Business and Commerce News

The Directors of Hirequip announced today a record net profit for 2004, after tax and minorities, of $16.6 million, which is an increase of 188% compared with the prior year.

A dividend of 2 cents will be paid on 24th September 2004 to shareholders recorded on the register on 17th September 2004.

Hirequip’s Executive Chairman, Graeme Wong, said it was the first full year since shareholders had approved the transformation into an equipment hire company in May 2003.

“The original two-year business plan transforming the business is progressing ahead of schedule. Substantial progress has been made in realising property and investment assets and the funds released have been successfully reinvested within the hire business.”

In the financial year under review, Hirequip invested a net $43.5 million in working capital, plant, equipment and property associated directly with equipment hire. Of this $32.9 million was invested in the purchase of Ready Hire and Power Hire. Net $14.2 million was spent on other additions to plant and equipment and a net $3.6 million was released from property transactions.

During the year $1.8 million was invested in branch developments including replacement branches in central Auckland and central Wellington and an upgrade of the Lower Hutt branch. Expenditure on a new branch in Manukau (Auckland), a new workshop facility in Grenada (Wellington) and upgrades of several other branches, which are underway, will be brought to account in the 2005 financial year. Several sites are under evaluation for new branches.

During the year the properties at Stoke, Wanaka and New Plymouth were sold for $5.4 million which released a capital profit of $1.7 million.

The integration of Ready Hire into Hirequip is operationally complete. On behalf of Directors, Mr Stuart McKinlay recorded his thanks for the considerable assistance in achieving a smooth integration to former Ready Hire CEO, Richard Grainger. Thanks were also recorded to Power Hire vendor, Michael Jacomb, for his ongoing assistance with that business. Mr McKinlay acknowledged the contribution from all Management and staff in a year of significant growth.

Cash operating earnings (EBITDA) from the Company’s equipment hire activities were $19.3 million. Earnings for the 2004 year include five month’s contribution from Ready Hire and one month’s contribution from Power Hire. The Board is confident that had these businesses been owned for an entire year, cash operating earnings (EBITDA) would have been at least $24.2 million. This compares with 2003 operating EBITDA from equipment hire activities of $13.6 million.

Assets sold by Hirequip New Zealand during the year were:

o Northwood Supa Centa (30%) for $3.5 million;

o Waimakariri Employment Park land (100%) for $1.5 million;

o Goldsworthy Bay land (50%) for $0.96 million. The last two sections in this development were contracted in 2004 for settlement in the 2005 financial year. Hirequip’s share of this income was recognised in the 2004 accounts.

o The Omaha Beach development company paid fully imputed dividends of $12.7 million during the 2004 year.

Since balance date, the sale of Pegasus Town has been announced at an effective price of $23 million, of which $10 million will be received in the 2005 financial year. The company expects to receive the amount of $20 million (including $7 million implied interest) over the next 5-6 years, in full settlement of the purchase.

Economic activity in 2004 was strong. Whilst recent rises in interest rates may dampen residential building activity beyond current orders, continued strong spending on infrastructure by central and local government is expected into the foreseeable future, thereby underpinning business activity and growth.

“We will, as we did in 2004, continue to actively seek out value-adding initiatives. A number are currently being considered but, as always, we will only do deals that clearly add value,” Mr Wong said.

Chair Paula Rebstock said that the Commission was not satisfied that the proposed acquisition would not have, or would not be likely to have, the effect of substantially lessening competition in the national market for the manufacture and wholesale supply of rural and security electric fencing products.

The clearance application from Gallagher included a divestment undertaking whereby Gallagher offered to divest the PEL brand, a rural electric fencing brand owned by Tru-Test. Gallagher had offered the divestment undertaking with the intention of reducing the market share that Gallagher and Tru-Test would have if they were to merge.

Ms Rebstock said that the Commission considered that post acquisition, the combined entity would have a large proportion of the market and would not be sufficiently constrained by the divested PEL brand or other small competitors.

“In addition, the Commission found that high barriers to expansion and entry would hinder a divested PEL’s or other existing competitors’ expansion, or any new company’s entry. These high barriers would mean it would be unlikely for there to be sufficient constraint to prevent the combined entity from exercising market power, by raising prices or reducing the quality of its service.

“Overall, the Commission considered that the acquisition would result in a substantial lessening of competition in the national market for the manufacture and wholesale supply of rural and security electric fencing products,” said Ms Rebstock.

A public version of the Commission’s decision will shortly be available on the Commission’s website under Adjudication: http://www.comcom.govt.nz/adjudication/s6667.cfm.

Background

The Gallagher Group is headquartered in Hamilton and comprises a number of companies with a primary focus on the design, manufacture and marketing of animal and security management systems in New Zealand. Gallagher’s key products include: rural and industrial fencing products; animal weighing systems; contract manufacturing products; security access control products; and fuel dispensing products.

Tru-Test is headquartered in Auckland, and designs, manufactures and markets agritech solutions.

Tru-Test’s key products include: rural and industrial fencing products; animal weighing systems; contract manufacturing products; milk metering equipment; shearing products; and brain monitoring equipment.

The value of residential building work put in place in the March 2004 quarter has been revised downward from $1,687 million to $1,561 million. The value of non-residential building work put in place has been revised downward from $817 million to $799 million, while the value of all building work put in place has been revised downward from $2,504 million to $2,359 million.

The seasonally adjusted series, trend series, and values at constant prices have also been revised. All revised figures are indicated by an R in the attached tables.

The Value of Building Work Put in Place survey statistics are the key data source used to estimate economic activity in the construction industry, a component of Quarterly Gross Domestic Product (QGDP). The revisions to the Value of Building Work Put in Place are estimated to result in a downward revision of 0.2 percent in the published QGDP series for the March 2004 quarter (ie the published 2.3 percent movement in QGDP for the March 2004 quarter compared with the previous quarter would be revised down to 2.1 percent). The impact on components of the QGDP series that are affected by the revision are available on request.

Statistics New Zealand regrets any inconvenience this error may have caused users.

The airport company increased its surplus after tax by 22.8 per cent on the previous year’s $76.8 million (excluding a non-recurring item of $6.7 million), to $94.3 million. Revenue was up 15.0 per cent to $262.4 million. Growth occurred across the board in both the aeronautical and non-aeronautical areas of the business.

Airport chief executive Don Huse said, “Unprecedented levels of passenger activity mean terminal and apron facilities are operating near capacity at peak times. A number of expansion projects have been initiated to ensure service standards are maintained.”

Based on project work in progress and current planning, the airport company said capital expenditure through the next three years is estimated to average about $125 million per year.

AIAL chairman Wayne Boyd commented, “The company’s continuing strong financial position provides directors with the confidence that the continuing development programme can be funded from retained cash flows and increased debt, within prudent limits.

“Also reflecting this confidence, the directors consider it appropriate to increase the dividend payout ratio to 90 per cent of the surplus after tax. Accordingly, a fully imputed final dividend of 17.3 cents per share (amounting to $52.8 million) has been declared.”

This comes on top of an interim dividend of 10.5 cents per share, paid in March, taking total dividends this year to 27.8 cents per share, up from 22 cents the previous financial year.

AIAL’s property division has, during the year, completed nine investment properties, increasing the property portfolio to total 46, with a market value of $157.7 million. “Significantly, the investment property portfolio increased in value by $8.6 million - this revaluation gain is recorded through revaluation reserves and not included in the surplus after tax result,” Wayne Boyd said.

The total number of passengers through the port increased 14.1 per cent to 10,757,506 (including transit passengers), with international passenger movements up 13.9 per cent to 6,116,655 and domestic movements up 14.4 per cent to 4,640,851.

Don Huse commented that New Zealand remains a very popular tourism destination, “Overall demand was widened and stimulated by extremely competitive fare structures and strong marketing initiatives by new airlines, together with the introduction by Air New Zealand of its lower-fare Pacific Class international services. These services have provided travellers, especially on trans-Tasman routes, with a wider range of lower fare and schedule options.”

Recently, the company completed a successful retail bond issue which saw $200 million raised to refinance existing debt for the airport’s capital programme and for general company funding.

AIAL revealed that passenger numbers have also continued to grow strongly since the end of the financial year. International numbers were up 14.6 per cent in July, and domestic increased by 9.6 per cent.

Wayne Boyd added, “The directors are of the view that for the 2005 financial year, a surplus after tax result in line with current market expectations of at least $100.0 million can be achieved.”

As reported previously, Transfield Services Limited elected to adopt the new tax consolidation regime as of 1 July 2003. The company has booked a net credit to income tax expense of $34.6 million. This positive impact results from the re-measurement of the group’s power generation assets for tax purposes under the new legislation.

The net profit after tax of $68.2 million (inclusive of the tax consolidation adjustment) for the year ended 30 June 2004 represents an increase of 154.5 percent when compared with $26.8 million for the prior period. The profit after tax excluding unusual tax effects is $33.6 million for the year ended 30 June 2004, which represents an increase of 38.3 percent on the prior comparable period (profit after tax excluding unusual tax effects is included in the attached table to enable easy comparison).

The ‘Services’ part of the business performed strongly, achieving earnings before interest, tax and amortisation (EBITA) of $35.1 million, which represents an increase of 37.1 percent on the prior comparable period.

The infrastructure investments performed in line with expectations delivering EBITA of $23.6 million, which represents a 14.0 percent increase on the prior comparable period.

The Board declared a fully franked final dividend of 9 cents per share to be paid on 15 October 2004. This will apply for shareholders on record at 22 September 2004. This follows a fully franked interim dividend of 7 cents per share, which was paid on 15 April 2004. The dividend of 16 cents for the full year represents a 23 percent increase on the previous year.

Transfield Services’ Managing Director, Peter Watson, said he was very pleased with the company’s performance.

“All segments of our business, including joint ventures, are performing well and have driven growth along with contributions from new business such as REB Engineering and the newly expanded Yarra Trams and new contracts such as WMC Resources, Mackay Sugar and Santos”, Mr Watson said.

Highlights in the period from 1 July 2003 include:

• Extensions to significant contracts including Department of Defence, QNI (BHP-Billiton), NSW Department of Commerce, BlueScope Steel, NSW Department of Housing, Sydney Water and Shell Refinery Malaysia. Since listing in May 2001, clients have renewed over 92 percent of contracts by value.

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• Additional work with existing clients and new contracts highlighted by:

- Telstra Land and Buildings – $32 million over 2 years

- Santos Maintenance Services – $60 million over 3 years

- Lane Cove Tunnel Operations and Maintenance – $75 million over 5 years commencing post construction

- Sugar Australia - $21 million over 3.5 years

• The company has work in hand of over $5.8 billion conservatively calculated only on existing contract terms.

• Transfield Services and Colonial First State Property launched a property services joint venture called Five D Holdings Pty Ltd.

• Transfield Services and Transdev signed a contract to operate and maintain Brisbane City Council Rivercat and Ferry Service.

• Achieved financial close for a $250 million power station at Kemerton in Western Australia.

• Yarra Trams, a 50/50 joint venture between Transfield Services and Transdev, entered a five year partnership with the State Government of Victoria to operate Melbourne’s entire tram network.

• Acquired Serco Group NZ to expand the Company’s property and asset management operations in New Zealand.

At 30 June 2004 Transfield Services had cash balances of $ 57.0 million. Borrowings of $366.0 million are non-recourse project financing associated with the infrastructure investments and consequently Transfield Services is effectively debt free.

“The foundation of our growth is the quality, diversity and size of our existing client base. We continue to undertake additional work with existing clients as well as pursuing a solid pipeline of new opportunities,” Mr Watson said.

“We continue our strong focus on continuous improvement. This is reflected in the further refinement of our management systems and processes and the pursuit of even better health and safety outcomes.”

“We achieved triple certification for our quality, health, safety and environment systems this year – believed to be a first for an Australian services company.”

“The company’s cashflow and sound balance sheet facilitate a complementary acquisition strategy. Future growth is underpinned by our approach with existing clients and new opportunities as well as expected completion of the Townsville and Western Australian power station projects in calendar 2005. Completion of these two projects will add considerable value to our portfolio of infrastructure investments. The value of the investments, net of project debt, is estimated to be approximately $275 million late in calendar 2005,” Mr Watson said.

Trading Result

Operating performance for the year exceeded expectations with a Net Surplus for the year of $2.62 million, which is 26% ahead of the prospectus forecast. This reflects stronger than anticipated demand for services in the second half of the year, including TeamTalk’s recently launched finance product, together with continued tight control of costs. Over the year there was continued modest growth in both subscriber numbers and revenue per subscriber.

As signalled to the market with its profit upgrade announcement in May the company has exceeded its IPO forecasts. The key comparatives are:

Group 2004

Forecast Actual

$000 $000

Operating Revenue 19,560 19,892

EBITDA 7,974 8,606

Net Surplus Before Tax 3,534 4,372

Net Surplus After Tax 2,086 2,622

Earnings per share (pre goodwill amortisation) 14.6 17.3

Dividends (cps) 15.0 16.5

Dividend

The Directors have declared a fully imputed final dividend of 9 cents per share. Combined with the interim dividend of 7.5 cents per share paid in May 2004 this takes the dividend for the year to 30 June 2004 to a total of 16.5 cents per share.

The record date for entitlement to the final dividend is 5pm 15th October 2004. Payment is to be made on 22nd October 2004.

The increase in the final dividend from the 7.5 cents outlined in the prospectus reflects the better than anticipated financial performance and the continued strong cash generation of the company. Even with the increase in the final dividend the total dividend payments represent only just over half of the available free cash flow.

Dividends for the year to 30 June 2005 will be at least equal to the 16.5 cents paid in respect of the 2004 financial year.

Balance Sheet/ Cash flow

A key strength of the company is its ability to generate strong cash flow. Notwithstanding the fact that during the year the company became a full tax payer TeamTalk still generated $8.0 million cash from operations. Even allowing for the $2.4 million invested in capital expenditure and finance leases this, plus the net $5.3 million raised in the IPO, enabled the company to reduce net debt from $18.3 million to $10.3 million at the same time as paying dividends totalling $3.0 million.

Total tangible assets stood at $32.9 million at 30 June 2004.

Outlook

Our immediate plans are centred on maintaining and growing our core business. In particular we are focused on adding value to our existing products.

As our experience with equipment finance grows we are progressively expanding our finance book. We expect equipment finance to make an increasingly significant contribution in the future.

We have recently completed development of a new alarm transport service that provides an exceptionally reliable method for security and other companies to monitor alarms from remote sites. While initial progress was slower than anticipated commercial deployment of this service has now begun.

In addition we are considering acquiring a number of small businesses that are closely allied to TeamTalk’s existing business activities. Beyond these small acquisitions the company is continuing to explore other acquisition opportunities that can leverage the company’s core competencies and balance sheet. However, the Directors continue to take a conservative approach to any business acquisition opportunities.

The Directors expect that the projected Net Surplus for the year ending 30 June 2005 will be in line with the result achieved for the June 2004 financial year.

Conclusion

TeamTalk delivered a strong performance during a year of substantial change. The Directors express their appreciation to all staff who have again contributed to another good result for the company.

Total DHB revenue for the June 2004 year rose to $7,503.9 million, with funding from the Ministry of Health increasing by $875.9 million (up 16.6 percent) to $6,153.2 million, compared with the June 2003 year. Total DHB expenses were $7,562.1 million in the June 2004 year. The two major components of this expenditure are the direct provision of public hospital and health services (HHS), at $4,514.0 million, and the purchase of medical services from non-government providers and inter-DHB services, at $2,951.3 million. The total expenses of the HHS providers were 5.1 percent higher than in the June 2003 year, with employee costs, the key expense item, up 5.3 percent to $2,774.6 million.

For the year ended June 2004, DHBs spent $387.2 million on additions to fixed assets, down 11.9 percent on the previous 12 months.

In the June 2004 quarter, total DHB revenue increased by $104.3 million to $1,996.4 million, while expenses increased by $91.3 million to $1,996.8 million. This resulted in the combined deficit for the DHBs reducing to $0.5 million. Total DHB investment in fixed assets was $111.5 million in the June 2004 quarter, up on the $59.9 million spent in the March 2004 quarter.

Computerland NZ Ltd will continue to operate as a stand-alone business within Telecom for at least 12 months with Computerland CEO Chris Mackay reporting directly to Telecom Chief Information Officer Mark Ratcliffe. Mr Ratcliffe said the acquisition is a very positive development for Telecom and for its information communications technology (ICT) business. “Telecom has had a strategic relationship with Computerland for some time and sees this acquisition as an excellent growth opportunity for both organisations, for our customers, and for the wider ICT services market,” Mr Ratcliffe said.

“Telecom’s strategy has been to explore ways of further growing its ICT business through a three-pronged approach of organic growth, strategic alliances and acquisitions.

“Computerland is a high profile market leader in infrastructure support services with a strong brand, a great reputation and a comprehensive market reach in all major locations throughout New Zealand.

“The acquisition of Computerland will help to extend Telecom’s ICT capability, making the provision of infrastructure services far more accessible to customers in metropolitan and provincial areas,” Mr Ratcliffe said. “For customers, this means that wherever you are in New Zealand and whatever your business technology issue is, we will have a solution for you.” “A further benefit is the ability of Computerland’s franchise partners to gain efficiencies through the scale and capability of Telecom Advanced Solutions and Gen-i on behalf of their customers,” Mr Ratcliffe said. “Each franchise operation will continue to operate as it does today – and to be locally owned and operated”.

The current expectation is that Telecom should be in a position to settle the acquisition of Computerland NZ Ltd at the end of August 2004, Mr Ratcliffe said.

The close timing of the Gen-i and Computerland acquisitions, while opportune, has been largely coincidental and Telecom is not actively pursuing any other acquisition opportunities at this time, Mr Ratcliffe said. Telecom will continue to work in conjunction with its existing integration partners, Mr Ratcliffe added.

Computerland NZ Ltd has 360 staff across four locations in Auckland, Hamilton, Wellington and Christchurch with a further 220 staff employed in branded Computerland franchise operations in nine provincial locations. Computerland NZ Ltd and its franchise partners provide total technology solutions from consultation, design and development through to implementation to Corporate and medium enterprise businesses. Computerland NZ Ltd earned revenues of around $100 million and EBITDA1 of approximately $3.6 million for the year ended December 2003. Telecom Advanced Solutions is Telecom’s dedicated trans-Tasman information and communication technologies business. Its capability includes mobile and commerce applications, IP and Internet security, ICT infrastructure, hosting and storage solutions, contact centre solutions, and wireless, data and voice services. The recent Gen-i acquisition adds systems integration, managed solutions, product sales (as part of solutions) and activities in software development and IT training to the capability mix.