Wiri prison becomes more profitable on lower expenses

A fair value gain on interest rate swaps of $5.1 million helped boost gains.

SecureFuture Wiri Holdings, which has the contract for the Auckland South Corrections Facility, turned to a full-year profit as expenses fell and it recognised a gain on the value of interest rate swaps.

The profit was $8.2 million in the year ended June 30 from a loss of $1.6 million a year earlier. Revenue fell 2.3 percent to $40.2 million. Cost of sales, which is what SecureFuture pays prison operator Serco, rose to $34 million during the year from $33.4 million a year earlier.

Operating expenses fell to $1.3 million from $2.2 million although the biggest moving part was a balance sheet item, with a fair value gain on interest rate swaps of $5.1 million compared to a deficit of $8 million a year earlier.

The new Labour-led administration wants to shrink the nation's prison muster, which was 10,470 as at Sept. 30, by 30 percent over 15 years. This past weekend, Justice Minister Andrew Little told Newshub's 'The Nation' programme the government will consider whether bail laws need changing and ensure sentencing is consistent as part of those plans.

SecureFuture Wiri, which is owned by InfraRed Capital Partners, John Laing Investments and the Accident Compensation Corp, won the contract for the high-security men's prison at Wiri in 2012 via a public-private partnership (PPP) arrangement. The 960 capacity men's facility opened in 2015. SecureFuture subcontracted Fletcher Building to design and build Wiri and Serco to operate the prison for 25 years. Spotless Facility Services is subcontracted to Serco to maintain the prison facility.

Serco sold its 10 percent stake in SecureFuture to InfraRed last year. Interest income was $29.8 million from $30.2 million.

The Department of Corrections pays a monthly charge to SecureFuture to cover the construction, finance and operating costs for the prison. Under the agreement, Corrections provided land adjacent to the Auckland Region Women's Corrections Facility to the contractor on which to build and run the prison.

SecureFuture's annual financial statements show the balance of its concession finance receivables at June 30 was $329 million, down from $332 million a year earlier. The effective interest rate was 9 percent, unchanged from a year earlier. The receivables are pledged as security for its senior bank debt facility, which stood at $289 million and paid interest of 6.1 percent. The bank facility matures in August 2019. In addition, it had $45 million of lower-ranking shareholder loan notes at an interest rate of 10.5 percent and a final repayment date of May 2040.

The company declared dividends of $4.9 million, down from $5.5 million a year earlier.

London Stock Exchange-listed Serco's New Zealand unit works to a calendar year and posted loss of $10.5 million in 2016, from a loss of $11 million in 2015. In April 2016, it agreed to pay $8 million to the Department of Corrections after the department invoked a step-in clause in the Crown's contract, taking back management of the Mt Eden Corrections facility following an investigation into organised fighting at the remand prison.


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