Strong annual result from DCHL

Published: Tue 26 Sep 2017 10:05 AM
Strong annual result from DCHL
Dunedin, 26 September 2017 – The Dunedin City Holdings Limited (DCHL) group recorded a net surplus of $18.5m for the year ending 30 June 2017.
The pre-tax surplus of $29m was $5.8m ahead of target.
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.”
2016/17 highlights
• The group returned a before tax profit of $29m
• Debt dropped by $7.87m
• Aurora Energy Limited continues to carry out significant capital work on its network
• Delta Utility Services Limited continues to provide surpluses to the group
• City Forests Limited’s surplus increased by $4.08m
• Dunedin Venues Management Limited created new revenue streams to combat a quiet concert period
• Taieri Gorge Railway Limited continues to provide surpluses on the back of tourism growth in the region
• Dunedin International Airport Limited experienced a significant rise in revenue due to higher passenger numbers and movement to larger aircraft
DCHL has distributed $5.9m directly to the Dunedin City Council (DCC) by way of interest and $2.2m to Dunedin Stadium Property Limited by way of subvention payments. This is the first year that the operating results of Dunedin Stadium Property (the company which owns the Forsyth Barr Stadium) and Dunedin Venues Management have been brought under the DCHL umbrella.
No dividend was distributed for the year as forecast in the group's statement of intent. This reflects the capital investment programme Aurora Energy is implementing.
“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 $1.172b. This compares favourably with group borrowings, which have decreased from $581m at June 2016 to $573m at June 2017.
While a number of group companies had lower debt levels than the previous year, Aurora Energy recorded an increase, as projected, due to its capital investment programme.
Cash from operations remains strong at $35.4m.
“The ability of the group to maintain strong operational cash flows is important to meet future dividend and capital investment requirements.”
Mr Crombie says with planned capital investment by Aurora, it is prudent the company 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.
City Forests' surplus for the year again increased substantially from that recorded the previous year. A pre-tax surplus of $27.5m was generated compared to $22.3m the year before. The increase in surplus is due favourable market conditions and a substantial revaluation of forestry assets.
“The outlook for the next few years is favourable overall, considering the significant investment within the group. Good progress has been made in the separation of Aurora and Delta.
“The 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.”
Individual results
Aurora Energy 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 $7.3m. The company invested $45.2m 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. Aurora Energy is committed to a network investment goal of $721m over the next decade, including its pole renewal programme.
City Forests had a very successful year, with an excellent trading result (surplus after tax $20.1m) supported by strong cash flows ($12.2m operating) allowing the company to provide a record dividend payment. Strong demand from both the domestic and export markets was the main reason for this.
Delta Utility Services ended the year with an after tax surplus of $4.8m. The year was marked by steady demand for core services in the energy and environmental sectors.
Dunedin Stadium Property's operating result was brought into the DCHL group for the first time this year. Their after tax loss was $8.3m, which recognised the depreciation charge on the stadium.
Dunedin Venues Management also joined the group this year. Their after tax surplus for the 2016/17 financial year was $299,000. In a year where there were no major concerts held at the stadium this is a very positive result.
Taieri Gorge Railway ended the year with an after tax surplus of $172,000, on the back of good growth on the Taieri Gorge and Seasider train services.
Dunedin International Airport achieved an operating surplus of $2.3m for the year, up on the $1.9m surplus for the previous year. The company paid a dividend of $704,000 during the year.
DCHL audit report
The addition of Dunedin Stadium Property meant a financial reporting inconsistency arose, as was the case last year.
As in 2016, Audit New Zealand has issued a qualification related to the stadium asset valuation.
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.

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