Chairman Neville Darrow - AGM Presentation
Ports of Auckland Limited
Annual Meeting Presentation
Thursday 21 October 2004
Good afternoon once again ladies and gentlemen.
This afternoon I want to outline the financial results for the year and discuss a number of important matters. Our Chief Executive, Geoff Vazey, will then talk about our strategic direction and track performance against it over the 2003-04 year.
We will be brief in covering the year's financial and operational performance because, as you have reminded me on previous occasions, these results have been well published already. We will spend more time, then, on strategic issues and on looking ahead.
As always, we will be pleased to answer questions; and once we have completed the formal proceedings we will have pleasure in inviting you to join us for afternoon tea, where we can chat more informally. Our Directors and senior managers are here for you to meet and they, too, will be pleased to answer questions you may have.
Ports of Auckland is a strong company underpinned by solid fundamentals. The cash flows and balance sheet are very sound, and our return to shareholders continues to grow over the medium and long term. I will come back to the matter of returns in a moment.
Slide: Surplus after tax
The surplus after tax for the 2004 year, including unusual items, rose 20% on the previous year to $57.2 million. This record result includes a gain of approximately $15 million from the sale of the Westhaven and Hobson West Marinas in May 2004.
However, excluding unusual items, the Company still achieved a pleasing 4% increase in surplus after tax to $44.3 million, confirming a sound underlying performance for the year.
The net gain from unusual items totalled $11.9 million [2003: $4.4 million].
Within this figure is the gain from the sale of the Marinas offset by costs related to the waterfront property portfolio and a satisfactory final settlement with the Inland Revenue Department regarding GST payment on berth unit sales.
Slide: Group EBIT
Total earnings before interest and tax, excluding unusual items, were down 1% to $75.1 million.
This slight drop is because of the much higher sale of Westhaven Marina berth units in the previous year.
Slide: Port Operations EBIT
Port Operations EBIT, excluding unusuals, rose 1% to $65.3 million.
Port Operations represents the bulk of the Company's activities, covering all cargo and container operations and marine services.
Container volumes were up 2% while Port Operations revenue rose slightly to $151.6 million. Port Operations expenditure increased less than 1% to $86.3 million.
Slide: Investment Property and Marinas EBIT
EBIT for Investment Property and Marinas was down 15% to $9.8 million because, as I have explained, the Westhaven Marina berth unit sales programme was largely completed in the previous year.
Slide: Shareholders' funds
Shareholders' funds increased 9% to $393.7 million.
The value of the Company's investment properties increased 12% ($11 million) on revaluation at 30 June 2004.
Slide: Return on equity
Return on equity was 15.1%, up from 14% last year.
Slide: Earnings per share
Earnings per share were 53.9 cents, up 20%.
If we exclude unusuals, earnings per share rose 4% to 41.8 cents from 40.17 cents.
In March 2004, an interim dividend of 15 cents per share was paid. A final dividend of 25.5 cents per share was paid on 21 September 2004. This brought the total dividend for the year to 40.5 cents, an increase of 19%.
The total dividend represents 75% of the Company's after-tax earnings including the gain on the sale of the Westhaven and Hobson West Marinas and other unusual items. This is the same basis of calculation that was made last year when the dividend was 34 cents per share, of which 3.6 cents arose from unusual items.
The figures in the slide exclude special dividends.
Slide: Adjusted dividend
If the unusual items are excluded from the dividend payment, the adjusted dividends per share are 2004 31.4 cps, 2003 30.4 cps, 2002 28.4 cps.
I said at the time of our annual results announcement that we would review our capital structure.
This review will ensure that the structure is one that supports the long-term nature of the port business, takes into account the strategy of the Company, is efficient for all shareholders, and is in the context of the overall financing of current capital projects such as the expansion of the Axis Fergusson terminal.
The review is under way and no decisions have yet been reached. It is expected, however, that the review will be completed before the end of the current financial year. Shareholders will be advised promptly of the outcome.
Slide: Shareholder returns
I now return to the subject of shareholder returns.
This slide summarises shareholder returns since June 1994.
These returns are shown by the green upper line which tracks Ports of Auckland's compound annual growth rate against the NZX40 and the new NZX50 - the white and yellow lines respectively.
Capital returns and dividends are assumed to be reinvested in existing Ports of Auckland shares.
The three-year compound annual growth rate has been 17% and the five-year compound annual growth rate 16%.
An investment of $100 in June 1994 was worth $486 at June 30 2004 - if dividends and capital growth are incorporated.
Our shareholder returns continue to perform substantially ahead of the overall market.
Non-operational property increased in value by 12%, or $11 million, on revaluation at 30 June 2004. This increase in value, of course, is not brought into the profit line but accrues to the Company's balance sheet.
The portfolio consists of land primarily on the Waitemata waterfront, and specifically the Western Reclamation.
As previously advised, the Company has no present intention to sell any further waterfront property.
We are advancing our long-term plans for the Western Reclamation. These commercial assets form part of Ports of Auckland's strategic portfolio and have the potential to provide increased returns and income diversity over the medium term.
Our objective is to facilitate the transition of this part of the waterfront into one of the most dynamic parts of Auckland.
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.
Reviewing our operational and financial performance for the 2004 year, it would be tempting to conclude that Ports of Auckland has reached some sort of natural plateau after years of restructuring, efficiency gains and natural growth.
I certainly do not believe this to be the case. Certainly the port has undergone substantial transformation in recent years to become a much more efficient link in the supply chains on which exporters and importers rely so strongly.
And, as outlined in the annual report, Ports of Auckland is very well placed:
- We have a strong balance sheet.
- We are located in the most populated area of the country.
- We have a very well-equipped and competitive port operation, handling, for instance, half of the entire North Island container movements.
- We are committed to significant expansion of our capacity in the port, to dredging the shipping lane and to securing more business through our inland ports.
However, we have no intention of resting on our laurels.
Ports are inextricably tied to the national and regional economies, the demand for port services being largely driven by the activities of others. Our major growth opportunity is to win increased market share, for which we must compete with other ports. It is our intention to do just that.
A key factor in winning that increased share and of making it more profitable is to be continually anticipating changing customer needs, increasing our operational efficiency, and capitalizing on our natural advantages. Geoff Vazey will shortly be talking to you in detail about some of these initiatives.
Benefit of port to Auckland
The port interacts with the city in many ways. More than a third of the jobs in the Auckland region are provided by businesses that rely in some way on trade through the city's port; and business activity related to the port drives a third of the region's economy.
Ports of Auckland also supports the Auckland community through a range of sponsorships, the most recent being the funding of a Chair in Logistics and Supply Chain Management at Auckland University's Business School. There is a need for considerable work to go into short-term improvements in New Zealand's supply chains while continuing the development and implementation of long-term solutions to handle increased trade for the country.
We are aware of suggestions from time to time that the valuable land that we occupy on the waterfront could be better used for a range of other purposes.
Ports of Auckland is working constantly to re-evaluate the potential use of land holdings no longer required for port operations as the nature of our activities changes. The very successful Viaduct Harbour development and the redevelopment of our Princes and Hobson wharves are clear examples of this.
We will continue to support initiatives that are compatible with commercial port operations and give a proper return to shareholders.
Having said that, the operations of a working port still have intrinsic public interest and appeal, as shown by the patronage of our free boat trips around the port. I understand that a good number of you have enjoyed this experience immediately before our meeting today.
Going forward, we wish to improve public access to the port, where it is consistent with safety and Customs issues. The expanded Axis Fergusson terminal, for instance, will have a walkway along the new harbour edge and viewing platforms open to all.
Moving the port
You may have read in the media the recent suggestion of "moving" the Auckland port.
I wish to reassure you that the Port of Auckland is exactly where it should be. The harbour and approaches are ideal for large vessels and the port infrastructure is second to none in New Zealand for servicing them.
Like the airport, the Port of Auckland is recognised and provided for in the regional and district plans as an essential regional asset.
Alternative sites have been investigated in the past. But none have proved economically or environmentally feasible. Onehunga is occasionally suggested but it could never handle the volumes required, and the Manukau Harbour, with its shallow and shifting bar, could not cater reliably for large vessels.
Regional ports could not service Auckland adequately. There would be major capacity and access challenges, and the result would be an exodus of jobs and economic activity as businesses relocated out of Auckland to be near a port.
Auckland Regional Holdings
We are fortunate to enjoy strong support from our new majority shareholder, Auckland Regional Holdings, and from those in the Auckland community who understand the crucial importance of successful port operations in underpinning the regional economy.
In August, the newly formed Auckland Regional Holdings stated publicly its wish that the port company should continue to succeed commercially by growing trade, creating value and maximising earnings over the long term - a mandate which we obviously support.
The annual dividends which go from Ports of Auckland to Auckland Regional Holdings and its predecessor, Infrastructure Auckland, help fund major infrastructure initiatives in the region. In the last five years alone, these distributions to our majority shareholder have totalled more than $400 million.
In summary, the 2004 full year results confirm that Ports of Auckland remains on track for steady ongoing growth, underpinned by strong fundamentals.
After the first three months of the new financial year, the Company is trading to expectation. EBIT, taking into account that the marina business has been sold, is at a level similar to last year notwithstanding the recent four-day strike and the loss of a shipping service. Net profit after tax including unusual items is slightly up.
We are trading soundly.
The Company has a clear strategy for the creation of shareholder value. The Board and management are united and committed to achieving against this strategy. The Port will continue to have the necessary capacity, equipment, technology and attitude to meet the challenges of the future, and to fulfil customers' expectations.
Geoff Vazey, our Chief Executive will now talk about our strategy to grow the cargo-handling business and track performance against it for the 2003-04 year.