost of
transitioning the company to hibernation mode.
Like
the group’s other tourism-related companies, Dunedin Airport was
also severely impacted by Covid-19 in the final quarter of the financial year.
Total passengers through the airport ended 26.4% down over the previous year.
The decrease in passengers has had a significant impact on the Dunedin Airport’s
FY2020 performance and position. The company’s total revenue decreased
12.6% to $15.0 million. Despite steps taken to reduce cost structure, a
relatively fixed cost base resulted in operating expenditure of $12.7 million,
a 5.7% increase over the prior year. This culminated in a pre-tax operating
surplus of $2.3 million, which is $2.8 million behind the prior year.
DCHL
audit report
DCHL’s 2020 audit report
includes several points of note:
· An
emphasis of matter relating to Covid-19. The 2020 audit reports of all New
Zealand public entities with a 30 June balance date will include an emphasis of
matter relating to Covid-19.
· An
emphasis of matter relating to the key assumptions Aurora Energy applied in
performing the impairment test of its network in response to Covid-19.
· A
qualification related to the stadium asset valuation within the group accounts,
as in DCHL’s 2016, 2017, 2018 and 2019 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.
· A
qualification related to the write-down of assets at Dunedin Railways Ltd. The
transition of the company to hibernation required the Dunedin Railways Board to
re-assess the value of the company’s assets. The Board considered the
potential to earn revenue from the assets was minimal, given the
company’s transition to hibernation and wider uncertainty in the tourism
sector.
The Board also considered the hypothetical net realisable
value of the assets. Dunedin Railways’ assets are relatively specialist
and, in some instances, unique – for example, its heritage rolling stock
and in situ Taieri Gorge track assets. This makes it difficult to obtain
externally verified market values of these assets.
On balance, and with the benefit of industry and commercial
knowledge, the Board considered it appropriate to write-down the
Company’s fixed assets to $297,000, being the Board’s best estimate
of the net realisable value after any costs of disposal. An associated
impairment expense of $4,486,000 has been recorded in Dunedin Railways’
statements. The significance of these amounts and the unavailability of
externally verified market values has led Audit New Zealand to advise they are
unable to form an audit opinion on Dunedin Railways’ 2020 financial
statements, and a qualified opinion on the Statement of Service Performance. The Dunedin Railways and DCHL boards remain
comfortable that the value ascribed to the Company’s assets is
appropriate, given the Company’s current circumstances.
For further information please contact:
· DCHL Chair Keith Cooper on 021
442 190 or
· DCHL General Manager Jemma
Adams on 021 055 3086
