POT
25/10/2012 15:01
MEETING
REL: 1501 HRS Port of Tauranga Limited (NS)
MEETING: POT: Annual Shareholders' Meeting: Chairman's and CE's Reviews
Good afternoon Ladies and Gentlemen.
This year we celebrate 20 years since being publicly listed - with another
very good result. It's been a good 20 years and I hope you'll allow me to
blow our horn just a bit.
For those of you who have been shareholders since the very beginning, your
faith has been very amply rewarded. You will have received an average 24%
compounding annual return on your investment over those two decades.
In that time, net profits have increased tenfold as overall trade volumes
have increased by 190%, and container volumes by more than 1500%.
Port of Tauranga has been the best performing share on the New Zealand Stock
Exchange over the last 15 years.
In the 2012 financial year, strong growth across the Company - and in all
major cargo categories - has seen Group net profit increase to a new record
of $73.5 million. That is an increase of 26% on 2011 which of course was
itself a record.
I will go into some more detail on the financial results shortly but first I
would like to highlight the significant challenges thrown at us in the past
year.
The Ports of Auckland strike stretched us to the limit. It sounds great -
more business - but trying to balance the needs of existing customers with
the urgent needs of those shut out of Auckland stretched us to the limit. We
did our best for all but it was seriously tough on our staff and service
providers and they performed magnificently.
The grounding of the Rena was a huge challenge as we put maximum effort into
assisting the cleanup and ensuring the port stayed safe and working.
To achieve such a good result in the face of these challenges is great.
So, to the highlights of the financial results for the year:
EBITDA increased 18% to $128.9 million for the Group.
Operating revenue increased to more than $227 million in 2012 - up 22.5% on
2011. Our balance sheet remains very strong with the ratio of debt to debt +
equity at 29% - down very slightly from last year.
A revaluation of land, buildings, wharves, harbour improvements and
hardstanding resulted in values increasing by $13.2 million. The result also
includes $1.3 million impairment to buildings, which are to be relocated in
the short-term to create more space and increase productivity on both sides
of the harbour.
Associate and subsidiary earnings were up 7% to $13.3 million, with a
particularly pleasing result from Northport.
Mark Cairns will talk in detail about the different areas of trade, but total
trade increased 20% to 18.5 million tonnes in the year to June 2012.
The Port handled 35% more containers than the previous year, and export log
volumes increased to a record 4.9 million tonnes.
Overall, imports and exports each increased by 20%.
We have declared a final dividend of 27 cents per share, on top of the
interim dividend of 12 cents per share. This total dividend of 39 cents per
share is an increase of 26% on last year's dividend.
For the year to June 30, total gross shareholder return - that's share price
increases plus dividends - was 30%.
During the year, we received a number of requests from mainly retail
investors to consider a share split. The Board has considered the matter and
has resolved not to undertake a share split, as there is a lack of solid
evidence that a share split directly increases shareholder value or
liquidity. As shareholders, we should be proud that Port of Tauranga is
currently tracking as the highest priced New Zealand company on the NZX.
I said that this was a very challenging year. Here is the Management team.
That's the lot. There are five of them. Compare that to most comparable size
companies. I could show you a photo of all the staff as we're lean there too,
but this photo makes the point. These five people attend all Board meetings
and participate. Those of you involved in or knowledgeable about corporate
governance will know that's very unusual.
Even more unusually, they truly work as a team and get involved in each
other's territory and do a lot of brainstorming as a team. So, Sara is called
Corporate Services Manager but might get involved in marketing, Tony (the
silver headed one) is Property Manager but might get involved in evaluating a
new business opportunity. I could go on, but you get the point.
They keep it simple. There is no Public Relations Department to massage
information and there is no excess of expenditure of your money
Directors share in the appreciation expressed by customers, partners and our
community. And on the subject of directors, thank you too. This is a Board
that's a real pleasure to chair. They have a great range of skills and again,
they work as a team. Might I suggest that team work and co-operation in
management and a Board may well be more important than so called teams that
are studded with stars who can't or won't co-operate?
Looking to the future, there is still volatility in the container cargo
environment worldwide, and we see evidence of that in New Zealand with
shipping line mergers and rationalisations still a feature. Despite that, we
are confident that our location, efficiency and service levels will allow us
to attract new services, as well as increased business from existing lines.
In bulk cargoes, forestry exports continue to be buoyant despite the strength
of the New Zealand dollar. All forecasts show continued demand from China
and India, notwithstanding the usual seasonal fluctuations in price.
In addition to the project to widen and deepen the shipping channels in the
Tauranga Harbour, our other capital expenditure will ready us for the
increased cargo volumes coming our way. The Company spent $39 million on
capital works in the 2012 financial year and we have spending of $180 million
planned over the next three years.
We are now, four years after commencing the consent application and $2.5
million in RMA, legal and Court costs (that doesn't count the additional cost
of staff time), getting closer to being able to dredge our channel wider and
deeper. It's been a debilitating, long and costly process. I don't suggest we
shouldn't have a process that ensures all parties affected can have an input
and have power. As a result of the process, we have made changes to meet
objections, but it's a process that's much too long and too costly for both
objectors and us and seriously needs an overhaul. And we're still not there
- since writing this two weeks ago we have been advised of an appeal to the
Court of Appeal. I will leave Mark to comment further - If I were to comment
my language would certainly offend.
It is impossible to predict if we will ever again experience the unexpected
congestion brought on by the Auckland strikes, but we have moved to provide
capacity headroom with our capex programme, and we are prioritizing those
investments that maximize productivity.
It is hard to see the world economy improving much at all over the next year
and I guess a EU economic meltdown and subsequent damage to the economies of
Asia is a possibility. On balance, we believe that earnings growth for the
Company will continue, based on the soundness of our diversification
strategy, and the continued success in attracting new business to the Port.
Mark will provide further colour around our guidance in his address.
Finally, a comment on our major shareholder, Bay of Plenty Regional Council
which holds its 55% shareholding through Quayside Securities Limited. In all
the years I have been a director, they have never sought to involve
themselves in the running of the business, other than through the valued
commercial input of John Cronin, Chair of the Council and Michael Smith,
Chair of Quayside - both of whom sit on our Board. You might say "so what?"
but it's a topical subject and political interference in the appointment of
directors and the running of the business plagues too many New Zealand ports.
This region has it right. So Regional Council, take a bow.
Thank you for your attention.
John Parker
CHAIRMAN
Thank you John. Good afternoon, Ladies and Gentlemen.
As your Chief Executive, I am proud to be reporting another successful 12
months, on our 20th anniversary since listing on the Stock Exchange.
Whilst our annual cargo volumes increased by an impressive 20% to 18.5
million tonnes, the standout metric for the year was our container volumes
increasing by 35% to just under 800,000 containers . This now makes Sulphur
Point the largest container terminal in New Zealand - impressive growth when
considered against the backdrop of global container growth being around 6%
for the year.
Many people have assumed the majority of this growth was due to the extra
containers we handled as a result of the Ports of Auckland industrial action
earlier in the year. However, this is not correct, as most of the additional
cargo is due to the seven new shipping services introduced to Tauranga during
the financial year. Less than a third of the extra containers were as a
result of the Auckland industrial action, and more than 200,000 containers
came from the new services.
Overall, containerised cargo now makes up 48% of the cargo we handle (up from
40% last year), and now provides a more diverse cargo mix, further improving
our risk profile against commodity fluctuations.
Transhipment is where containers are transferred, from a vessel into the
container terminal and then out of the terminal again, usually onto a larger
vessel. We experienced significant growth in the number of transhipped
containers, which increased by more than 88% over the year, including a
surprising 9% of these containers originating from Australia and then
being transhipped over Port of Tauranga and then onto export markets in the
northern hemisphere. This provides evidence of the structural change that is
occurring in our industry, with a move towards hub and spoke ports and such
significant transshipment growth tangibly demonstrates our position as New
Zealand's hub port for international trade.
Our long term business partner KiwiRail really stepped up to the mark over
the year, with the number of containers railed to and from MetroPort Auckland
increasing by 33% to 183,000. This was partly due to the diversion of extra
volumes related to the Auckland industrial action, but the ongoing volumes
due to new services has been enough for KiwiRail to increase train capacity
to and from MetroPort - from four to six trains per day, carrying up to 636
containers per day each way. We are pleased that KiwiRail have also continued
with significant investment on the East Coast Main Trunk line and from early
2013, all major infrastructure constraints for growth will have been removed
and we will have the capacity to run fifteen trains per day, each way, to
cater for future demand.
On the other side of the harbour, our log exporter customers continue to show
solid growth, with logs handled increasing by 11% to 4.9 million tonnes, and
total forestry product exports increasing by 9%.
China continues to dominate the market, receiving over half of the logs
exported from Tauranga.
We also experienced significant growth in dairy product exports with volumes
more than doubling, increasing by 126% over the year.
In other export categories, frozen meat exports increased by 38%, apple
exports were up 164%, and steel exports were up 10%.
We feel for the many kiwifruit growers in this region, who are experiencing
the devastating impacts of PSA. Kiwifruit volumes held up through the port
over the financial year, showing a small increase of 1%, but reduced volumes
are expected over the next few years.
On the bulk imports side, oil products, other liquids, fertilisers and stock
feed supplements remained steady overall.
We had 83 cruise ship visits during the season, and we are expecting a
similar number again this coming season.
We received recognition of our international standing in the New Zealand
Productivity Commission's report into international freight transport.
In April, the Commission's report highlighted Port of Tauranga's excellence
in productivity. We were found to be the highest performing New Zealand port
for container productivity, and the Commission also noted that we were in the
upper-decile when benchmarked against other ports internationally.
Congestion at the container terminal during the period of Auckland industrial
action did cause crane productivity to fall to 31 moves per hour, but we have
managed to restore this to more than 35 moves per hour again over the last
two months.
We won't keep the new shipping services that we are attracting, unless we can
maintain the class-leading productivity and customer service that brought
them to us in the first place.
To that end, we are investing further in the people and equipment that we
need as we undergo a significant expansion programme. We have invested $39
million over the last financial year and plan a further $180 million
investment over the next three years, which will be largely funded out of
operating cashflow.
We have ordered two new gantry cranes - one arriving early in 2013 and the
other in 2014. This will bring our total fleet to seven. We have also
modified one of the older cranes to become twin-lift capable. We are very
excited about the potential that is being shown in our twin-lifting trials,
with peak crane rates of more than 60 moves an hour being achieved.
During the past year, we have bought an extra six straddle carriers to
support the crane fleet, and we have a further six units being delivered
early in 2013. As with the cranes, configuration for twin-lift capability is
a priority.
This new equipment will be required when we open our Sulphur Point wharf
extension in March next year. The extra 170 metres of wharf currently under
construction will increase berth capacity by 28% and combined with the
increased craneage, will provide significantly greater berth window
flexibility for our customers.
We have spent a lot of time ensuring that the space at the existing terminal
is optimised and, with some reconfiguration, we managed to increase container
ground slots by some 30% and refrigerated container plugs by 40%. We are
currently developing a further additional 15% in ground slots which will give
us the ability to respond to any future short-term growth in trade.
The rail sidings at Sulphur Point have also been re-organised, allowing the
loading and unloading of three trains at any one time.
We have new terminal operating software being installed early next year,
which will further assist in streamlining operations at Sulphur Point. We
have also embarked on a joint venture with Ports of Auckland to implement a
single container management portal called PortConnect.
Meanwhile, we continue to work on infrastructure for our biggest export
customer, the forestry industry, who are also experiencing unprecedented
demand.
Whilst we have a lot of land allocated to log storage, the log export
industry continues to export record volumes and demand additional storage.
In 2012, we demolished a shed to create an additional 2.5 hectares of log
storage. We will continue to pave further log storage areas in the coming
year.
Our staff have certainly weathered some challenges over the year and they
handled them with their typical commitment and professionalism.
An enormous team effort on their part, as well as the support of our service
providers and the patience of our customers, enabled us to handle the growth
of the past year.
Port employees, equipment and facilities were also seconded in support of the
Rena salvage. One of the first Port people on the scene was our former
Manager Operations, Nigel Drake. Nigel has since retired and we will miss
his calm and cheerful demeanour, as well as good judgement, in trying
circumstances such as the Rena grounding. His shoes have been ably filled by
former Pilot Phil Julian, who has worked at the Port for the past nine years.
I do say it every year, but please do not think my words are trite - it
remains my view that it is our "Port People" who generate the Company's
greatest source of competitive advantage.
The "can-do" attitude and task focus of our whole community of "Port People"
working on and around the wharf, including our staff, stevedores and
marshallers, shipping agents, transport operators (both road and rail), and
Ministry for Primary Industries staff, truly gives us a winning competitive
advantage.
I have also said before that our financial and productivity achievements are
hollow if our safety performance is not equally strong. Whilst our safety
record is one of the best of all New Zealand ports (less than half the New
Zealand Ports' average), we still have further work to do if we are to
achieve our goal of a zero harm work environment.
The Chairman has already mentioned our frustration with the cost and delays
of the Resource Management Act legislative process. However, we are
encouraged with the Government's commitment to a second phase of reforms to
the Resource Management Act and we hope to see a Bill before Christmas.
Given the economic importance of ports to New Zealand's economy, with 99% of
New Zealand's trade (by volume) passing through a port node, it is our view
that ports should be included under Section 6 of the Act, and considered as
matters of national importance.
Whilst the four year process we have experienced seeking the dredging
consents has certainly been challenging, we consider that it has been
undertaken with a great deal of mutual respect and co-operation from most
hapu. One of the proposed resource consent conditions requires the
establishment of a new Trust that will set priorities and allocate funds for
harbour improvement projects. The Environment Court described this as a
"relatively sophisticated approach to dealing with the various issues that
arose during the case" and concluded that "the proposed conditions offered by
the Port during the closing of its case....... adequately avoid, mitigate, or
remedy the cultural effects".
We were greatly relieved to hear last month, that the High Court had
dismissed Ngati Ruahine's appeal, clearing our plans to prepare for larger
ships through dredging of the shipping channels. Unfortunately, we received
notice last week that Ngati Ruahine were appealing to the Court of Appeal.
Ngati Ruahine is a hapu of Ngati Ranginui iwi, one of twenty four hapu that
make up the Tauranga Moana Collective. Needless to say, we will be vigorously
challenging the legitimacy of this appeal - the dredging consent has now been
recommended variously by; a panel of Independent Commissioners in May 2010,
confirmed by the Environment Court in December 2011, and also last month by
the High Court.
We hope the appeal to the Court of Appeal can be resolved quickly. Once we
have the consent finally approved, the dredging project will be carried out
in several stages, and we had hoped to commence the first stage towards the
end of next year. New Zealand's economy desperately needs the $338 million
of benefits that the New Zealand Shippers' Council estimates will flow from
bigger ships operating on the South East Asia trade routes.
We will continue to place a high degree of importance on maintaining
productive working relationships with tangata whenua. We sincerely hope the
new Trust will provide a forum for building on the relationship between the
Port and Iwi and really making a difference in improving the health and
wellbeing of the beautiful harbor that we share.
In closing, I would like to take a look at our first quarter's trading this
financial year and contrast it with the prior corresponding period last year.
We have trade up 13%, log exports up 7%, containers up 32% (however we do
need to be a bit careful with this number, as the prior corresponding period
did not include the seven new shipping services), and we have Net Profit
After Tax up 19%. Provided there are no significant market changes, we
expect earnings growth to continue and achieve full year earnings in the
region of $75 to $79 million.
Finally, I would like to thank most importantly our customers and also the
wider port community for all their support. They have supported us in
meeting our challenges and aspirations - by working together, we have created
New Zealand's Port for the Future.
Thank you for interest Ladies and Gentlemen.
Mark Cairns
CHIEF EXECUTIVE
End CA:00228873 For:POT Type:MEETING Time:2012-10-25 15:01:26
