Port of Tauranga

AGM Speech by Jon Mayson, CEO of Port of Tauranga Limited

Posted on 31st October 2005

Port of Tauranga Limited Annual Meeting
31 October 2005

Jon Mayson, Chief Executive

It has been another challenging year for our team. On this occasion last year, I reported that we had been able to respond to the predicted challenges in the key markets of our operating environment. Our focus on creating a diversified, robust and flexible organization had provided a sound structure which withstood pressure while continuing to grow.

At the same time, I acknowledged the challenges which then lay ahead, and renewed the commitment of your management team to the strategic policies in place, and to the Vision and Values to which we have subscribed – and which have stood us in good stead in both rich and leaner times.

The most significant impact on our results, once again, has been the continuing downturn in the forestry sector.

This nationwide situation, in conjunction with reduced volume through Tauranga, has had a direct impact on the results of two of our key investments, our 50% interest in Toll Owens and our 50% interest in Northport, both of which I will come back to later.

The end result, as described by the Chairman, has however, delivered a net profit in line with last year, a relatively good result in the circumstances.

Operational results
Total cargo through the Port during the year was 3.1% greater, at 12.6 million tonnes. Import cargo volumes rose by 22.6% to 5.3 million tonnes, accounting for 42% of total trade through the Port and offsetting a fall in export volumes, which were down by 8.6% to 7.3 million tonnes.

Forestry-related exports generally continued their decline during the year with log shipments back 20.2% to 2.3 million tonnes. Our market share, however, remains steady. Sawn timber, wood panel and wood chip exports all reduced, although paper product shipments were 30% higher and wood pulp volume was up 7%.

Offsetting this was strong growth in other export products, principally the shipment of kiwifruit, which rose 8% to 646,000 tonnes; apples which rose 28.5% to 36,000 tonnes; and milk powder exports, which were 7.3% greater at 686,000 tonnes.

Total dairy volumes, however, were down 41,000 tonnes on last year, although again, our market share remains steady at just under 50%.

Our predominant position as New Zealand’s largest export port remains unchallenged.

Imports of oil products increased by 15.9% to 1.1 million tonnes, fertiliser by 23% to 614,000 tonnes and grain by 9.4% to 227,000 tonnes. Cement imports were another strong performer during the year, rising 30.8% to 149,000 tonnes. Coal shipments, as mentioned above, rose 32.8%. When our export and import volumes are combined, the Port of Tauranga, in volume terms, is far and away New Zealand’s largest port - second only to Auckland in container throughput.

MetroPort
The Port's overall container traffic growth rose by 11.1% during the year, to 438,214 TEU with our market share continuing to climb. This reflected in part the continued success of the MetroPort operation in Auckland. Container shipments through MetroPort were 53% higher for the year.

At MetroPort itself, we have expanded facilities to increase capacity and improve the flow of containers by rail between MetroPort and Sulphur Point.

We have more than doubled the container capacity, installed new computer systems and added two more rail sidings to service 100 TEU trains and improve train turnaround.

While MetroPort is ideally located in relation to the manufacturing and distribution centres of South Auckland, the operation's success is fully dependent on its continuing efficiency and this remains management's primary focus.

At the close of the year, truck turn times were running between 13 and 16 minutes, a significant drop from a year earlier, when they were running nearer to 20 minutes.

Our intention, as always, is to remain well-positioned for growth, and to maximize opportunities arising from the expectation of an upturn in the next two to five years.

In dealing with the challenges of the present, we have been careful to focus as clearly on the future as ever. As the Senegalese proverb says: “Opportunities don’t wake those who are sleeping”. We have no intention of dropping our alertness levels and allowing any opportunities to slip past.

And so, a number of significant investments have been made in upgrading and improving the quality of the Port's working assets. Both financial and operational infrastructures have been addressed, to ensure we are wide awake and capable of taking advantage of any improvement in market conditions.

These have included building and commissioning the new $32 million coal handling facility. While generating significant income, this facility has also delivered environmentally. Through using rail rather than road transport, and being an enclosed operation, we have avoided any adverse environmental impact - a particularly pleasing outcome in the light of the nature of this operation.

Coal tonnage through the Port during the year rose from 663,000 tonnes to 880,000 tonnes (an increase of 32.7%). Now that the facility is fully on stream, we expect to better this figure in the current year.

Trains hauling 1,500 tonnes of coal are now servicing the 70,000 tonne facility, delivering to the stockpile at Huntly.

In addition to investment in coal-handling, we also commissioned the fourth container crane at Sulphur Point and refurbished the Port's three gantry cranes.

This enhanced crane capacity ensures that the container terminal is well-placed for any future increase in throughput. We have also continued upgrading the straddle carrier fleet with the addition of three new Kalmar diesel electric straddles. The rail interchange at Sulphur Point has been extended to cater for 100 TEU trains and the traffic management systems have been improved with the purchase of 4 terminal tractors and trailers.

Our financial infrastructure was addressed by investment in a new accounting system, which went live on 1 July this year. This replaces a system used since 1991 and which was beginning to struggle with the ever-increasing complexities of the Port's business and the information needs of modern management practices.

One immediate benefit of the new system is improved reporting capability: this will enable management to more readily identify and analyse profitability within the business and add to the quality and timeliness of decision making.

So what of the future?
As the Chairman has already highlighted, the financial performances of our subsidiaries are having a major impact on our overall performance as a group. Both Northport and Toll Owens, our recently established joint venture, are heavily dependent on the forestry sector. At a time of difficult market conditions, ownership changes in the forestry sector, exchange rate challenges and a greatly reduced cut in light of extending the forest age profiles, it is not unexpected that these companies are not currently achieving an appropriate return on investment. Both companies are very well managed: they are both cost-efficient operations and both are well-positioned to return to more acceptable levels of financial performance once the forestry sector rebounds, as we would expect it to, over the next 2 – 5 years. In the case of Toll Owens, management is pro-actively diversifying the business to lessen their dependence on the forestry sector. It is pleasing to recognise the appointment of Sean Bolt, previously manager of our container terminal before spending 2 years as Chief Executive of port Marlborough, as the incoming of CEO of Toll Owens.

Obviously, with a slow down in the economy and the continuing struggle that all exporters face with the inflated value in international terms of the New Zealand dollar, we are facing a plateau in terms of growth, both in volume terms and consequently financial performance. This is not unique to the Port of Tauranga: all other ports are feeling the effects as well. Having said that, no other port in New Zealand is better positioned across the board to grow its business when the climate changes than Tauranga. We have made the investments for growth in both monetary and human terms and continue to find innovative ways to stay in front in terms of cost efficiency, despite the impact of rising costs, particularly relating to compliance and energy.

The ports industry also faces the potential of major change in the way our off-shore markets are serviced. The takeover of P&O Nedlloyd by Maersk to create the largest container line in the world and the subsequent takeover of CP Ships by Hapag Lloyd will undoubtedly force a major shakeout of current alliances, conferences and shipping services. It is too early at this juncture to safely predict what the impact of these changes will be, except to say that in the short to medium term, there will no doubt be rationalization of the way the shipping lines on our major trade routes will service New Zealand. It is not beyond the realms of possibility that port calls over time will be reduced with greater aggregation of cargo at one or two major ports; commonly referred to as hub ports, larger vessels may well service New Zealand ports, at deeper draughts, loading larger volumes at fewer ports. As a consequence, the entire logistics chain within New Zealand may be forced to change drastically to meet the challenges. Already we are seeing a major change in the way Fonterra, for instance, is aggregating volume at Te Rapa for packing out. Aggregation from the manufacturing plants is now by rail shuttle instead of road transport to their massive store where product is containerized before moving by rail to the export port. Impending decisions by the shipping lines, in conjunction with their major customers, will play a major role in this and other ports’ futures. Let me reiterate: the Port of Tauranga is well-positioned and we are confident that our relationships with our customers, the importers, exporters and shipping lines and our service partners Toll Rail, will stand us in good stead for whatever changes lie ahead and I remain very optimistic about our ability to remain at the forefront of New Zealand’s ports’ industry.

Having said that, I am also pragmatic enough to recognise that the first 3 months’ trading of this financial year, albeit that we are in a holding pattern over shipping services, does reflect a slowing economy and tighter trading conditions. The group surplus reflects again the impact at Northport and Toll Owens on our business but despite our current position, there are no trends in our trading that are cause for major concern. It is appropriate, nevertheless, in a climate of continuous disclosure that this information is available to you, our shareholders, as the Port faces a time of change, and in light of the first three months’ results. I am not unhappy with the analysts’ predictions as to our year end position of between $28.6 million and $30.4 million.

Changes at the Port
In considering the options for securing the company’s future over the past year and in planning the detail around each project with the management team, I have been mindful of another future issue.

In choosing to step down from my role as your Chief Executive, I hand over both the responsibility for the company’s success – and the opportunity to be part of it. Many of you will have been with this team for a good part of our tenure. The Port has, in fact, been part of some of our lives far longer than it has been a public company.

I know several faces in the audience this afternoon who have been around to see some of the tremendous changes this business has undergone in the last 30-plus years.

When I came ashore in 1972, containers were only just emerging as a viable form of transport. From that, to the over 400 thousand TEU exported through Tauranga this year. It’s not surprising then, that there have been so many structural and organizational changes as well:
- The change from a Harbour Board to a commercial, listed company.
- The extremely traumatic waterfront labour reforms, which changed the nature of the business so completely, in a painful but necessary transition
- The direct challenge offered by Tauranga to Auckland’s dominant position in the ports industry, and the dynamic and exciting environment that has provided for us – and for all North Island ports
- The expansion of the port onsite, across to Sulphur Point and of course to MetroPort
- The building of strategic relationships with customers and service providers, in a way foreign to the business practices of history
It was through relationships of that nature that were able to make strategic investments of more recent times, such as the operations in NorthPort and Owens, and this year’s JV with Toll.

Change has been – as it should – the constant of the growth period I have experienced at the Port. This year we witnessed another change. Although we have restricted access to the wharves increasingly over the years as safety and property protection have made it necessary, this year has seen the largest imposition of security ever, as a result of the challenging global environment.

Despite our natural regret that the public no longer has the access of the days when it was possible to fish off the wharf, we are proud of the efficiency with which our staff undertook the process of security accreditation. Your port is now, with other New Zealand ports, able to supply the security environment demanded by our international trading partners.

It’s a rare privilege afforded a Chief Executive to preside over years as both challenging and rewarding as the ones I’ve been given. And for nearly a decade of that, I have had the unique advantage of the best management team in the New Zealand ports industry. As the one with the leadership role, I have been empowered and supported by them in equal quantities.

Please allow me to introduce the team which plays the game hard but with professional skill, personal passion and total commitment:

These are the people who remain on the bridge, as the helm passes into other hands. From the stakeholder perspective, you have seen the value of the company grow under their combined focus and we have secured the respect of the market.

The company is imbued with a culture which has stood us in good stead – a culture displayed openly in our vision and mission statement and our declared values – and your team will continue to operate within that culture.

I have been fortunate, too, that our business home is this community in the Bay of Plenty. We have made a contribution to it, we have enhanced it and we have done so with the co-operation of the community itself.

Tauranga Moana iwi continue to be supportive, open and co-operative and I have enjoyed enriching relationships with, in particular Ngati Ranginui, Ngaiterangi and Ngati Pukenga. Their contribution and their recognition of the value of the Port have possibly been greater than the general public would appreciate.

Similarly, we have had positive interaction with the local territorial authorities and the University of Waikato.

Our closer community should be recognized. Our port partners – the stevedores, marshallers, shipping agencies, transport operators (both road and rail) and the border control agencies – are the people who, by their own professionalism and attitude contribute to the Port’s health. And more than all of these are the rest of the team – the Port staff. They have created a working environment combining capability and camaraderie, and they have pursued the joint vision at a personal level. I have been privileged to enjoy their support.

And of our customers, I can only say a heartfelt thank you for your support, encouragement, commitment and commercial realism. It has been a pleasure working with you all.

I am sure you will allow me a moment for a few personal words. There are many people who have contributed to the success the Port has enjoyed – but some have also made a difference, on an individual level, to the way in which I have been able to carry out my task.

The former Chairman of the Board, Fraser Mckenzie provided a leader’s leadership. He always offered incredible support, and together with the directors I have worked with, his team always had the courage to see that the Port of Tauranga could be a vanguard of change, a legacy ably continued by your current Chairman John Parker. They have given their Chief Executive considerable rope, with a hefty bit of belaying from solid ground.

In the Ports industry, at least in New Zealand, women have remained in the minority at executive level, although the anomaly is slowly being rectified. I should like to pay a special tribute to two women, skilled professionals who have provided not only management expertise, but also valuable advice and input to your executive team. Good stage managers make the whole show work. Their ability is respected by insiders – but they are seldom seen or appreciated by the audience. Both Ann Raymond, my former PA for 9 years, whom many of you will be happy to see back here for this occasion from Rarotonga, and Rosemary Treloar, my current PA, fall into this category. They take the risks along with us, they go the extra mile, they share the passion for our task. And they have made a positive difference.

Ultimately, I hope that as your Chief Executive I have done the same – but if you believe so, I hope you will understand the extent to which I have been supported by all the people I have mentioned. More than any, however, I should like to pay tribute to the most important strategic relationship of them all – the ones I share at home. Bev and my family have always given unfailing support, often in difficult circumstances. They have shared the stresses and the celebrations, understood the sacrifices and, possibly too often, put their own needs last. To them I owe a huge debt of gratitude. And a lot more time.

Mr Chairman, Ladies and Gentlemen: It has been a rewarding journey and although I’m getting off at this anchorage, to chart a different course, I am confident that you are in good hands.

In thanking you for your support – and I have received a level of support from the Port’s shareholders unusual in the commercial environment – I ask that the same generosity be afforded to my successor.

I should like to introduce Mark Cairns, who will stamp his own identity and style on the Port and I look forward to watching and cheering from the wharf. Mark will say a few words – the helm’s all yours, Mark.

Jon Mayson
CHIEF EXECUTIVE