David Pilkington, Chairman:
The past year has seen us make excellent progress towards our strategy to develop New Zealand’s Port for the Future. Our dredging project to deepen and widen the shipping channels of Tauranga Harbour is complete. This will bring our five year, $350 million capital expansion programme to a conclusion.
Already, we have seen this investment come to fruition with the successful maiden visit two weeks ago of the Aotea Maersk. This ship is 347 metres long (or three and a half rugby fields long), 43 metres wide and capable of carrying 9,500 TEUs or twenty foot equivalent units. To put this in context, until now, the biggest ships visiting the port have had capacities of around 4,500 TEUs.
Our Chief Executive, Mark Cairns, will talk to you shortly about our operational performance for the year, but first I will touch on the financial highlights.
I am pleased to report Net Profit After Tax of $77.3 million. Although this is 2.4% less than the previous year, it is a good result given the million tonne decline in log export volumes. We also had a significant increase of $2.4 million in depreciation charges as a result of our investment in infrastructure.
Parent EBITDA rose 2.2% to $125.7 million. This followed a 12.1% increase in container volumes, to a record of over 954,000 TEUs.
Our reported revenues fell to $245.5 million, due to a $32 million decrease in revenue caused by having to equity account Tapper Transport following merging it into our Coda partnership.
We have announced a final dividend of 30 cents per share, lifting the annual dividend to 53 cents per share – an increase of 1.9%.
You will also be aware of the special dividend announced in August. This special dividend of $34 million, or 25 cents per share, is part of a capital restructure aiming to return up to $140 million to shareholders over the next four years, dependent on our requirements to fund any new future growth initiatives over and above those currently planned for.
The capital restructure will ensure that we retain a conservatively geared balance sheet, that we remain financially strong with a strong credit rating, and that we can return excess capital to you in a tax efficient manner.
On Monday this week, we undertook a five-for-one share split.
We decided on the share split based on feedback from our retail shareholders, as well as the analysts’ community, and we believe it will enhance our liquidity in the market.
I would like to comment on the year’s performances across the Group, as well as what we can expect in the short to medium future.
Our new Coda Group brings together our subsidiaries Tapper Transport, Priority Logistics, MetroPack and MetroBox, as well as Kotahi’s Dairy Transport Logistics.
Coda is making good progress at eliminating waste in the domestic supply chain, and ensuring that truck and train trips are full in both directions. Coda has recently opened one of the country’s largest intermodal freight hubs at Savill Drive in Auckland, to consolidate export, import and domestic cargo.
Our investments in PrimePort Timaru and Timaru Container Terminal are going very well, with container volumes now having more than quadrupled since 2014.
PrimePort has recently celebrated the opening of Holcim’s new South Island cement distribution hub at the port.
Northport had yet another good year, with cargo volumes increasing 6.7% to a new record. Northport has plenty of room to expand and is progressively developing paved storage areas.
Quality Marshalling had a good year, more than doubling earnings, and has taken a new strategic direction exiting the forestry marshalling sector and focusing on opportunities in niche cargo handling – such as at PrimePort’s new cement hub. It has also expanded its container handling services and equipment.
We expect our long-term alliances – with the likes of Oji Fibre Solutions, Kotahi, and more recently Zespri and Tauranga Kiwifruit Logistics – to continue to drive cargo growth, especially in container traffic. These initiatives also shelter us somewhat from swings in individual cargoes, such as last year’s significant reduction in log exports – a decline of more than one million tonnes.
Our $350 million investment programme, our extensive land holdings in Tauranga, and our rail-linked MetroPort facility in Auckland, have readied us for this future expansion.
Many of you will be aware of the future port study recently undertaken on behalf of Ports of Auckland, in a bid to address the capacity constraints on the existing facilities there.
One of the proposals outlined in the plan is that of a new mega port on the Firth of Thames to accommodate Auckland and Tauranga cargo growth over the next 50 years.
We have seen no economic justification for this idea, nor have we been privy to the assumptions that led to it. What we do know is that we can significantly expand the volume of imports we can deliver into Auckland, without adding to traffic flows in downtown Auckland. Ultimately, we believe the market will drive any rationalisation required, and we are about to see the efficiencies that can be had from the arrival of bigger ships.
I would like to thank my fellow Directors for their contributions this year, especially our relatively new Board members Doug Leeder and Julia Hoare.
At today’s meeting, Bill Baylis and Kim Ellis retire by rotation and seek re-election. Both have the unanimous support of their fellow Board members.
I will hand over now to Mark to expand upon the cargo trends and operational highlights of the 2016 financial year.
Mark Cairns, Chief Executive:
Thank you Chairman. Good afternoon Ladies and Gentlemen. I am privileged to be Chief Executive of New Zealand’s largest and fastest growing port, and proud to report to you on another successful year for our Company.
The past year has been significant in completing the dredging project, which was the final building block in our $350 million capital investment programme, for the port to be big ship capable – a strategy that we have been planning and successfully executing over the last decade.
The strategic partnerships that we have developed with major exporters such as; Oji Logistics, Kotahi, and more recently Zespri and Tauranga Kiwifruit Logistics, have given us the assurances that we needed to commit to our expansion programme on a rational economic basis.
On that note, it has been extremely pleasing to see our new infrastructure being utilised so quickly, after the decade of planning and building the infrastructure necessary.
Port of Tauranga is the first New Zealand port able to berth ships the size of the Aotea Maersk. The efficiencies that these larger vessels bring are significant, with the associated savings in both fuel usage and carbon emissions critical to ensuring shipping services are sustainable – both commercially and environmentally.
Being big ship-capable also enables New Zealand to be included on more mainline shipping routes. The enhanced Maersk Triple Star service will stop in Tauranga en route from South America to North East Asia, giving New Zealand exporters express, direct access to Taiwan, China, Korea and Japan.
The dredging has not only been undertaken for container ships. During the year, the world’s largest log ship, the Ultramax class SBI Maia, was chartered by TPT Forests and made its maiden voyage to the port. TPT managed to load 53,000 cubic metres onto the vessel, in what is believed to be the largest single shipment of logs and lumber – around 75% more than an average sized log ship.
Cruise ships are always welcomed by the local community and contribute around $40 million of cash receipts to the region over the season.
We are in for another bumper cruise ship season this year, and following the dredging completion, the giant cruise ship Ovation of the Seas will be making her maiden visit on Boxing Day this year and then call another two times during the summer. This Royal Caribbean vessel is 347 metres long, 50 metres high and will bring nearly 4,900 tourists to the Bay of Plenty. It should be quite a spectacle coming around the Mount, for Mount Maunganui and Tauranga locals.
I have mentioned that our channel dredging project was completed in August, ahead of time and under budget. At low tide, our shipping channels are now 14.5 metres deep inside the harbour and 15.8 metres outside the harbour.
Of course, there’s not much point in expanding our capacity in the harbour without ensuring that we match our landside operations to be able to cope with much larger transfers of cargo, required when servicing larger ships.
We have increased capacity to more than 5,000 container ground slots at the container terminal, with refrigerated container connections now numbering more than 1,800.
We are demolishing Shed 12 at the Northern end of the Terminal and reconfiguring the layout to add a further 650 ground slots for containers and to provide our long term partner Oji Fibre Solutions with a new enhanced 22,000m purpose-built facility, at the southern end of Sulphur Point.
Two additional ship to shore cranes and 13 additional straddle carriers have been delivered, and following the retirement of Crane #1, the oldest Leibherr crane in the world at 38 years young, we will have an eight crane fleet servicing three berths in the container terminal by the end of the year.
The new super post-panamax cranes will allow us to continue to improve on the world class levels of productivity through the Terminal.
Our best vessel productivity over the year was achieved on the ANL Barega at a sustained 127 moves / hour over the vessels exchange.
KiwiRail are crucial business partners of the Port. In Auckland, KiwiRail is investing $15 million in upgrading the facilities at MetroPort, which include; expanding MetroPort’s footprint, additional container reach-stackers, and installing a new entrance and gatehouse. We’re very happy about this, as MetroPort saw a huge increase of nearly 40% in container volumes during the 2016 financial year. We are also working with KiwiRail to implement a vehicle booking system early next year to improve truck turnaround times at our South Auckland freight hub.
It is worth noting that our partnership with KiwiRail has seen cargo volumes equivalent to more than 450,000 trucks trips transported between Auckland and Tauranga. From a Government Paris Accord commitment perspective, this saves around 21.3 million litres of diesel and 58,000 tonnes of carbon emissions over the past year alone.
Meanwhile, in the South Island, we are also handling record numbers of containers through our associate company, Timaru Container Terminal. The Terminal handled an all-time record of more than 84,000 TEUs – an increase of 18% on the previous year and more than quadrupling the volumes since we took over running the terminal in 2014.
Our South Island-based customers can now use MetroPort Christchurch, which we have modelled similar to our MetroPort Auckland operation, and which we have successfully grown from zero business in 1999, to handling more than 260,000 TEUs this year, making it the fourth largest container terminal in New Zealand.
I will now quickly recap on the cargo trends that we observed during the 2016 year.
Total trade decreased slightly (or 0.3%) to 20.1 million tonnes, largely due to the million tonne decline in log volumes. Exports decreased by 1.2% to 13.1 million tonnes, while imports increased over the year, by 1.4% to seven million tonnes.
As I have mentioned, container traffic continued to grow strongly, especially in imports. Sawn lumber exports held their own, and pulp and paper exports grew 5% in volume.
Dairy exports were up 22% to just over two million tonnes. As a result of our collaboration with Kotahi, we now handle 99.5% of Fonterra’s North Island’s dairy exports.
Fertiliser base imports were down 10%, stock feed down 28%, and bulk liquids down 23%.
Kiwifruit has been a star performer, with export volumes increasing 21% and expected to continue growing at a strong rate.
During the year, we entered into a formal ten year partnership agreement with Tauranga Kiwifruit Logistics and Zespri to ensure that all parties take a long term perspective to providing the requisite infrastructure to cater for the future growth in kiwifruit. To that end, we have just let a construction contract to replace the aging 30 year old kiwifruit coolstore at Mount Maunganui.
One of my highlights for the year was the continuing improvement in our safety culture, with our Total Recordable Injury Frequency Rate reducing more than 60% to 5.6 incidents per million hours worked.
Our team’s heightened health and safety awareness has resulted in a 154% increase in safety-related observations – which signals to me a greater personal accountability for safety, with everyone looking out for themselves and each other.
We will continue to insist that safety is our number one priority at the port. 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 their shifts, and in the same condition that they entered the port gate.
I am immensely proud of our Port People, who provide the Company with our greatest source of competitive advantage. Our people work around the clock, in all weathers, and thrive on the challenges presented to them. They embrace our culture of continually striving to do things better and demonstrating an enduring “can do” attitude to doing business with our customers.
Before I wrap up, I’d like to update you on our performance in the first quarter of the 2017 financial year and contrast this with the same period last year.
A reasonably positive start to the year, with trade up 5%, log volumes up 16%, dairy volumes up 12%, and container volumes up 3%. We have Parent Net Profit After Tax up 10% and Group Net Profit After Tax up 6% on the prior corresponding period.
We expect to handle more than one million TEUs in the full year ending June 2017 and expect to see log exports recover to 2015 levels.
No matter the fluctuations in individual cargoes, we believe our diverse product mix, income sources and locations will protect us somewhat. We also believe our long-term freight agreements with major exporters give us some certainty to our planning and infrastructure investment.
Provided there are no significant change to market conditions, we expect to achieve full year earnings in the range of $79 million to $83 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.
We look forward to the remainder of the year, and the years ahead, with confidence.
Thank you Ladies and Gentlemen.
Chief Executive Speech
Annual Meeting Presentation