Lyttelton Port's mysterious capex policy

Friday 23rd July 2004

Companies that fail to return calls invariably set off alarm bells especially for specific questions relating to financials.

NBR wanted to ask Lyttelton Port why it expected to increase capex spend to about $60 million above maintenance over the next five years without showing a material effect on future earnings.

Notwithstanding one-off items such as increased security obligations, the forecast had seemed excessive given the company's medium-to-long term guidance of generally flat earnings.

Although the company has experienced stronger-than-expected second half growth in volumes, its total earnings before interest and tax (ebit) are forecast to remain roughly the same through to 2006.

On current estimates, the company's capital expenditure of $19.4 million in 2003 would increase to $22.9 million for the next two years and to $23.4 million in 2006.

As a result net debt is forecast to balloon to $69.7 million in 2006, giving the port a gearing ratio of 124%.

If, as brokers expect, the company is now budgeting for less capex spend, why did the company indicate such a high figure in the first place?

Lyttelton Port is heavily engaged in long-running industrial relations disputes, which might explain why three attempts to contact the company's management were not returned.

The company is upgrading its facilities, a process that has already taken longer and cost more than expected.

Despite upgrading its full-year net profit forecast from $11.5 million to $12 million, there is still no tangible evidence of a significant turnaround in performance given the amount of capital going in.

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