Major investments, customer support dominate TLC results
16 October 2019
Key decisions to invest in its network, support customers through a pricing change and prepare for the future are highlighted in The Lines Company’s 2018-2019 Annual Report.
Board chair Mark Darrow said the company had “stuck to its plan” and TLC’s core operating result was largely on plan.
“We’ve delivered on a major network investment plan and our core business has operated as expected”
Darrow said that in addition to delivering on significant projects, including the implementation of a new pricing system, Board and management also focused on a clean-up of the balance sheet and dealt with some one-off costs.
“We’ve proactively addressed an under performing investment as well as a legacy accounting issue to do with the treatment of network depreciation. Despite this we have maintained our commitment to both our customers and beneficiaries delivered through transitional discounts and beneficiary discounts.”
Darrow said the company made a firm decision to support its customers through the transition to a new pricing system introduced in October 2018, for a period of 12 months. That support cost TLC $1.9m in the 2018/19 year. The company also:
– moved from billing in advance to billing in arrears, negatively impacting cashflow by $3m;
– realised a depreciation charge of $1.3 million (before tax) to address an historical network valuation anomaly.
”Despite the additional costs we incurred in the 2018/19 year, we gave $5.6m back to our beneficiaries as a discount in line with our Statement of Corporate Intent with our shareholder WESCT. That money flows directly back into the local economy.”
During the year TLC wrote down $3.2m before tax on the investment in technology start-up company Embrium Holdings Limited. As a result of an unsuccessful capital raise and subsequent to balance date, Embrium was put into voluntary liquidation by shareholders. Shortly after, TLC assumed full ownership of all business assets.
“We believe in the technology but took firm and decisive action following delays in a further capital raise. From an accounting point of view we wrote the investment off as at balance date, but now have the opportunity to extract value through either selling the business or bringing it into our FCL metering business.”
Darrow said the decisions to address one-off issues added up to nearly $6.4m. They were the right calls to make in terms of future-proofing the business and were encouraged by our shareholder to make sure there was a tidy balance sheet going forward, Darrow said.
“As a result we have ended the financial year with a reported $1.5m net loss rather than the $4.6m net profit we would have anticipated had we not taken those decisions.”
The annual report confirms that last year TLC delivered its largest ever work programme of network replacements and maintenance. TLC’s 2018/19 asset management plan outlined the need for a large increase in capital spending and Darrow said those investments have positioned TLC well to meet future challenges.
Total revenue from the year was $44.1m predominantly from lines services, electricity generation and metering. FCLM, TLC’s wholly-owned metering business doubled its profits with the majority of that growth from outside the network area.
TLC’s total debt was $72.3m, up from $57.8m from March 2018. Borrowings, in the main, related to increased capital works to further secure the reliability of the network. As at March 2019, total assets increased from $267m to $282m, accounting for the increase in borrowings.
Key non-financial highlights from the year include:
- the Te Waireka and Hangatiki substation replacements
- 35-year resource consent gained for generation plant on Mangapehi Stream
- implementation of new IT systems
- ongoing investment in community events, sponsorships and scholarships
- the establishment of the independent Maru Trust (supported by TLC) and the subsequent insulation of 50 homes
- installation of more electric vehicle chargers to support local tourism
- investing in technology like drones and ultrasonic technology to provide better information at a lower cost.
“TLC remains a secure and solid company the community should be proud of. During the 2018/19 year we chose to reset the business and the unaudited results for the first half of the 2019/20 year show that we are ahead of targets.”