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Council and GHL working on statement of intent

GISBORNE District Council and its fully owned subsidiary Gisborne Holdings are in the final stages of agreeing to a statement of intent including the dividends that would be paid from the council's commercial operations it has taken over.

At present the two bodies are favouring a minimum distribution of $1.25 million a year with no agreement for a set increase in 2018/19.

A staff recommendation for a dividend increasing from $1.25 million this financial year to $1.75m in 2018/19 has not been agreed to.

Also still to be decided are the return on shareholder funds and the total debt to equity ratio for which the staff recommendations were four rising to five and 12 percent rising to 20.

The board of GHL and the council’s performance, audit and review committee spent more than an hour discussing details of the proposed statement of intent on Thursday.

Chief executive Judy Campbell said this was not a final statement of intent (SOI). The final document would be confirmed at a council meeting on June 30.

She also said this SOI involved only the Tauwhareparae Farms activity and contemplated the transfer to GHL of the Waikanae Beach Holiday Camp and the vehicle testing station, on which the council was still consulting with the community. It does not include community housing or the airport, the proposed transfers of which are yet to be discussed.

Document would be revisedMayor Meng Foon said this was a living document which could be revised from time to time. The committee and GHL board spent more than an hour discussing aspects of the SOI, including performance measures and the dividend policy.

The committee agreed that the SOI could be amended if the decision to transfer community housing was made. The original SOI included a phrase that GDC would not instruct GHL to act in a non-commercial manner.

Mr Foon said the return to the shareholder could be set at 5 percent now. The board of GHL could give reasons if that was not achieved.

Other councillors said that would be an aspirational figure to set.

Roger Haisman said GHL could not be expected to operate at that level during its first year. That was something that never happened with new organisations.

Graeme Thomson said what the council was looking for was a safe investment in which the value of the asset would increase over time.

GHL chairman Bob Proudfoot said the company had to meet some targets with its distribution policy that were equitable to both parties — to enable them to manage the company as they were required to do to develop it, increase the asset base and provide a continual and, over time, increasing distribution.

“We must have some flexibility to plough back into our asset base,” he said.

“If we do not have that flexibility we will crumble. You will take all our money and we will die.

“You have an insatiable diet for grabbing money. If there are no constraints on that, we will soon be milked and we won’t be able to develop.

“That is what has happened to the camping ground and is happening to the testing station. It used to happen to the farm.

“If you don’t get a policy similar to what we have suggested, so both sides of the fence know exactly where we are going, we are going to be curtailed.”

Rehette Stoltz said she was thinking about the council not GHL. They needed two payments a year.

Mr Proudfoot said at the end of the day they had to do what the council wanted. But unfortunately the company did not get its income and know what its profit was until the last half of the year.

For the next two or three years GHL would be basically a farming company. He would like distributions to follow end-of year results.

Mrs Campbell said GHL was being asked to go back to the previous system it operated until recently. It might be possible to give them a period of grace before that occurred.

A reported $500,000 increase in dividend from Gisborne Holdings Ltd to the council from 2018/19 (increasing from $1.25 million to $1.75m) was a suggestion from council staff, not something that was agreed to at Thursday’s meeting of the performance, audit and risk committee. GHL chairman Bob Proudfoot says the policy which they and the council are favouring is a minimum distribution of $1.25 million a year, with no agreement for a set increase in 2018/19.