Port of Tauranga Completes Major Five Year Expansion

Port of Tauranga Completes Major Five Year Expansion Programme & Targets $140 Million Capital Return to Shareholders

FINANCIAL RESULTS FOR THE YEAR TO 30 JUNE 2016 Strong container volumes offset a fall in log exports

Highlights:

• Net Profit After Tax down 2.4% to $77.3 million following increase in depreciation charges and downturn in log volumes

• Parent EBITDA rises 2.2% to $125.7 million as strong growth in container traffic offsets a decline in log exports

• Container volumes increase 12.1% to just over 950,000 TEUs1

• First 9,500 TEU ships to start calling at Port of Tauranga in October after channel dredging completed and landside facilities upgraded

• Final dividend of 30 cents per share lifts total dividends to 53 cents per share - up 1.9% on the prior year

• Special dividend of $34 million, or 25 cents per share, announced as part of a capital restructure targeting to return $140 million to shareholders over the next four years

• Improved health and safety performance – Total Recordable Injury Frequency Rate (TRIFR) down 62% to 5.6 (per million hours exposure) Parent EBITDA for the year to 30 June 2016 rose 2.2% to $125.7 million from $123 million in the prior year as container traffic rose 12.1% to a record of more than 954,000 TEUs - up from 851,000 TEUs in the prior year.

These gains were offset by a decline in bulk cargoes reflecting continuing challenges in New Zealand’s forestry and agricultural sectors. Notably, log exports fell more than one million tonnes with declines also in imported stock feed and fertiliser.

Reported revenues fell to $245.5 million from $268.5 million, due to a $32 million decrease in revenue as a result of having to equity account Tapper Transport as an associate company within our Coda partnership.

Net Profit After Tax fell 2.4% to $77.3 million as the Company’s largely completed $350 million five year investment programme resulted in higher depreciation charges, which are up $2.7 million in the current year alone.

Port of Tauranga Chairman, David Pilkington, said: “We are very pleased with the progress that has been made against our long term strategy to extend our freight catchment to become the country’s leading freight gateway and to prepare to welcome the arrival of the large ships into New Zealand waters.

“Strategic initiatives such as our alliance with OJI Fibre Solutions, Kotahi and Zespri / Tauranga Kiwifruit Logistics continue to drive a strong increase in container volumes to the port. These initiatives have also insulated the Company from this year’s significant reduction in log exports.

“Our strategy has allowed the Company to make the significant investment required to host the next generation of big ships without compromising our commitment to deliver sustainable returns to our shareholders.

“It is also delivering benefits to the broader New Zealand economy. Following the completion of dredging to deepen and widen the port’s shipping channels, the first of these large container ships is set to visit in October. Over the long term, large ships have the potential to deliver in excess of $300 million in annual savings to the country’s exporters and importers2.

“Port of Tauranga continues to consolidate its position as the country’s leading freight gateway. With our $350 million five year investment programme largely complete, we have capacity to continue to grow freight volumes for the foreseeable future and importantly relieve constraints now emerging elsewhere in the country’s port infrastructure.

“As signalled at our Annual Shareholder Meeting last year, the Board has reviewed our capital structure following completion of a major investment programme and today announced a return of $34 million to shareholders by way of a special fully-imputed dividend of 25 cents per share. This is the first tranche of what is targeted to be up to $140 million to be returned to shareholders over the next four years. The final amount returned is dependent on our requirements to fund any potential future growth initiatives,” Mr Pilkington said.

Directors have also declared a 30 cent fully-imputed final dividend, which combined with the special dividend lifts total payments to shareholders for the 2016 financial year to 78 cents per share. The record date for dividend entitlements is 23 September 2016 and the payment date is 7 October 2016.

Mr Pilkington said the capital restructure will ensure the Company has a more efficient Balance Sheet, remains financially strong and returns excess capital to shareholders in a tax efficient manner.

“A return of the full $140 million to shareholders would still ensure the Company retains a conservatively geared balance sheet and an investment grade credit rating,” Mr Pilkington said.

Separately, the Company today announces a share split. Shareholders will receive five ordinary shares for every one ordinary share held at 5 pm on the record date of 17 October 2016.

“The share split, which followed strong enquiry from Port of Tauranga’s retail shareholders and share market analysts, is a measure taken to enhance liquidity in the market for shares,” Mr Pilkington said “Port of Tauranga is in a sound financial position with strong prospects. We are looking ahead to the future with confidence.”

Port of Tauranga Chief Executive, Mark Cairns, said: “The arrival of the first large ships in October will usher in a new era of sea-borne freight transport in New Zealand.

“And it is not just larger container ships that are calling at Tauranga. The 200 metre long 35,000 tonne SBI Maia, chartered by TPT Forests, the world’s largest log carrier, has also started calling and we will host Royal Caribbean International’s mega cruise ship Ovation of the Seas this summer.

“It is gratifying to see our new infrastructure, including the recently deepened and widened shipping channel, being used so quickly after so many years of hard work.

“Port of Tauranga is the first New Zealand port able to berth ships this size. The efficiencies they will bring and the potential costs savings for New Zealand importers and exporters are significant. We have achieved this result through careful cultivation of strategic partnerships with major exporters.”

Port of Tauranga Chairman, David Pilkington, said: “It is clear that port capacity in Auckland is becoming constrained. Thanks to our investment programme, our extensive Tauranga land holdings and our rail-linked MetroPort facility in Onehunga, we can significantly expand the volume of imports that can be delivered into Auckland.

“Such an approach will have the additional benefit of reducing traffic flows in downtown Auckland and negate the need to expand the city’s port operations further into the Waitemata Harbour.

“We are willing to engage in a rigorous economic study to examine the optimal port capacity solution for the upper North Island. However, we are optimistic that ultimately, the market will drive any rationalisation required. The arrival of bigger ships – and the efficiencies they can bring – will be a game changer.”

Operational Developments
The channel dredging project has now been completed ahead of time and below budget. The port’s shipping channels have now been widened and deepened, to 14.5 metres inside the harbour entrance and 15.8 metres outside the harbour.

Port of Tauranga has examined every aspect of its landside operations to ensure it is able to handle the much larger transfers of cargo required when servicing larger vessels. Two additional cranes and 13 additional straddles have now been delivered.

KiwiRail is investing $15 million in upgrading its facilities at MetroPort Auckland, which saw an increase of 39% in containers volumes during the financial year. Meanwhile, in the South Island, Timaru Container Terminal reached an all-time record in container volumes of 84,402 TEUs - up 18% on the previous year.

South Island-based customers are now able to access the MetroPort Christchurch intermodal freight hub at Rolleston, which can consolidate imports and exports for rail transfer to and from the Timaru terminal.

Cargo Trends
Total trade in the 2016 financial year decreased 0.3% to 20.1 million tonnes. Exports decreased by 1.2% to 13.1 million tonnes, while imports increased by 1.4% to seven million tonnes.

Container traffic continued to grow apace, with container throughput increasing 12.1% to 954,006 TEUs. The largest increase in containers was in imports, which increased by 34,260 TEUs.

Milk powder exports increased 21.5% in volume, to just over two million tonnes. Kiwifruit volumes increased 21.1% and are expected to continue growing at this rate. Volumes of value-added forest products also increased, including pulp and paper exports growing by 5%.

Exports of logs decreased 18.2% in volume to 4.6 million tonnes. Dairy industry-related imports decreased, including fertilisers (down 10% to 472,000 tonnes), and stock feed (down 28.2% to 1.073 million tonnes).

Outlook
Over the last four years, the Company has managed to maintain Net Profit After Tax despite a reduction in log export volumes of more than one million tonnes and an increase in interest and depreciation charges of $9.5 million relating to the $350 million capital expenditure programme.

“As previously guided, following the introduction of the new shipping services we expect to handle over one million TEUs in the year ended June 2017. We expect to see log exports increase to 2015 levels with other export cargoes, such as kiwifruit, expected to continue their strong growth trajectory,” Mr Cairns said.

“Port of Tauranga will remain somewhat protected from severe fluctuations in trade through its diverse cargoes, income sources and locations, as well as its long term freight agreements with major exporters. We are looking ahead to the remainder of the year with confidence and expect earnings growth to recommence.”

“We will provide 2016/2017 full year earnings guidance at our Annual Shareholder Meeting on 20 October 2016, when we have a better feel for the first quarter’s trade volume” said Mr Cairns.

ENDS

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