Citycare posts first loss
A ‘‘general malaise’’ in the construction industry is being blamed for a council-owned maintenance and construction company posting its first loss.
Citycare says a drop in maintenance spending by local authorities is also behind its $445,000 after-tax deficit for the year to June 30, 2018. In 2017, Citycare posted a $3.5 million profit.
The downturn was predicted by the Christchurch City Councilowned company, but its speed was unprecedented, Citycare’s 2018 annual report states.
Chief executive Onno Mulder said it was a disappointing result and the board and management took full responsibility for the loss, but he believed the company was now well positioned to quickly recover.
‘‘The point is that we saw this coming and have not just sat back and let it happen to us.’’
He said during the past year the company had put several steps in place to set Citycare up for future success and to lessen the long-term effect of any market decline. It embarked on a company-wide cost-saving exercise, was reducing its overheads to remain competitive, and had reengineered and re-branded.
But these initiatives had cost money, which also contributed to the loss, he said. Citycare made
100 staff redundant earlier this year. The company reported revenue of $312m in 2018, up from the
$303m posted in 2017, but $9.8m lower than its target. Mulder’s pay packet took a direct hit this year. He earned $575,000, compared with his 2017 pay of $710,000, which included an incentive payment of $163,000.
Mulder did not receive incentive pay in 2018, but his base salary rose 5 per cent from $547,000 to $575,000 this year.
Citycare’s profits have been falling since 2014 when it posted a $12m profit. In 2013, the company was described as a rising star in the group of council-owned trading companies. It benefited largely from being one of five contractors chosen to repair Christchurch’s roads, sewers, water and stormwater pipes following the earthquakes.
It was part of the Stronger Christchurch Infrastructure Rebuild Team (Scirt) programme, but that work mostly dried up when Scirt shut down in 2016.
The company’s annual report said the end of the Scirt alliance was always going to contribute to a downturn in the Canterbury construction market, driving an over-supply of contractors.
Citycare did manage to win three significant new contracts during the 2018 year, including with Auckland Council, Christchurch International Airport and a roading maintenance contract for north Christchurch. However, some new contracts had meant additional investment was needed in depots, plant and fleet costs, which added to the company’s expenses.
The council attempted to sell Citycare in 2016, but abandoned the sale at the 11th hour with just one buyer left on the table. Price and ‘‘associated conditions’’ were listed as factors in the unanimous decision to ditch the sale.
Council finance committee chairman councillor Raf Manji said yesterday that the council had an opportunity to sell Citycare two years ago and it probably should have at the time.
He said the 2018 result was disappointing but it was increasingly difficult to generate a profit in a competitive market, where margins were being eroded. Canterbury Employers’ Chamber of Commerce chief executive Leeann Watson said the time to sell Citycare was when it was operating at a profit, but she wondered if it was time to review the ownership as it was not producing a dividend.