Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Ports are significant because of the part they play in New Zealand's economy and the capital invested in them. Ports are also significant because, for the most part, they are owned by councils on behalf of the public.

Port companies face some major challenges, including their need to:

• make major capital investments when the financial returns from those investments are uncertain;
• continue to respond to international trends in freight and logistics; and
• balance the potentially conflicting objectives of shareholders and other stakeholders.

Added to this are the challenges and uncertainty from Covid-19.

It is difficult to compare port companies' performance because of differences in their ownership, the size and scale of their operations, and the way they measure their assets.

I encourage port companies to consistently apply fair value in the valuation of property, plant, and equipment. This will help provide up-to-date relevant financial information to shareholders and enable better comparison and transparency of port company financial performance.

Some port companies' previous investment strategies have not delivered as expected. This is most notable for Lyttelton Port Company Limited, where $290 million of assets were written down over the last five years, in part because the expected revenue associated with the new investment did not eventuate.

As port companies look to the future, many are considering significant new investments. These might be to remain sustainable given international shipping trends or to cater for anticipated growth. There is considerable risk in these investments. Port companies need robust and realistic business cases to ensure that these investments deliver the benefits expected of them.

There is also a risk that, without a comprehensive supply chain strategy for the freight logistics sector, port companies will anticipate growth that competing port companies might have also factored into their business cases. Stranded assets, underperforming capital, and low returns or further asset write-downs are a likely consequence of this.

I encourage port company boards – and, where appropriate, their shareholders – to robustly assess the merits of significant capital investments before approving those investments. This is to ensure that the assumptions these investments are based on are realistic and are the best use of shareholder capital.

I thank staff and governors of port companies who worked hard to meet their customers' and shareholders' expectations and uphold their accountability responsibilities in an extremely challenging environment.

Nāku noa, nā

John Ryan
Controller and Auditor-General

15 June 2021