Part 7: Financial performance of the port sector
7.1
This Part provides an overview of the financial performance of the publicly accountable entities in the port sector. It continues our practice of reporting, in turn, the financial performance of the smaller sectors that fall within the Auditor-General's mandate.
7.2
The port sector is critical to New Zealand's exports and the national distribution of imported and domestically produced goods. The sector is facing challenges as it responds to international changes, including a trend towards sector consolidation.
7.3
The port sector owns and manages substantial assets (more than $3.5 billion), particularly port infrastructure assets.
7.4
Increasingly, the port sector has become involved in managing portfolios of investment properties, which now represent a significant proportion (12% or $426 million) of the sector's total asset base.
7.5
Local authorities control all companies within the port sector, and rely on them for a significant level of dividend income, which was $106 million in 2007/08.
Overview of the port sector and the Auditor-General's role as statutory auditor
7.6
The port sector provides essential support for New Zealand's exports and the effective distribution, within New Zealand, of imported and domestically produced goods.
7.7
The port sector in New Zealand operates in the context of a global shipping industry that is facing, and responding to, major changes. Internationally, there is a trend towards industry consolidation – fewer shipping companies, larger ships, and fewer port calls.
7.8
Transport strategies implemented by the former Government1 and directions that the current Government takes will also affect the New Zealand port sector.
7.9
All port companies within the sector are majority-owned by regional, city, or district councils. The port sector is therefore consolidated into the financial statements of the local government sector, and is a significant provider of dividend funding. Northport Limited is only partially consolidated into the local government sector financial statements (and only partially reflected therefore in the analysis in this Part).2
7.10
Under section 19 of the Port Companies Act 1988 (the Act), the Auditor-General is the auditor of every port company and any subsidiary.
7.11
There are 12 port companies, plus a significant number of related entities, that are within the Auditor-General's mandate.
7.12
In addition, there are some ports operated by other public entities within existing structures – for example, as an activity within a local authority. The Auditor-General also audits those activities under his mandate as auditor of all public entities. However, this Part does not cover those additional port activities.
7.13
Section 8 of the Act requires every port company (with some exceptions)3 to deliver to its shareholders, and make public, a statement of corporate intent (SCI) within one month of the start of each financial year.
7.14
A port company's annual report must include a comparison of performance between the actual results and the SCI.4
7.15
Companies within the port sector generally have balance dates of 30 June.5 The Act requires port companies to complete their annual report, including an audit opinion on the financial statements, within three months of balance date; that is, by 30 September.
7.16
All companies within the sector met reporting deadlines in 2008, and all audit opinions issued were unqualified.
Overview of financial performance
7.17
Figure 6 summarises the financial results and position of the port sector (excluding full Northport Limited results), based on the most recently audited financial statements.
7.18
Total reported port operating revenues generated by the sector in 2007/08 were $704 million,6 and total reported pre-tax profits were $204 million. Total assets at the end of the 2008 financial year were substantial and amounted to $3.5 billion. Total equity was $2.3 billion.
7.19
Based on the reported financial results, the overall returns on equity and assets for 2007/08 were therefore 8.9% and 5.8% respectively.
7.20
These returns are significantly affected by the approaches taken across the ports sector to asset valuation and depreciation. These approaches reflect a historic cost component which is likely to result in the returns being overstated when compared with alternative approaches that reflect more current replacement values.
7.21
Total operational cashflow for the sector in 2008 was $206 million,7 a significant proportion of which was retained and used for investing activities ($146 million). In 2007/08, these investments contributed to $190 million of capital expenditure, representing more than 2.5 times the level of depreciation charged for the year.8 This suggests a relatively high level of new investment in 2008.
7.22
Dividends returned to shareholders for 2007/08 amounted to $106 million. This represents a significant source of funding for the sector's local authority owners.
The sector's involvement in investment properties
7.23
The port sector owns and manages substantial operational infrastructure assets.
7.24
A significant part of the port sector's overall asset base also comprises investment properties, amounting to about 12% of total sector assets ($426 million) at the end of the 2008 financial year.
7.25
A number of port companies have built up very significant investment property portfolios.
7.26
Some have clearly separated their investment property activities from operational port activities, by holding and managing them through separate specialised subsidiaries and associated entities.
Unusual accounting treatments
7.27
There are a number of accounting areas that are unique to the port sector, which the individual companies deal with in different ways. We comment on two of these areas in paragraphs 7.29-7.33.
7.28
We generally encourage consistency of accounting treatment, where the individual company circumstances permit. At the same time, we recognise that these particular accounting areas are not always material to the financial statements overall.
Dredging costs
7.29
Port companies need to dredge approach channels to maintain adequate access to port facilities. However, a number of companies have no stated accounting policy. We recognise that for some port companies, channels and dredging costs may not be material.
7.30
Those companies that do disclose an accounting policy have a range of approaches that include:
- treating costs as an expense when incurred;
- capitalising costs and charging periodic depreciation over an estimated useful life;
- capitalising costs but charging no depreciation, on the basis of an indefinite useful life; and
- a combination of the above.
Noise issues
7.31
Port companies are required to address the effects of noise that their activities generate.
7.32
Some port companies disclose an accounting policy for noise issues and associated mitigation, and the financial effect of its application. These disclosures confirm that the companies concerned have incurred the cost of mitigation measures, and the existence of contingent liabilities or costs that could arise in future.
7.33
Other port companies do not disclose their accounting policy in this area. However, some of these companies acknowledge that they have a plan that addresses the effects of noise.
Figure 6
Summary of audited financial information for 2007/08
| Entity name | Port/operations revenue ($000) |
Profit (pre-tax) ($000) |
Equity ($000) |
Total assets ($000) |
Investment properties ($000) |
|---|---|---|---|---|---|
| Centreport Ltd | 52,691 | 10,486 | 193,415 | 339,720 | 100,345 |
| Lyttelton Port Company Ltd | 83,442 | 15,502 | 128,027 | 225,602 | - |
| Northland Port Corporation (NZ) Ltd | 491 | 10,215 | 155,123 | 155,726 | - |
| Port Marlborough New Zealand Ltd | 11,984 | 7,325 | 113,980 | 137,642 | 66,197 |
| Port Nelson Ltd | 30,260 | 10,664 | 134,334 | 188,684 | 13,492 |
| Port of Napier Ltd | 46,926 | 13,948 | 98,448 | 126,676 | 7,268 |
| Port of Tauranga Ltd | 136,831 | 60,664 | 639,210 | 895,426 | 440 |
| Port Otago Ltd | 53,389 | 32,069 | 266,315 | 401,499 | 189,467 |
| Port Taranaki Ltd | 40,915 | 8,009 | 89,257 | 131,318 | - |
| Ports of Auckland Ltd | 169,350 | 29,229 | 398,106 | 827,239 | 25,398 |
| PrimePort Timaru Ltd | 19,912 | 2,168 | 65,658 | 74,014 | 23,366 |
| South Port Ltd | 14,949 | 4,039 | 27,129 | 29,234 | - |
| 703,637 | 204,318 | 2,309,002 | 3,532,780 | 425,973 | |
| Entity name | Cashflow from operations ($000) |
Cashflow from investing activities ($000) |
Capital expenditure ($000) |
Depreciation ($000) |
Dividends paid ($000) |
| Centreport Ltd | 15,427 | (55,421) | 55,081 | 5,492 | 4,770 |
| Lyttelton Port Company Ltd | 24,198 | (16,280) | 14,669 | 11,077 | 4,295 |
| Northland Port Corporation (NZ) Ltd | 2,215 | 5,366 | 933 | 78 | 8,260 |
| Port Marlborough New Zealand Ltd | 6,301 | (3,751) | 3,756 | 2,213 | 2,287 |
| Port Nelson Ltd | 9,920 | (7,152) | 9,903 | 3,839 | 3,900 |
| Port of Napier Ltd | 16,091 | (13,295) | 15,440 | 5,172 | 6,545 |
| Port of Tauranga Ltd | 48,990 | (25,025) | 34,452 | 11,476 | 44,231 |
| Port Otago Ltd | 15,958 | 2,963 | 9,038 | 6,794 | 4,400 |
| Port Taranaki Ltd | 9,215 | (5,376) | 5,943 | 4,465 | 1,800 |
| Ports of Auckland Ltd | 48,022 | (22,881) | 34,219 | 18,398 | 22,764 |
| PrimePort Timaru Ltd | 6,025 | (3,659) | 4,954 | 3,134 | 400 |
| South Port Ltd | 3,687 | (1,248) | 1,459 | 1,867 | 2,033 |
| 206,049 | (145,759) | 189,847 | 74,005 | 105,685 |
1: The strategies included the New Zealand Transport Strategy (an integrated road, rail, and sea national transport strategy), and a national coastal shipping strategy, Sea Change.
2: The sector includes Northland Port Corporation (NZ) Limited, which is listed and owned 52.4% by Northland Regional Council, 19.9% by Ports of Auckland Limited (and ultimately Auckland Regional Council). Northland Port Corporation (NZ) Limited owns 50% of the operational port Northport Limited (the other 50% is owned by Port of Tauranga Limited, a company itself 55% owned by Environment Bay of Plenty). As a result of the 50:50 ownership of Northport Limited by Northland Port Corporation (NZ) Limited and Port of Tauranga Limited, the results of Northport Limited are equity accounted for in the financial statements of the local government sector and therefore not fully consolidated.
3: Section 13 of the Act exempts publicly listed port companies (Lyttelton Port Company Limited, Northland Port Corporation (NZ) Limited, Port of Tauranga Limited, and South Port New Zealand Limited) from this requirement. Section 14 also provides an exception in cases where the Minister of Transport directs otherwise.
4: Our June 2007 report Statements of corporate intent: Legislative compliance and performance reporting provides more information about the requirements and practices in SCI and associated reporting.
5: The exception is Port of Napier Limited, which has a 30 September year end.
6: This excludes the results of Northport Limited that are not consolidated into the reported results of Northland Port Corporation (NZ) Limited.
7: Again, this excludes the results of Northport Limited that are not consolidated into the reported results of Northland Port Corporation (NZ) Limited.
8: Depreciation totalled $74 million in 2007/08.
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