POT
24/10/2013 14:40
ADDRESS
REL: 1440 HRS Port of Tauranga Limited (NS)
ADDRESS: POT: Annual Shareholders' Meeting: Chairman's and CE's Reviews
Port of Tauranga Annual Meeting
24 October 2013
John Parker, Chairman:
Good afternoon Ladies and Gentlemen, and welcome
We've had another very good year with strong growth across the Company that
has seen underlying Group net profit increase to a new record of $77.2
million - up 5% on 2012
Reported Net Profit After Tax rose 52% to $112.1 million. This included $38.2
million profit on the sale of our 50% share in freight logistics company C3
Limited. Much of that was invested in our subsequent $34 million acquisition
of Quality Marshalling in February.
We were disappointed with the news last month that Quality Marshalling had
lost a major contract in a competitive tender process, representing some 60%
of revenues. However, that's always possible with a change of owner and we
remain convinced that there are future growth opportunities for Quality
Marshalling in New Zealand, particularly with the forecasted increases in log
export volumes over the coming years.
Our other subsidiary and associate companies had an outstanding year, with
excellent results reported by Northport Limited and Tapper Transport Limited.
The associates contributed 19% of the Group profits.
Overall revenue rose 7% to $244.1 million across the Group.
We negotiated a $50 million increase to our bank facility and extended $130
million of this debt facility from 2015 out to 2018 maturity. Net bank debt
stands at $191 million and our debt to debt plus equity ratio is 29%, giving
us the capacity to invest in capital development.
Total trade increased 3%, with strong growth in log and dairy product volumes
driving export growth of 6%.
Imports decreased by 3% overall, with volumes slipping for some bulk imports
due to climatic and supply influences. However, container numbers increased
7%.
Mark will talk in detail about individual cargo categories.
We have declared a final dividend of 26 cents per share, on top of the
interim dividend of 20 cents per share. This total dividend of 46 cents per
share is an increase of 18% on last year's distribution.
Looking ahead, we have some exciting developments in the pipeline to further
increase our cargo hinterland that will build on the investments of the past
year.
In the past financial year, we have greatly increased capacity at our Sulphur
Point container terminal, including increasing berth length by nearly a third
and purchasing two new container cranes. One is already installed and the
other, the seventh in our fleet, will be commissioned in March 2014.
Overall, we invested $68 million in property, plant and equipment in the last
financial year. Our cash flows and balance sheet are sufficiently strong that
we could still pay an increased dividend and be in a position to make further
capital investments should suitable opportunities arise
These preparations for the future are the latest chapter in a growth story
that began 21 years ago, when the Company was listed on the New Zealand Stock
Exchange and Sulphur Point was being developed.
The growth in the average size of ships visiting Tauranga has more than
quadrupled over the last thirty years and simply reinforces our well-known
view that we must cater for bigger vessels in order to reap the cost benefits
for exporters, importers and the whole New Zealand economy.
Most of you will recall that we have been articulating a hub port and large
ship future for some years.
Essentially, larger ships are vastly more efficient in fuel usage and speed.
They are therefore rapidly replacing smaller vessels. The truly huge ships
being built (some carry 18,000 containers) won't visit New Zealand as our
imports and exports are too small, but these very large vessels displace
smaller vessels and so on down the chain.
The typical 2,000 container vessels common on the New Zealand coast in the
past decade are already being displaced by 4,000 container vessels and we
predict 5,000 and 6,000 container vessels wanting to enter the New Zealand
trade. In fact it is starting to happen now.
These bigger vessels need deeper channels, longer quays, more cranes, bigger
container yards, better port access etc. And these bigger ships want large
cargo exchanges, a fast turnaround and won't visit multiple ports.
Others in the industry of course saw the same progression but thought of four
New Zealand hub ports: we figured two hub ports with feeder vessels bringing
containers from smaller New Zealand ports. We wonder now if it might in fact
be one hub port - at least for some years.
While we talk mostly of the container trade benefiting from larger ships,
bulk cargos such as fertiliser and oil will also benefit from larger vessels.
If you look at what we've done or are doing with longer quays, more cranes,
bigger container yards, and a deeper channel, you can see we're well down the
track on our hub port strategy.
Our agreements to acquire a 50% stake in PrimePort Timaru, and an additional
6.8 hectares of land next to MetroPort Auckland, are a further step. Timaru
will provide an important feeder port for our hub port strategy and
additional Auckland land allows the growth we aim for.
I retire from the Board at this meeting. I must say this group of directors
has been an absolute pleasure to chair. Their diverse range of skills and
experience does not prevent them from working co-operatively as a team.
I wish them well and leave you in the very experienced hands of David
Pilkington as your new Chair.
Kim Ellis will take up my vacant seat on the Board. Kim was Chief Executive
of Waste Management for 13 years and is a Director of EnviroWaste Services,
Freightways, Ballance Agri-Nutrients, Moa Group and Fonterra Shareholders
Fund.
Of course I am proud of the progress this Company has made. In my 17 years
as a Director, the Company has grown more than 17 times, from a market
capitalisation of $108 million to nearly $2 billion. I'm not sufficiently
deluded to claim the credit. When all is said and done, I've also been
chairman or a director of companies that haven't done well. Truly successful
companies, and this is one of them, rely on many people and organisations and
need a bit of luck also.
Allow me to indulge myself and give you my very short list of contributors to
our success.
o We've been blessed by a great majority shareholder in the Bay of Plenty
Regional Council which has understood perfectly the need to keep politics out
of the business. I must single out John Cronin as understanding this
perfectly and he has done a great job of reinforcing the point. Mike Smith as
Quayside chair does so also.
o A good board is critical. They really have one major job and that's to
ensure there is a very good chief executive. They've done that in spades with
Jon Mayson and then Mark Cairns. Mark has been recognised by Deloittes and
Management Magazine as 2012 Executive of the Year. It's not by chance that
his small executive team, and in fact all staff, are also top performing. A
board can do nothing without a good executive team.
o It helps to plan a long way ahead and ensure you're bold but realistic.
MetroPort was a brave initiative. Our investment for big ships and hubbing is
brave. Bravery is easier if well planned and executed. Ideally, only get onto
playing fields where your team is stronger and more skilled. If you can tilt
the playing field, do that as well!
o Be realistic and firmly grounded. This Company doesn't waste your money on
flash offices or trappings of power.
o Be lucky. Winston Peters got us the Tauranga Harbour bridge as a price of
joining the Government. We didn't organize that! Our main competitor was for
years poorly performing. Not our doing!
o Service, service, service. Provide good, ethical service and you will have
good customers, service providers and business partners.
Thank you as shareholders and for being here today. Your support is
appreciated and I look forward, from the sidelines, to the Port's next phase
of development. Its ready to really grow and prosper and I look forward to
watching it.
John Parker
CHAIRMAN
Mark Cairns, Chief Executive:
Thank you John. Good afternoon Ladies and Gentlemen.
Privileged to be your Chief Executive, I am proud to report on another
successful 12 months for our Company. The past year has seen us add further
significant building blocks to our growth story and I'd like to talk about
some of those achievements now.
Back in 2012, our container terminal at Sulphur Point became the largest in
New Zealand, when we grew volumes to just under 800,000 TEUs (Twenty Foot
Equivalent Units). Some people believed that this was purely attributable to
the containers diverted from Auckland, during the period of industrial action
up there. In the 2013 financial year, however, we increased our container
volumes again, to nearly 850,000 TEUs.
This slide presents the latest data from Statistics New Zealand on
international trade. The yellow bars highlight the import volumes, and the
green bars highlight the export volumes. Left to right, in terms of volumes,
we have; Tauranga, Whangarei (which includes the crude oil imports to the
Refinery), Auckland, Lyttelton, New Plymouth, Napier, Bluff, Gisborne,
Dunedin, Wellington etc. You can see that our total import and export
volumes far outstrip any other New Zealand port, and as the Chairman has
already mentioned, we can amortise our investment in dredging across a much
greater cargo base than most competitor ports.
The extraordinary rate of container cargo growth over the last few years, has
led us to invest heavily in improving capacity at the terminal and in April
the Prime Minister officially opened a major expansion at Sulphur Point.
We expanded the container wharf length by 170 metres, installed a new
Super-Post Panamax container crane and grew our landside cargo capacity.
A seventh container crane has been ordered for delivery early next year, and
we've also boosted our fleet of straddle carriers and drivers.
In March this year, the Minister of Conservation granted consents to proceed
with our dredging project to prepare for larger ships. The efficiency gains
of these larger ships are estimated at more than $300 million per year for
our exporters and importers. These sorts of productivity gains will be
essential if New Zealand is to achieve the Government's goal of increasing
exports from 30% to 40% of Gross Domestic Product.
A range of environmental projects have been instigated in association with
the dredging plan, including a new trust involving Iwi, which will fund
projects to enhance and better understand the harbour. We have also been
making positive progress with the Tauranga Moana Iwi Customary Fisheries
Trust in developing a Kaimoana Restoration Programme.
Detailed design work is currently being finalised and we expect to commence
the first stage of dredging later next year. This is expected to cost us in
the region of $50 million, and will make us the first New Zealand port able
to host container ships with a capacity of 5,000 to 6,000 TEUs at low water
tides.
But it is not just container ships that are getting bigger. Dredging will
also allow larger bulk cargo and cruise ships to visit Tauranga and already
we have a number of our bulk cargo customers talking to us about utilising
larger ships.
Last year we had regular calls from 312 and 317 metre cruise ships - the
largest ever to visit Tauranga - and we sent our pilots to Australia for
specialised training to ensure they could handle these ships in all weather
conditions.
Now for a detailed review of our results for the 2013 financial year:
As mentioned by the Chairman, total trade increased 3% to more than 19
million tonnes in 2012/2013.
Total exports increased by 6% to just over 13 million tonnes.
Log exports grew 14% to just over 5.6 million tonnes.
We are working with log exporters to maximise stock turn and storage capacity
and we have removed another storage shed to create further marshalling space
for ship loading. We have also now sealed all existing log storage areas.
This slide shows the significant harvest profile step in the 11-20 year age
class of the national production forests, which should translate into greater
export volumes over the next five years.
Industry consensus is that exports will continue to grow, on the back of
strong demand from China which now receives nearly 60% of the logs exported
from Tauranga.
Other forestry exports were down slightly. This was due to increases in
domestic demand as well as reduced supply from some manufacturers.
Dairy product exports grew by 27% to 1.6 million tonnes due to the
consolidation of Fonterra/Kotahi cargo through Tauranga.
Frozen meat exports also increased in volume by 8%. I would just note here
that over the last two years we have increased container slot capacity by 30%
and refrigerated container plugs by 60% to accommodate growth in these types
of cargoes.
The ongoing effects of the PSA virus saw kiwifruit export volumes fall 8%,
although we expect some recovery in these volumes in the next year or two.
And you will see from this slide, that Zespri's forecast volumes out to 2025
are looking very positive.
Total imports were down slightly, reducing 3% to just over six million
tonnes. This was primarily due to reduced demand locally for fertiliser and
grain - due to the 2013 drought.
As already mentioned, the number of containers handled increased 7% to
848,384 TEUs. The container terminal now hosts 16 separate international
services - more than any other port in the country. Shippers are recognising
that Port of Tauranga offers a quicker and more flexible route to
international markets, thanks to the frequency of these visits and our
world-class productivity.
Trans-shipment is where containers are transferred, from a vessel into the
container terminal and then out of the terminal again, usually onto a larger
vessel (or vice-versa for imports).
Trans-shipped container numbers increased by 12% over the year, or 109% since
2011, where they now represent a quarter of all the containers handled at the
terminal. This shows a clear trend to our consolidation as New Zealand's hub
port.
Our new berth extension at the container terminal allows us to accommodate
three large vessels simultaneously. For our customers, that means a greater
choice of berth windows, booking flexibility and greater crane intensity for
loading and unloading. Tauranga has long had a reputation for flexibility
and efficiency in this area so I am pleased we have moved to enhance that
capability.
We have continued our strong focus on efficiency and it is pleasing that we
have maintained upper quartile crane productivity, improving our average net
crane rate to of 34.5 moves/hour (as measured by the Australian Productivity
Commission), for all cranes, on container vessels throughout the year.
We will be able to further increase our crane productivity, once our seventh
crane is commissioned next year, and also as we utilise twin-lifting more
often. Our net crane rate year to date is sitting around 37 moves per hour
and recently we managed a vessel rate of 95 moves per hour with three cranes,
or an average net container rate of 38.7 moves per hour.
We have increased the rail sidings at Sulphur Point, so we can now load and
unload three trains at once, again giving us much more flexibility.
In July this year, Tapper Transport acquired Priority Logistics for $10
million, which will provide our Tapper transport expansion into the Tauranga
market.
I mentioned earlier our evolution into a national hub port. We consider our
agreement to acquire a 50% stake in PrimePort Timaru and terminal concession
to operate 100% of the container terminal a fantastic opportunity and another
building block in this strategy. It gives us the opportunity to marshall
South Island cargo to be transshipped through Tauranga on its way to overseas
markets.
Exporters will have more choice and be able to access the economies of scale
from larger ships that I referred to earlier.
Timaru District Council now has all the necessary statutory approvals and we
will take over the Timaru Container Terminal in December.
We see significant growth potential in the mid to south Canterbury region.
It has a number of large scale irrigation projects planned and a burgeoning
dairy industry as well as primary produce processing, fishing and forestry
companies.
We are always looking for opportunities to increase our strategic land bank
to cater for future growth. We have managed to acquire a number of properties
during the year, increasing our Tauranga property holdings by 3.8 hectares,
giving us a total of 190 hectares.
The most significant land acquisition was the Gateside Industrial Park
adjacent to MetroPort in Onehunga. This 6.8 hectare property includes three
large industrial warehouses, an office building and more than two hectares of
vacant land, which will provide us future options as we expand our service
offering around our South Auckland freight village.
We do have a fantastic bunch of people working at the Port - again it remains
my view that it is our "Port People" who generate the Company's greatest
source of competitive advantage.
Throughout the year we have recently welcomed some new members to the
Company's management team. Property & Infrastructure Manager, Dan Kneebone,
has joined the Senior Management Team from Bunnings Limited, where he was
their National Property and Development Manager.
Commercial Manager, Leonard Sampson. joins us from KiwiRail where he was
their General Manager - Sales.
We have also farewelled a number of staff. Dan's predecessor, Tony Reynish,
retired at the end of 2012 after 25 years in the business. Later this year
we will say goodbye to retiring Commercial Manager, Graeme Marshall. He has
spent 16 years with the Company and can be credited with having greatly
influenced the way Port of Tauranga conducts itself as a customer-driven
business.
This slide shows ACC claims history by port. Port of Tauranga (the green
column) does have the lowest ACC claims history of any port and less than
half of the New Zealand port average (the red column). However we were
disappointed to incur five lost time injuries during the year, which we
consider is five too many and we aspire to provide a zero harm work place.
We will continue to insist that safety is our number one priority. Above all
else, we value human life and expect that all of our port colleagues will go
home to loved ones at the end of the shift in the same condition they entered
the port gate.
Lastly, I would like to pay tribute to our retiring Chairman.
John's inclusive and no-nonsense style ensures that we, the Senior Management
Team, have been empowered to deliver on the Company's vision and growth
strategy.
He has always been supportive of Management in pursuing innovative and bold
measures to grow the Company's position in the supply chain, whilst employing
a sound and steady hand to preserving shareholder value.
We were proud that John received the NZ Shareholders' Association Beacon
award last year for outstanding performance in leadership and guidance in
corporate practice, bravery in standing out from the crowd on controversial
issues, putting the concerns of others first, treating the small shareholder
with the respect of a business owner, and ensuring fair and equitable
outcomes for all.
All of us at Port of Tauranga, and in the wider port community, wish John
well for the future and thank him for his worthy contribution.
In closing, I will outline our trading performance for the first quarter of
this financial year and contrast it with the same period last year.
We have trade up 6%, log exports up 34%, and containers down 13%, largely due
to the lag in dairy exports associated with the botulism scare and also the
loss of the import container service. We have Net Profit After Tax the same
as the prior corresponding period.
Kotahi have advised that they expect export volumes to significantly increase
over the next few months and provided there are no significant market
changes, we expect to achieve full year earnings in the region of $77 to $81
million.
Finally, I would like to thank most importantly our customers. They have
supported us in meeting our challenges and aspirations - by working together,
we have created New Zealand's Port for the Future.
And thank you ladies and gentlemen, for your attention this afternoon.
Mark Cairns
CHIEF EXECUTIVE
End CA:00242831 For:POT Type:ADDRESS Time:2013-10-24 14:40:56
