POA Speech by Chairman Neville Darrow
Ports of Auckland Half Year Results Announcement Tuesday 15 February 2005
Speech by Chairman Neville Darrow
Welcome to this briefing on the financial and operating results of Ports of Auckland for the six months to December 2004.
We have arranged a teleconference for those of you who are unable to attend in person. People listening in can participate in the question and answer session following the presentations. Questions from the floor will be taken first.
Please join us for lunch after the question and answer session. A number of our senior managers are here and you can talk with them at that time.
We have arranged for a port tour from about 1pm for those of you who would like to see New Zealand’s biggest container Port at work.
First, I will outline the financial results for the half year and discuss a number of important matters. Then our Chief Executive, Geoff Vazey, will cover volumes and track performance against our strategic direction.
Surplus after tax
I am pleased to report that the surplus after tax, including unusual items, rose 2% to $21.5 million.
The increase in profitability is a very good result in view of several factors that affected container volumes. It was achieved through the underlying strength of our container business, the growth in breakbulk volumes and careful management of costs.
The surplus after tax includes a net cost from unusual items of $435,000 [2003: Net cost of $880,000].
Unusual items include costs related to the waterfront property portfolio.
Total EBIT, excluding unusual items, was $35.7 million, up 1% when marinas are excluded from the prior period. In the half year to December 2003, the EBIT for marinas was $2.4 million.
Port Operations EBIT
Port Operations EBIT was $31.8 million, very close to December 2003. Considering the drop in total container volumes, this is an encouraging result and is evidence of the Company’s fundamental strengths.
Careful management of Port Operations costs achieved a reduction to 58% of operating revenue compared with 59% last year. The Company has a firm hand on costs and has the capability to adjust expenditure according to market conditions. Further cost savings have been identified and are being implemented.
Port Operations revenue was $74.4 million, compared with $75.6 million.
Investment Property EBIT
Investment Property EBIT was up 22% to $3.9 million. However, for the full year, the figure is likely to approximate that of last year at $5.8 million.
Returns to shareholders
Earnings per share
Turning to our performance for shareholders, earnings per share were up 2% to 20.3 cents.
Shareholders’ funds increased 7% to $388.2 million.
Return on equity
The return on shareholders’ equity on an annualised basis was very similar to last year at 11.02%.
Directors have declared an interim ordinary dividend of 15 cents per share, the same as last year. The dividend is fully imputed for tax and represents approximately 75% of after-tax profits.
As you are aware, we have been reviewing the Company’s capital structure. While this work has not yet been completed, early indications are that there will be no material change to the present structure.
The review has been undertaken to ensure that the structure supports the long-term nature of the port business, takes into account the strategies of the Company, is efficient for shareholders, and is in the context of the overall financing of capital projects.
This slide summarises shareholder returns since June 1994.
The green upper line tracks Ports of Auckland’s compound annual growth rate against the NZX40 and the NZX50 – the white and yellow lines respectively. Our shareholder returns continue to perform substantially ahead of the overall market.
The three-year compound annual growth rate has been 18.7% and the five-year compound annual growth rate 13.5%. An investment of $100 in June 1994 was worth $466 at 31 December 2004.
Capital returns and dividends are assumed to be reinvested in existing Ports of Auckland shares.
We are advancing our long-term plans for the Western Reclamation. These commercial assets form part of Ports of Auckland’s strategic portfolio and strong balance sheet, and have the potential to provide increased returns and income diversity.
Our objective is to facilitate the transition of this area of the waterfront into one of the most dynamic parts of Auckland – a waterfront development of which we can all be proud.
The Company is involved in the joint development of a high-level vision for the overall waterfront with the Auckland Regional Council and Auckland City. The scope of the vision extends from the Harbour Bridge to Mechanics Bay.
As previously advised, the Company has no present intention to sell any further waterfront property.
Now I will outline some important initiatives and developments.
United Containers Limited (UCL)
First, I would like to announce a new initiative to benefit the supply chain in which we operate.
The Company is acquiring a cornerstone shareholding of 27.5% in United Containers Limited, one of New Zealand’s largest container depot businesses, for approximately $3 million.
We are committed to improving New Zealand logistics. This acquisition provides opportunities for better supply chain solutions for New Zealand’s importers and exporters, and for improved returns to Ports of Auckland shareholders.
Northland Port Corporation share purchase
Second, as you will be aware, during the period the Company took a cornerstone shareholding – of 19.9% – in Northland Port Corporation for a total of $24 million.
Ports are a long term business. It is inevitable that as time progresses the urban areas of Auckland and Northland will grow towards each other. Our shareholding will increase the likelihood of a planned and efficient development of infrastructural links to the two ports, which between them serve regions that are home to more than 40% of New Zealand’s population.
We are no stranger to Northland, having a successful 50:50 joint venture with Northport in marine services company North Tugz Limited.
New shipping services to Auckland
Our commitment to service delivery and the development of key strategies has helped three shipping lines to choose Auckland in recent months.
Maersk Sealand has announced 26 ship calls a year with its Oceania service, MSC is introducing an additional trans Tasman service, and CP Ships has decided to cease calling Tauranga and concentrate on Auckland for its roll-on roll-off services.
These three moves equate to over 35,000 TEUs and 78 ship calls a year for Ports of Auckland.
In summary, these results confirm that Ports of Auckland is trading soundly and continues to achieve underlying growth.
The Company has a clear strategy for the creation of shareholder value: Grow the underlying container business Optimise the value of our investment property portfolio and Deliver to the community the economic benefits of a healthy Port company.
The Company faces a number of challenges, not the least of which is continuing strong competition in respect of shipping services.
However, we are determined to be competitive and the Auckland Port will continue to have the necessary capacity, equipment, technology, attitude and performance to meet these challenges and to fulfil customers’ expectations.
Geoff will now talk about our operational performance.