Amalgamation hits bottom line

Baywave TECT Aquatic and Leisure Centre comes under the Bay Venues umbrella. Photo / File

Cost over-runs to merge Tauranga City Council's aquatic and leisure facilities into a single trading company has seen profits plunge by $1.6 million.

The unexpectedly high cost to amalgamate Tauranga City Aquatics Ltd and Tauranga City Venues was disclosed to a recent meeting of the council.

The operating profit ended up nearly 40 per cent below Bay Venues' $4.3 million profit target for the June 30 financial year.

Once the council's $3.76m grant to fund the company's depreciation costs was deducted from the profit, it left an operating loss of $1.1 million instead of a $500,000 surplus.

Bay Venues chairman Peter Farmer said amalgamation costs were "significantly higher" than expected, not withstanding that revenue ended up nearly $780,000 ahead of budget.

Quizzed by Councillor John Robson on the blowout in amalgamation costs, Mr Farmer did not specify how much but said professional consultants had been "errant in their methodology and financial conclusions".

Councillors were told that Bay Venues Ltd was "technically insolvent" because its liabilities exceeded assets. This was no different to the financial positions of the two previous companies after they took ownership of the aquatics network, Baypark and the indoor stadiums through loans from the council.

The financial position of Bay Venues led to council chief executive Garry Poole signing a "letter of comfort" dated August 22 confirming the council would not demand payment of any loan if solvency issues were to occur. It would instead provide financial support to ensure it remained solvent and a going concern. The letter remained in effect for 18 months and was "critical to accounting estimates and assumptions". Bay Venues already received a significant portion of its funding from the council and because the company was also making deficits, it relied on the council to not call up the loans.

The letter harked back to the ratepayer bailout of Baypark in 2012 when the council agreed to a $5 million equity injection to reduce a crippling debt burden that threatened to overwhelm the business. Mr Farmer said there would be no equity injection into Bay Venues.

Salaries and wages were $6.96 million for the year - up $910,000 on budget. It included the cost of hiring a health and safety manager. Risk management was the only objective that the company failed to deliver. Mr Farmer said nothing was more fraught with danger than health and safety when the business was focused on pools and indoor stadiums.

Bay Venues 2013-14 annual report

Tauranga City Council Grants: $6.5m
Revenue from users: $11.4m
Employee and operating expenses: $12.8m
Admin expenses: $1.4m
Other expenses: $1.16m