Port of Tauranga

AGM Speech by John Parker, Chairman of Port of Tauranga Limited

Posted on 31st October 2005

Port of Tauranga Limited Annual Meeting
31 October 2005
John Parker, Chairman

Ladies and Gentlemen – Good Morning.

It is with pleasure that I address you for the first time as Chairman of the Port of Tauranga.

One year ago, on this stage, Jon Mayson said that “the outlook for forestry exports is unclear and not promising” He was right. Indeed, we experienced a further 20% volume downturn in log exports, a situation that would, in a less flexible and therefore less robust organization have been a major issue. However, our diversification strategy, which we have told you about at previous Annual General Meetings, has been well executed over the past decade, and this has allowed Port of Tauranga to produce a stable net profit. That, with a 20% forestry downturn, is a very satisfactory result.

Our business now is much more diverse and therefore more robust. Non- forestry exports continue to grow, while imports have grown even faster. Indeed, for the first time, imports at 5.3m tonnes have exceeded the 4.4m tonnes of forestry exports.

But Toll Owens and Northport have done less well. There is a certain irony in noting that while both Toll Owens and Northport are both great diversification investments that will do very well in the future, they are at the same time both very exposed to forestry and so have diminished the effect of the parent companies diversification.

Financial Performance
Total revenue was down by 3.6 percent at $145.6m versus $151.1m for the prior year. This doesn’t signify a loss in business but now that Toll Owens is a 50/50 joint venture, the revenue is excluded from the group result while the EBITDa and profit figures, which I will give you shortly, include Port of Tauranga’s share of Toll Owens. That’s accounting for you!

At the operational EBITDa level, the result was little changed at $73.89 million against $73.90 last year. In other words our generation of cash was virtually unchanged.

Similarly, net profit, at $33.654 million, was little changed, being just above last year's $33.652 million. The $33.654m net profit included $4.0 million associated with a contribution from Genesis for berth-deepening and $0.46 million from the gain on sale of land to Gull. The land is to be used for tank construction to allow additional fuel imports of 30,000 - 40,000 tonnes per annum

The parent surplus after tax but before excluding one-offs, improved from $25.63m to $26.57m .

The parent company – that is, the Group with the exclusion of earnings from Toll Owens and Northport, has had a good year with profit, after excluding “one offs” increasing from $28m in 2004 to $31.3m this year.

Earnings per share are the same as last year, 25.1 cents with the overall return on equity 8.0%, and a final dividend of 13cents per share was paid on Friday October 7 2005, totaling 20cents for the year.

Our two associated companies illustrate the effect of the forestry downturn.

Toll Owens - the joint venture between the Port's Owens Cargo Company and Toll Logistics - combines Owens' log-marshalling business with Toll's stevedoring activities. The Toll stevedoring results are included from mid December 2004 only and given the inclusion of some restructuring costs, the advantages of the joint venture are minimal in this result. That is, the results are largely forestry dependant.
Northport, the joint venture entered into with Northland Port Corporation to build and operate a new port at Marsden Point, is largely dedicated to forestry exports and the down turn has had a substantial effect.

The following two overheads illustrate the point well.

You can see that the downturn in Toll Owens log throughput, from 7.2m tonnes in 2003 to 3.7m tonnes in 2005 is dramatic and that was the sole cause of the profit drop.

Northport’s drop in cargo throughput, from 2m tonnes in 2003 to 1.3m tonnes in 2005 is almost exclusively due to logs. It doesn’t look quite so dramatic but that is only because Carter Holt Harvey, the main customer, exported through Northport less than 50% of their budgeted volume in 2003.

So, what do we think of these investments now?

The old Owens Cargo company is extremely well positioned for the upturn we will see in log harvest - probably not this year or next but certainly in the future. The logs will be exported and they will go through Tauranga and Owens. The combination of stevedoring and marshalling that the formation of Toll Owens brings to New Zealand is long overdue. Apart from allowing the provision to customers of a seamless service, there are operational advantages in integrating the two activities across 11 ports and the resulting cost reductions should produce improving results over the next few years.

At Northport the results will also pick up dramatically as the logs start to flow again, but again it looks unlikely to be immediate. The future importance of this deep water port will make it a very important asset in the future; certainly Ports of Auckland believe so, having taken a shareholding in Northland Port Corporation and having begun to publicly discuss the likely future closure of a substantial portion of their bulk and general wharves as the city seeks land to expand commercial, residential and green space.

The Future
Most will be aware that Jon Mayson is stepping down and it follows a year after Fraser McKenzie retired as chairman. Lloyd Morrison retired during the year and the vacancy was filled by David Pilkington. The changes had been well anticipated and have been well addressed so we’re in very good shape both managerially and in terms of governance.

The company itself has a world class asset base. We can handle significant increases in container volumes in terms of space, container cranes, straddle carriers and management.

The resolution of the uncertainties surrounding Fonterra cargoes in particular that Maersk’s buyout of P and O Nedlloyd has caused, we expect to be resolved shortly and we are in a good position to gain some benefit.

Our traditional forestry business will turn up and of course we are fully geared for that. Other bulk cargoes continue to grow and we have the space to handle them. Should, or perhaps I should say when, Auckland sheds some bulk cargoes we are in a good position to profitably handle them.

The collective economic wisdom is that we are at the start of a national slow down in growth. At least we can expect a fairly flat economy over this next year so we won’t see the growth in our business that we have enjoyed in prior years. But we do not expect to go backwards and any slowing will be temporary. Flat economy or not, we will not be sitting about.

We will aggressively pursue new business and there are some prospects, and we will pursue efficiencies wherever they can be sensibly achieved but not at the expense of service levels and customer service.

Thanks.

I extend my thanks to all directors for their service during the year- it is particularly gratifying for me as a new chairman to have the diversity of skills and depth of experience to call on.

In similar vein the management team is first class and the staff are great – it makes the job of the chairman and the board so much easier. Thank you

I will now call on Jon Mayson to present the Chief Executive’s review but I will, on behalf of the board be saying some words to and about Jon Mayson a little later.