2021 Annual Report

The Trusts are holding their annual meetings next week via Zoom and they’ve invited questions by email (deadline is this Wednesday at 5pm). Their Annual Report is available here and you can send your questions or comments to info@thetrusts.co.nz

We’ve taken a bit of a look ourselves and here are some of our observations.

The impact of COVID

2020/21 was heavily affected by COVID and The Trusts were not immune. The different parts of their business were affected in different ways.


Licensing Trusts in monopoly areas have consistently been allowed to trade during lockdowns. That privilege hasn’t been extended to their few local competitors (Hopscotch, Fresh Beer Brew Company, Henderson Valley Wines and Wine Villa can only operate via delivery in L4 and click/collect in L3). The Trusts’ handling of the first lockdown was abysmal, but subsequent lockdowns have been handled much better.

The retail liquor sector has done very well in 2020/21, with Duty Free effectively abolished and a shift to more at-home consumption. Stats NZ data shows that spending at liquor retailers was 7.5% higher in 2020/21 than the previous year (despite stores being closed during lockdowns).

The vast majority of The Trusts’ trading business is retail (in 2019 they said retail generated 84% of their revenue). Whilst COVID has undoubtedly been challenging for The Trusts, their retail business should have thrived.


Hospitality has been hit hard by COVID. According to their CEO, The Trusts have endured 11 weeks without trading in that segment.

No doubt it has been tough, but anecdotally the impact has been much less severe for suburban venues than for those in the city centre or tourist locations. Hospitality is also a relatively small part of The Trusts’ overall business, generating just 12% of revenues in 2019 (and they’ve sold/closed venues since then).


2020/21 has seen massive growth in property values and strong performance of equities. The Trusts’ financial results reflect this performance.

Transparency / content

The annual report was released well ahead of the annual meeting which is good. The financials for WATS Ltd were also released for the first time without redactions, which finally enables the financial performance and position of the group to be analysed properly. After several years of refusals (on the grounds of commercial sensitivity), apparently now there’s no problem?

The presentation of the financials is mostly unchanged and not great; for example “Community Support” (i.e. giving back) is included in operating expenses, which confuses all the profit figures. And whilst there is a list of grants provided for the “Your West Support Fund” in the glossy bit of the report, there is no list in the audited financials nor is there a list which covers the entirety of their claimed giving back.

My other main bug-bear is that there is no segment / sector performance reporting. We’ve been trying to get that made public since 2018 because it’s critical to valuing the monopoly. If their alcohol business is a cash-cow, then we have something to lose (and conversely if it isn’t, then competition is win-win). We’re still working through the Ombudsman to get access to their internal segment analysis and if the Ombudsman rules that they can’t keep it secret, then hopefully they’ll include it in their future annual reports.


Headline revenues were down from $121.6m to $119.2m. If we include GST, that means we spent $137 million at The Trusts last year.

COVID will have impacted revenues this year, but revenues in previous years have also failed to keep up with inflation / population growth. Since 2012/13, revenue growth has been 2.4%, whilst inflation has run at 1.4% and population growth has been about 1.5 to 2.0% (all % figures annual). This year, the liquor retail market also grew strongly because of the absence of duty free, but The Trusts missed out.
Whilst it is not a disastrous performance, The Trusts are clearly losing the competitive battle. Online retailing and delivery services (including Countdown) are growing their share. Manufacturers (e.g. Hopscotch and Fresh Beer Brew Co) are also finding ways to encroach on the monopoly and take market share.

The Trusts’ monopoly dictates the space The Trusts operate in, and that’s physical bottle stores. They’re not allowed to operate outside their district, so they can’t grow and become competitive due to scale, but consumer behaviour is changing and competitors are finding ways to chip away at the Trusts’ dominant position in West Auckland. It’s good for us as consumers, but it’s not good considering we are also the owners of The Trusts.


Labour costs were down 3% on the previous year; from $17.2M in in 2019/20 to $16.7M in 2020/21. Head office (WATS) increased 5% though, from $3.9M to $4.1M.

That’s a continuation of a long-standing trend of head office growth despite tepid business growth. Since 2012/13, labour costs have increased overall by 13%, but the growth in head office staff costs (43%) far outweighs the increase in the amounts paid to those working actually in the business (5%).

Executive salaries are part of that, though the new CEO appears to have taken a slightly lower salary than his predecessor. One staff member was declared to have received between $370 and $380K (compared with $500 to 510K in 2019/20) and presumably this is the CEO who joined in June 2020. This amount works out to an annual salary of about $450K. That’s a pretty good increase from his salary at Trust House (Masterton Community Trust) of $300 to $310K.

With the WATS Ltd accounts now available, we can begin to see the growth in head office expenses that has occurred over the last few years. These costs have been very effectively hidden from the public through some creative accounting as we described here. Administration expenses in head office have grown from $3.6 million in 2012/13 to $10.2 million in 2020/21. This is a topic worthy of a closer look and we’ll do that in a separate post soon.

Profits and giving back

Headline profits were a record $10.0 million (after tax) and their declared operating profit (before tax) was $1.5 million.

Sounds very healthy but it doesn’t mean their alcohol business is a golden goose. Those profits include:

  • $1.1 million from rental income (included in ‘operating profit’)
  • $1.7 million from the COVID wage-subsidy (included in ‘operating profit’)
  • $9.3 million from capital gains on property (not included in ‘operating profit’)
  • $3.1 million from dividends and capital gains on equities (not included in ‘operating profit’)

Despite the record profit, giving back was a paltry $786K (plus $149K in sponsorships). So, with $10 million in profits, but less than 10% of that given back, where has the rest gone? Two places:

  1. Cash has increased from $10.0 million to $16.2 million (i.e. more money in the bank)
  2. Payables has decreased from $21.1 million to $13.0 million (i.e. they have fewer outstanding bills)
In summary

Once again, The Trusts have delivered a healthy profit but as always it appears to be the result of the considerable community assets they hold on our behalf and not from their alcohol business.

They’ve given us the chance to ask questions, so get in there and ask them some tricky ones!