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Port of Tauranga Limited Annual Meeting - Mark Cairns

Port of Tauranga Limited Annual Meeting

25 October 2012

Mark Cairns, Chief Executive

Thank you John. Good afternoon, Ladies and Gentlemen.

As your Chief Executive, I am proud to be reporting another successful 12 months, on our 20th anniversary since listing on the Stock Exchange.

Whilst our annual cargo volumes increased by an impressive 20% to 18.5 million tonnes, the standout metric for the year was our container volumes increasing by 35% to just under 800,000 containers [1]. This now makes Sulphur Point the largest container terminal in New Zealand impressive growth when considered against the backdrop of global container growth being around 6% for the year.

Many people have assumed the majority of this growth was due to the extra containers we handled as a result of the Ports of Auckland industrial action earlier in the year. However, this is not correct, as most of the additional cargo is due to the seven new shipping services introduced to Tauranga during the financial year. Less than a third of the extra containers were as a result of the Auckland industrial action, and more than 200,000 containers came from the new services.

Overall, containerised cargo now makes up 48% of the cargo we handle (up from 40% last year), and now provides a more diverse cargo mix, further improving our risk profile against commodity fluctuations.

Transhipment is where containers are transferred, from a vessel into the container terminal and then out of the terminal again, usually onto a larger vessel. We experienced significant growth in the number of transhipped containers, which increased by more than 88% over the year, including a surprising 9% of these containers originating from Australia and then

being transhipped over Port of Tauranga and then onto export markets in the northern hemisphere. This provides evidence of the structural change that is occurring in our industry, with a move towards hub and spoke ports and such significant transshipment growth tangibly demonstrates our position as New Zealand s hub port for international trade. Our long term business partner KiwiRail really stepped up to the mark over the year, with the number of containers railed to and from MetroPort Auckland increasing by 33% to 183,000. This was partly due to the diversion of extra volumes related to the Auckland industrial action, but the ongoing volumes due to new services has been enough for KiwiRail to increase train capacity to and from MetroPort - from four to six trains per day, carrying up to 636 containers per day each way. We are pleased that KiwiRail have also continued with significant investment on the East Coast Main Trunk line and from early 2013, all major infrastructure constraints for growth will have been removed and we will have the capacity to run fifteen trains per day, each way, to cater for future demand. On the other side of the harbour, our log exporter customers continue to show solid growth, with logs handled increasing by 11% to 4.9 million tonnes, and total forestry product exports increasing by 9%.

China continues to dominate the market, receiving over half of the logs exported from Tauranga.

We also experienced significant growth in dairy product exports with volumes more than doubling, increasing by 126% over the year.

In other export categories, frozen meat exports increased by 38%, apple exports were up 164%, and steel exports were up 10%.

We feel for the many kiwifruit growers in this region, who are experiencing the devastating impacts of PSA. Kiwifruit volumes held up through the port over the financial year, showing a small increase of 1%, but reduced volumes are expected over the next few years. On the bulk imports side, oil products, other liquids, fertilisers and stock feed supplements remained steady overall.

We had 83 cruise ship visits during the season, and we are expecting a similar number again this coming season.

We received recognition of our international standing in the New Zealand Productivity Commission s report into international freight transport. In April, the Commission s report highlighted Port of Tauranga s excellence in productivity. We were found to be the highest performing New Zealand port for container productivity, and the Commission also noted that we were in the upper-decile when benchmarked against other ports internationally.

Congestion at the container terminal during the period of Auckland industrial action did cause crane productivity to fall to 31 moves per hour, but we have managed to restore this to more than 35 moves per hour again over the last two months.

We won t keep the new shipping services that we are attracting, unless we can maintain the class-leading productivity and customer service that brought them to us in the first place. To that end, we are investing further in the people and equipment that we need as we undergo a significant expansion programme. We have invested $39 million over the last financial year and plan a further $180 million investment over the next three years, which will be largely funded out of operating cashflow.

We have ordered two new gantry cranes one arriving early in 2013 and the other in 2014. This will bring our total fleet to seven. We have also modified one of the older cranes to become twin-lift capable. We are very excited about the potential that is being shown in our twin-lifting trials, with peak crane rates of more than 60 moves an hour being achieved. During the past year, we have bought an extra six straddle carriers to support the crane fleet, and we have a further six units being delivered early in 2013. As with the cranes, configuration for twin-lift capability is a priority.

This new equipment will be required when we open our Sulphur Point wharf extension in March next year. The extra 170 metres of wharf currently under construction will increase berth capacity by 28% and combined with the increased craneage, will provide significantly greater berth window flexibility for our customers.

We have spent a lot of time ensuring that the space at the existing terminal is optimised and, with some reconfiguration, we managed to increase container ground slots by some 30% and refrigerated container plugs by 40%. We are currently developing a further additional 15% in ground slots which will give us the ability to respond to any future shortterm growth in trade.

The rail sidings at Sulphur Point have also been re-organised, allowing the loading and unloading of three trains at any one time.

We have new terminal operating software being installed early next year, which will further assist in streamlining operations at Sulphur Point. We have also embarked on a joint venture with Ports of Auckland to implement a single container management portal called PortConnect.

Meanwhile, we continue to work on infrastructure for our biggest export customer, the forestry industry, who are also experiencing unprecedented demand. Whilst we have a lot of land allocated to log storage, the log export industry continues to export record volumes and demand additional storage. In 2012, we demolished a shed to create an additional 2.5 hectares of log storage. We will continue to pave further log storage areas in the coming year.

Our staff have certainly weathered some challenges over the year and they handled them with their typical commitment and professionalism.

An enormous team effort on their part, as well as the support of our service providers and the patience of our customers, enabled us to handle the growth of the past year. Port employees, equipment and facilities were also seconded in support of the Rena salvage. One of the first Port people on the scene was our former Manager Operations, Nigel Drake. Nigel has since retired and we will miss his calm and cheerful demeanour, as well as good judgement, in trying circumstances such as the Rena grounding. His shoes have been ably filled by former Pilot Phil Julian, who has worked at the Port for the past nine years.

I do say it every year, but please do not think my words are trite - it remains my view that it is our Port People who generate the Company s greatest source of competitive advantage. The can-do attitude and task focus of our whole community of Port People working on and around the wharf, including our staff, stevedores and marshallers, shipping agents, transport operators (both road and rail), and Ministry for Primary Industries staff, truly gives us a winning competitive advantage.

I have also said before that our financial and productivity achievements are hollow if our safety performance is not equally strong. Whilst our safety record is one of the best of all New Zealand ports (less than half the New Zealand Ports average), we still have further work to do if we are to achieve our goal of a zero harm work environment.

The Chairman has already mentioned our frustration with the cost and delays of the Resource Management Act legislative process. However, we are encouraged with the Government s commitment to a second phase of reforms to the Resource Management Act and we hope to see a Bill before Christmas. Given the economic importance of ports to New Zealand s economy, with 99% of New Zealand s trade (by volume) passing through a port node, it is our view that ports should be included under Section 6 of the Act, and considered as matters of national importance.

Whilst the four year process we have experienced seeking the dredging consents has certainly been challenging, we consider that it has been undertaken with a great deal of mutual respect and co-operation from most hapu. One of the proposed resource consent conditions requires the establishment of a new Trust that will set priorities and allocate funds for harbour improvement projects. The Environment Court described this as a relatively sophisticated approach to dealing with the various issues that arose during the case and concluded that the proposed conditions offered by the Port during the closing of its case . adequately avoid, mitigate, or remedy the cultural effects.

We were greatly relieved to hear last month, that the High Court had dismissed Ngati Ruahine s appeal, clearing our plans to prepare for larger ships through dredging of the shipping channels. Unfortunately, we received notice last week that Ngati Ruahine were appealing to the Court of Appeal. Ngati Ruahine is a hapu of Ngati Ranginui iwi, one of twenty four hapu that make up the Tauranga Moana Collective. Needless to say, we will be vigorously challenging the legitimacy of this appeal the dredging consent has now been recommended variously by; a panel of Independent Commissioners in May 2010, confirmed by the Environment Court in December 2011, and also last month by the High Court. We hope the appeal to the Court of Appeal can be resolved quickly. Once we have the consent finally approved, the dredging project will be carried out in several stages, and we had hoped to commence the first stage towards the end of next year. New Zealand s economy desperately needs the $338 million of benefits that the New Zealand Shippers Council estimates will flow from bigger ships operating on the South East Asia trade routes.2 We will continue to place a high degree of importance on maintaining productive working relationships with tangata whenua. We sincerely hope the new Trust will provide a forum for building on the relationship between the Port and Iwi and really making a difference in improving the health and wellbeing of the beautiful harbor that we share.

In closing, I would like to take a look at our first quarter s trading this financial year and contrast it with the prior corresponding period last year.

We have trade up 13%, log exports up 7%, containers up 32% (however we do need to be a bit careful with this number, as the prior corresponding period did not include the seven new shipping services), and we have Net Profit After Tax up 19%. Provided there are no significant market changes, we expect earnings growth to continue and achieve full year earnings in the region of $75 to $79 million.

Finally, I would like to thank most importantly our customers and also the wider port community for all their support. They have supported us in meeting our challenges and aspirations - by working together, we have created New Zealand s Port for the Future.

Thank you for interest Ladies and Gentlemen.

Mark Cairns


New Zealand Shippers Council. August 2010. The Question of Bigger Ships .

[1] All references to containers are for Twenty Foot Equivalent Units (TEUs)


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