Alpine Energy saga to have ‘significant’ impact on TDHL
Tuesday, 2 July 2024
A multimillion-dollar overcharging error by Alpine Energy will have a significant impact on its shareholders with no dividend expected for the “foreseeable future”.
In delivering Timaru District Holdings Ltd’s (TDHL) quarterly report to the Timaru District Council meeting on Monday, chairperson Mark Rogers, issued the warning.
In his report to council chief executive Nigel Trainor, Rogers said there had been “extensive engagement with the Alpine Board and fellow shareholders in regard to the price path correction”.
“This has a significant and material impact on TDHL and we continue to model the impacts,” he said.
TDHL was a council-controlled trading organisation (CCTO) and held a 47.5% stake in South Canterbury lines company Alpine Energy, alongside LineTrust South Canterbury (40%), Waimate District Council (7.54%) and Mackenzie District Council (4.96%).
The error was discovered during an audit in August 2023, but shareholders were not informed until late in 2023.
The lines company took eight months to inform the community of the error which impacted all South Canterbury consumers, both domestic and industrial.
At the time, Alpine Energy board chairperson Melissa Clark-Reynolds, who was appointed after former chairperson Warren McNabb resigned in the wake of the news, said the board would “not pay an interim dividend for the three months ending March 2024”.
However, it appeared there would be no dividend to shareholders for much longer.
“One of the consequences of the Alpine overcharge issue is Alpine forecasting no dividend to the shareholders, TDHL being one of them, for the foreseeable future,” Rogers said.
Rogers said shareholders received the first full report on the price path correction, from the Alpine chairperson and chief executive, in late March.
He said TDHL’s reporting period (July 1, 2023 to March 31, 2024) did not “fully incorporate the effects of not receiving the Alpine dividend as forecast”.
However, he said TDHL had an enterprise risk framework, and one of the previously identified risks was dividends dropping or stopping, but the CCTO had focused on mitigating such risks by diversifying its portfolio and adjusting its capital structure.
He said the timing of the announcement by Alpine Energy had allowed TDHL to stress test the impact against those mitigations.
“We are comfortable in our long-term forecasts, including the dividends. Three years ago I don’t think we could have said the same thing.
“I think this recent scenario and review process validates the work we have put in over the past couple of years … and good governance processes.”
TDHL general manager Frazer Munro said the price path correction was now under negotiation.
“Alpine management met with the Commerce Commission in June and had a constructive and positive conversation, and the Alpine board have settled on a engagement plan and desired outcomes with the Commerce Commission.
“So, it is now a matter of negotiation with the Commerce Commission over the next few months to see how that process pans out,” Munro said.
Cr Michelle Pye queried TDHL’s financial forecast, and said given there were a couple of “moving parts”, she did not want to get to the end of the year and find there was a problem with the budget.
Munro explained the initial EBITDA (earnings before interest, tax, depreciation and amortisation) forecast of $3.17m had been done prior to recalculating the numbers based on not getting the Alpine Energy dividend.
“The updated forecast for the EBITA is around $2.7m for the year, and some of those other measures are slightly under as well,” he said.
In 2022/23 TDHL received a dividend of $1.177m from Alpine Energy, and had an EBITA of $3.749m (excluding revaluations).
Showgrounds delays also impact financials
The Alpine saga was one of two major factors which impacted TDHL’s financial position, with the delayed sale of land at the Showgrounds development also a factor.
“The year to date net income is $982k, which is ahead of year-to-date budget of $802k primarily due to higher rental income, and lower than budgeted costs.
“The lower than budgeted other income is due to reduced dividends received from associates and the delayed timing of Showgrounds property settlement,” Rogers said.
Councillor Stu Piddington asked for an update on the Showgrounds and progress on the “lump of dirt”.
Munro responded saying the resource consent for the issuing of consent for titles for stage one had been granted a few months ago and stage one titles had now been raised.
“So, that’s enabled the developer to restructure their finance and I understand that the civil works for stage 2, where the stockpile is, will start this summer.
“That is the intention.”
Cr Allan Booth asked for clarification that the stockpile sat on land owned by the developer, and Munro confirmed that was the case.
“It’s on their land,” he said, with Rogers adding “but we would also like to see it gone”.