28 Oct 2004
Fraser McKenzie, Chairman
Shareholders, Fellow Directors, Executives, Ladies and Gentlemen,
I do not think that anybody would disagree with me that the perception of the Port of Tauranga by different people would focus on various aspects of the Company.
If your interest was in cargo, you may focus on the rates of loading or unloading, cargo tracking or damage.
If your interest is in shipping, your focus may be on draught, tug or pilotage rates and daily service fees.
If you were a shareholder, and I presume that all of you are, you will focus on share price, dividend, analysts' report and maybe form your own view of the Company's future earning potential.
I mention these differing aspects because two weeks ago at the Tauranga Business Awards, this Port won the award for its "Outstanding Contribution to the Primary Industry Sector".
We were nominated by Zespri International, a company that exports over 400,000 tonnes of product over our wharves each year.
And this very evening in Melbourne, the Port is one of 3 finalists at the 9th Australian Shipping & Transport Awards ceremony in the category "Most Innovative Port in Australasia". I wouldn't be so presumptuous as to say that we will be the winners, but I would congratulate the executive team for these accomplishments and ask you all to show your appreciation.
And now to the results for the year just concluded.
You will recall that last year we had an impressive lift in the number of shareholders (from 4,300 to 6,300) following the sell-down by Infratil and hence the greater availability of shares. This year, Infratil have sold down further to just 6% and RECT have sold down from 5% to barely 1%. This has allowed shareholder numbers to climb to a new high of 7,927.
For the year, total revenue showed a modest increase of $5 million, which, when considering the drop in log volumes of 1 million tonnes at Tauranga alone, and the major impact on the Owens Cargo Company who saw log volumes drop by 2 million tonnes across the country, then it is not too bad. I remind you that the 2002 figure shown included just 5 months of Owens' revenue.
Those total revenue figures flow through to the EBIT graph with just $3 million increase, and on to one that really interests you all...
The Surplus after Taxation. The abnormal item shown relates, as you will recall, to a book entry profit on the formation of NorthTugz last year and this year to the sale of land at and beyond the slipway to the Tauranga City Council - a sale which generated real money.
The next slide shows the Subsidiaries' Surplus After Tax. Previously we have not split this out publicly but a shareholder asked for this last year. Neither have performed anywhere near expectations as both companies have been badly hit by the drop in log volumes. Nevertheless, I remain confident about the future of both these investments. You will have read about the potential for a huge new timber mill for Carter Holt Harvey - possibly at Marsden Point but certainly in Northland which will help the Port there. The Owens Cargo Company has been subject to massive rationalization in the 2 years 9 months that we have operated it and I warmly congratulate CEO Mark Cairns for the impressive and difficult job that he has done - thank you Mark.
It is now probable that from 1 December this Company will move into a new joint venture with Toll Logistics to become an independent company 50% owned by Port of Tauranga. In that new Company, we will have involvement in every port in New Zealand in a wider range of services and in which we see a greater potential for growth. It will be known as Toll Owens Limited.
On this next slide, you see the relativity in Surplus After Tax for the parent, Owens and Northport. You will observe growth in the Port Company's contribution but a decline in the subsidiaries.
This next slide shows the total dividends paid out by the Company. You will recall that with the share buy-back followed by the 2 for 1 share split in 2001, long-term comparisons in actual dividend per share are not practical.
From last year, dividend has lifted 11% from 18 cps to 20 cps. Last year's lift was 9%. Thus we have maintained the promise of steadily increasing dividends per share within the parameters of prudent management.
I do accept that fewer than half of today's shareholders are original investors. However, what I can show you is that $1,050 invested in 1992 has earned $3,085 in cash in the past 12 years and that investment is today worth, at a $5.50 per share price - $9,625. Not too bad!
My final slide shows the effect of the revaluation exercise completed at the end of the financial year, the resultant increase in equity from 52% to 67% and the impact on the return on equity.
I will now ask CEO Jon Mayson to go through the operational highlights of the year and perhaps give you a feel for the first quarter of this year.
Jon Mayson, Chief Executive
With the challenges which have faced us this year - challenges which we indicated to you at our last meeting would provide us with an eventful 12 months - we realise that shareholders may have experienced some anxiety. There were times when media coverage about key markets in our operating environment, particularly the severe downturn in the key forestry sector, may have seemed to dominate over other factors which influence our performance.
And indeed, despite reporting yet another profitable year, I acknowledge that we have had one of our most challenging years as your management team. But as the old English proverb says: "A smooth sea never made a skillful mariner".
Without opportunities, no-one can do business. Without challenges, any old one can do business.
And for that reason I would like to take a moment to acknowledge the very special team which gets the business done in rough seas and in smooth, which regards opportunities and challenges as flip sides of the same coin, and which addresses both with the responsible skill of master mariners. I am extremely grateful that during the past year, possibly more than in most, I have had not just any old people, but these particular people, around me.
In rising to the challenge, your team has operated within a guiding framework of a set of operating ideals, or a chosen culture if you like. Outside of all the legal and ethical requirements as well as the standard principles of best-practice, we act with an attitude driven by this culture. Like all social or corporate cultures, it can be difficult to describe, but I'll summarise it:
- Preparedness - through awareness of, and insight into, our industry.
- Flexibility - though encouraging rapid reaction to opportunities, and creative solutions to challenges
- Long-term thinking - through the consistent drive to diversify, and avoiding the soft option of specializing, or staying in our comfort zone
- Continual reinvestment in staff expertise, enthusiasm and innovation
- Commitment to strong partnerships and open communication, with customers
In going about our daily business, we expect our staff to rely on these principles to underlie all actions and decision-making - and your management team does the same. The result is that, over time, we have created a robust and flexible organization which not only survives, but copes efficiently with testing times.
Before I move on to the nuts and bolts of my report on operating results, I'd like to pay tribute to one of the many loyal members of the staff, someone who epitomizes the unique spirit of our company.
In the 21st Century, corporations have come to accept high staff turnover as the nature of business. We don't - because we don't experience it. Port people tend to stay around - and we believe that's because we add value to their lives as much as to our shareholders' investment. But not many members of our staff can claim the achievement of Wayne Ruegg, who this year celebrated 40 years' service with the Port of Tauranga. He's been with us since he was 17 years old - a lot longer that the company itself in its present form, and has seen more changes than even our Chairman. But Wayne has not merely been a passive observer of his workplace, he has been a loyal contributor to our success and I want to acknowledge him for that.
Last year, we flagged our concerns about operating conditions which were likely to impact on this year's performance. We knew it was going to be difficult.
At that time, I said that we had led your company through steady growth and positive performance year on year. I mentioned that 2003's result was no fluke, that we had actually previously shown positive returns even in pretty dismal times - following the Asian currency crisis and the collapse of the Korean log trade, for example - largely by growing volumes in other areas. But we knew and said quite clearly, that there were some substantial challenges ahead.
To quote: "
"...we need to be realistic about those challenges. 2004 is going to be a testing ground. Especially for businesses which are allied, though trade, with forestry exporters. When our customers are under pressure, we are under pressure."
And indeed we were under pressure - so how did we do?
For the year, total trade volumes through the Port were actually up slightly at 12.24 million tones. To put this figure in perspective, it is important to note that log exports were down by one million tones, sawn timber exports by 175,000 tonnes, wood panel shipments by 33,000 tonnes and woodchips by 254,000 tonnes. Bear in mind also, that reduced log volumes through our Port are mirrored in other ports around New Zealand, and therefore impact significantly on the operations of the Owens Cargo Company.
The export volume lost in the forestry area was offset to some degree by increases in dairy exports - up 63,000 tonnes, meat - up 35,000 tonnes and kiwifruit - 90,000 tonnes, with other export volume combined to total an increase of 341,000 tonnes.
On the import side, we handled 116,000 tonnes more oil than the previous year, 39,000 tonnes more fertiliser bases and 68,000 tonnes more salt.
Coal, which began moving through the Port in significant volumes for the first time last year, exceeded our expectations, accounting for 663,000 tonnes.
Total container volumes were very gratifying, with an increase of nearly 45 thousand unit movements during the year, over last. This in itself was something of a challenge, requiring increased investment in both the infrastructure and operational costs at both MetroPort and Sulphur Point. It has been a vital part of our operation to work closely with customers in this sector to provide up-to-date information and to ensure their on-going commitment to using the Tauranga-South Auckland rail link.
That link, of course is achieved through the development of the MetroPort operation, a major manifestation of our multi-port strategy. The strategy has paid increasing dividends year on year, as a means of securing long-term growth for the group as we protect shareholder funds from the vagaries of one industry, or geographic or market sector.
We have never concentrated our attention of what our competitors may be doing. We believe that would lock us into playing catch-up. Instead, we have determinedly retained our focus on the multi-port and diversification strategy, and on our commitment to our mission of leading through innovation and commitment.
MetroPort is now New Zealand's third-largest container facility in its own right. That is a substantial achievement. From its beginnings a mere 5 years ago, this patch of land miles from any water has grown to now handle 300,000 TEU per annum, of which 145,000 TEU is for Port of Tauranga. This business entity of the Port of Tauranga is now a major part of Auckland's city infrastructure.
And it's actually taking some of the load off Auckland's choked-up traffic arteries.
This year, we have added services through MetroPort and grown the import volume. We have almost completed a $3-million site upgrade, which will more than double the area for containers and add sidings for longer trains and faster turnaround time.
We are well on the way to creating a complete, integrated freight village in Auckland.
Back home at Sulphur Point, we have met the increased volumes of container traffic by an innovative approach to the natural challenges of growth. We have signed an agreement with P & O Ports to contract manage parts of their operation, allowing us to improve safety and security while improving customer service and reducing costs.
In addition, you will have noted mention in the media of the new Liebherr post-panamax container crane, which is now operational. New straddle carriers are being introduced progressively. I shan't go into the technical specs here, except to mention that their speed and capacity superiority is not the only consideration in purchase. As a 24-hour operation in the heart of Tauranga, we are especially pleased that the diesel-electric straddles are much quieter to operate.
Those of you joining us for the Port tour will find some changes to the layout, with the relocation of the operations centre, releasing extra space for terminal use and changes to the traffic flow - you'll be able to discuss those with your guide at the time, and note the effects on both safety and efficiency.
I have described the increased container volumes - both from new sources and from existing customers - which have gone some way to make up the cargo volume lost in the forestry sector. Coal, too, I have mentioned as having exceeded our expectations. One of the highlights of the year in this regard, was our signing of a 15-year contract with Genesis Power for the importation of up to 1 million tonnes of coal a year for the Huntly Power Station. We have jointly invested with Genesis in a $32.6 million infrastructure project which we expect to be operational by the first of November this year.
The whole project includes conveyor systems, a load-out system for rail, a covered storage facility at Mount Maunganui, an enclosed reclaim facility, modifications to hoppers and an extensive berth deepening programme.
It's always satisfying to watch as structures are designed, concrete is poured and steel is erected, on the way to doing more and better business. That's the sexy side of growth.
But possibly the more satisfying side of this project for your management team, is the knowledge that we are continuing along a well-trodden, still-working path which retains its value. It's the pattern of working with of customers, getting alongside them, building relationships and sharing challenges until solutions emerge in an atmosphere of joint commitment.
It's the way we do business at the Port of Tauranga, not just the business we do.
And it's the way we will continue to do business as we address the on-going challenges ahead.
At this stage, I thought it appropriate to share a snapshot with you of our first 3 months' of trading. For those who would insinuate that the Port of Tauranga in attracting new business has effectively bought that business, I will let the statistics speak for themselves. I can assure you that in seeking new opportunities, we will never, ever take on anything that is not sustainable in the long-term and in the interests of our stakeholders.
The outlook for forestry exports is unclear and not promising. So too, are the issues surrounding the ownership of some of New Zealand's central North Island forestry assets.
Our commitment to our shareholders, however, is unchanging. We have followed this course over the past seven years, and have now seen its benefits in both easier and tougher times. This year especially, has shown the benefits of lower business risk and a spread of revenue.
We remain steadfast in our intent to follow a diversification and multi-port strategy. We continue to operate with a focus on efficiency and innovation.
We remain a company which builds business through building relationships.
Thank you for your continued confidence in us.
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