Lyttelton pilots stormy waters with insurer

Listed Lyttelton Port Company may need to use $50 million of its own capital after Vero insurance disputed its earthquake cover.

The company had been expecting a $20 million progress payment this week.

But Vero disputed the amount and whether various facilities were evwen covered by insurance at all.

The dispute is the tip of the iceberg for Christchurch businesses, as reported in the print edition of the NBR today.

The port has paid about $44 million for emergency and temporary repairs. The total rebuild may cost up to $300 million to fix wharves, buildings, paving and other facilities.

In spite of the bad insurance news, the Company achieved an “earthquake-adjusted” profit after tax of $12.1 million for the year ended June 2011, an increase of 34.4% over the previous year’s result of $9 million.

This “earthquake-adjusted” result excludes the earthquake effects of additional costs and insurance proceeds.

“The result is proof of the underlying strength of the business and reflects solid business growth in container, logs and coal volumes,” chairman Roger Fisher told shareholders.

He said the statutory consolidated result, which includes earthquake effects, was an after-tax profit of $24.1 million.

“We have in the year ended 30 June 2011 accrued $11 million in our annual accounts for business interruption insurance owed.”

To date, the Company has received progress payments of $35.7 million for both business interruption and material damage expenditure as a result of the earthquakes. A further progress claim of $11 million was made in August which has grown to $20 million with additional expenditure over the past few months.

Write-downs of Port assets following the earthquakes totalled $29 million.

“The total insurance claims will be significant and impact materially on future financial statements.”

Limited insurance cover for the port has been obtained for the future. Total cover required for assets under its material damage policy has been provided, except for wharves, breakwaters, pavements and other assets that are already more than 50% damaged.

This cover excludes natural disasters, including earthquakes. In addition, the company has been unable to secure business interruption cover.

Even so the company has enjoyed good first quarter trading. There were record container volumes which boosted revenues.

“The result for the first quarter was an underlying trading profit of $4.1 million – significantly ahead of the comparable period last year.

“With regard to a result for the full financial year, our forecast is for a trading result of between $13 million to $15 million. We will keep the market informed as the year unfolds.”