Lyttelton Port Company: Peter Davie

By Jenny Ruth

Monday 11th October 2004

Lyttelton Port Company reported a 3% rise to $12 million in net profit for the year ended June 30. One of the biggest issues for the company is improving its relationship with staff in order to improve service to customers and avoiding strikes. Another major issue is how much capital spending it will need to do to retain customers and whether it can get positive returns from such spending.

ShareChat: Throughout the annual report there are references to the company having come a long way but having a lot still to do. What's the ultimate goal? How long will it take to get there? How will it get there?

Lyttelton Port chief executive Peter Davie: Like any company, there are a number of key facts. I guess what we've been working on is getting to know our market well, understanding what the long-term market needs are and making sure we develop the infrastructure. The time frame: we think we're working in a two to three year window from now. It's an industry that takes a long time, primarily because the development of infrastructure requires resource consents etc. It's not a quick fix.

SC: Has there been any progress in negotiating with the unions?

PD: Negotiations started in March. What we've done is work through a range of issues. It fundamentally comes down to one major issue: how we deal with permanent part-time employees. We took that to the Employment Authority and that was positive for us. We see that as a major issue. We're keen to get on and get an agreement.

SC: What are the signs coming from the union camp?

PD: It's a collective agreement with three different unions involved. If you look at the industrial situation around the country at the moment, it's one of general unrest. There are a number of industries that have had strikes. There's a higher degree of unrest now than there has been for some period of time.

SC: Are further strikes at Lyttelton likely?

PD: I really don't know at this stage. I have to wait and see where we get to in the negotiations.

SC: When you get it, how long will the agreement last for?

PD: We would like to make it a two-year agreement. There's a general concensus on that. (With a one-year agreement), the ink's barely dried when you're starting work again on the next round.

SC: What are relationships between management and staff like these days?

PD: Relationships are improving, but it's still a fairly adversarial negotiation. That doesn't flow on necessarily to the day to day workings of the business. From that perspective, things are definitely improving. At the container terminal, our productivity has improved by around 10% in the last four months. Our line manager's spending more time with our staff, looking at how we can improve things and delivering on it. The (four) new straddle carriers will definitely help. Some of the machinery we're operating here is getting towards museum class. The straddle carriers are the central part of a container terminal. They're doing all the lifting. (The straddle carriers are costing Lyttelton Port $5 million and are expected to arrive in January.)

SC: What happens if coal volumes again fall short of expectations? (Lyttelton Port spent $30 million upgrading its coal handling facilities, completed in April, as part of a 15 year agreement with Solid Energy signed in 2002.)

PD: We don't get the tonnage through, it's as simple as that. From a financial perspective, the contract has certain parts to it so we don't lose on our investment. There are certain fixed payments that get made regardless of volume. But we don't expect that volumes will continue to fall short. We expect to see good growth in volume.

SC: Can the company maintain current dividend payment levels?

PD: All I can say to that is that the directors have declared a dividend for this year at the current level (equal to last year's payout). They will be saying more at the AGM.

SC: Have your capital spending plans firmed up since last year's AGM? (The port said last year capital spending of between $60 million and $80 million was needed over five years.)

PD: That's something we will be talking about at the AGM. From our perspective, it's important to signal to the market what our needs are going forward. We will be a little bit more detailed about what the money will be spent on.

SC: How do Lyttelton's TEUs per annum compare with Port Chalmers and Timaru?

PD: In the year just finished 30 June, Lyttelton's TEUs were just over 160,000. Port Chalmers was around 120,000 and Timaru's about 55,000.

SC: Historically LPC has been viewed an "income story".Do you consider in the medium to long term that the company will be seen as a "growth story"?

PD: I think it will be a balance of growth and income. There are significant growth opportunities for the business and we're pursuing those. Rather than just being income, we see a definite growth stream to it.

SC: 42 Is there a realistic chance that revenue,earnings,dividend growth etc will enable the company to revalued above its historic levels?

PD: At some stage it will be revalued because the underlying assets have a higher value than the underlying book value. When the company was listed, the assets were devalued by 30%.

SC: What is the timetable for the rebuilding of the Lyttelton Port Company fuel wharf?

PD: It will be over the next three years, approximately. We're still working through with the oil companies the best time for the changeover.

SC: What independently owned transportation/logistics companies do the Lyttelton Port Company see that they can make long term binding co-operative agreements with in the forseeable future? (for example, similar to the Port of Tauranga/Toll Holdings inland port integration agreement)

PD: We're talking with a number of different parties, but we're not at a stage of agreeing or signing anything so we're not at liberty to disclose that. All port companies are looking at how they fit in the total logistics and transport chain.

SC: From Note 6 in the 2004 financial statements. Long term borrowings of $36m are financed at what appears to a below market rate of 5.52%. Is that correct?

PD: We have swaps in place and forward cover so the effective rate is 6.17% (down from 6.42% the previous year). We're not below market, we're at market. We think we have a fairly good rate. We always keep the banks down to as little as possible.

SC: Can you quantify any off balance sheet financial risks associated with this long term finance package?

PD: We don't have any off balance sheet exposures - we have the odd lease, but we don't have the likes of machinery funded by another mechnanism.

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