MERSEY Docks’ profits are being wiped out by interest payments to service owner Peel Ports’ £1bn-plus debt mountain.
The business is shouldering a large part of the burden of meeting the huge bank loan taken out when Peel acquired the company for £770m in 2005.
In the past year, £70m in operating profits have been swallowed up by £70m in meeting debt requirements.
In addition Peel Ports received a massive £775m investment from property group Rreef two years ago, which was reportedly to slash debt and develop the business.
No one from the company was available last night to explain what has happened to that cash although accounts show dividend payments of £471m and £29m to the parent business Peel Holdings in the last two years.
The debts are due to be paid off by 2013. The company says they are manageable as long as the port trading remains stable, but with a slump gripping the shipping trade, future performance is not guaranteed.
Although Peel Ports includes the Manchester Ship Canal and other interests, it is the Port of Liverpool that is the big cash generator.
Following the Rreef investment, a 49% stake, Peel publicly stated: “This transaction commits long term funding for it to capitalise on the considerable growth and expansion opportunities available.”
In Mersey Docks’ own accounts for 2007 it is stated: “Key financial risks arises from the level of debt held by the company and the wider Peel Ports Group and the interest arising thereon.”
Last year group turnover was 2.9% ahead at £376.8m while profit before tax was just £11.4m, due to the interest payments.
The company says that a fixed rate on much of the debt and some complicated financial swap instruments would help mitigate risk.
In the Peel Ports’ annual accounts for 2008 it said: “The directors consider that the combination of swap instruments, stable trading of the ports business, effective working capital management and the development of the asset base assists in managing the risks arising from the level of debt and the variability of interest rates.”
During the year the company decided to offload non-core business and sold road haulage concerns Palletpool, Tank Trans and Roadferry, resulting in a profit of £3.1m.
Peel Holdings also has a £340m loan commitment for the development of Mediacity at Salford Quays.
The situation may now impact on plans for a £100m berth for the latest generation of container ships. A decision on whether to go ahead or stall will be made during the course of the year.
barry.turnbull
