New developments dominate as ports pursue customers, profits

Friday 7th September 2001

By Peter V O'Brien

The five Stock Exchange-listed port companies are entering a new development phase after several years of solid profit gains from improving efficiency, streamlining asset utilisation and lifting cargo volumes.

There had to be a limit to restructuring gains. Increases in the volume of cargoes moving through the ports depend on general economic conditions, apart from the companies' ability to attract shippers to their facilities at the expense of other ports.

The listed companies were not the only ports to look at development and diversification in various forms, beyond hoping that more efficient handling of more cargo would generate more profit.

Non-listed port companies operating out of Napier, New Plymouth, Wellington, Nelson, Timaru and Port Chalmers/
Dunedin are substantial businesses and several face competition, due to the proximity of other operators.

Sharemarket investors are unable to take positions in those companies (so far), so this discussion is confined to the listed operators.

Share price data for the five companies is in the table, which also includes the latest ratio or shareholders equity to total assets (the proprietorship ratio).

Port companies have unusually high proprietorship ratios (with the exception of Lyttelton Port Company) which is a sign of financial strength.

There is low reliance on debt finance, although the dollar figures in some cases may seem large.

That situation, plus solid and regular cash flows, allows the companies to pay a high proportion of earnings as dividends.

High performance ratios, low debt, significant cash flows and large dividend payouts relative to earnings are features of utility stocks.

Utilities also have solid infrastructure investment, a point related to high proprietorship ratios and apparent in port companies.

Ports of Auckland chairman Neville Darrow mentioned the utility aspect when he referred to his company's dividend policy in the preliminary report for the year ended June 30.

Mr Darrow said Ports of Auckland had paid steady ordinary dividends of 18c a share each year since 1996, although special dividends had been paid periodically from reserves.

The directors had revised that policy and decided greater emphasis should be placed on ordinary dividends.

"This change recognises that many of our smaller shareholders invest in Ports of Auckland as a utility stock that produces regular and steady returns with reasonable certainty."

Mr Darrow said future ordinary dividends, subject to meeting the company's cash needs, would represent 75% of net profit.

Other companies had a similar approach. Lyttelton paid out 76.4% of earnings in the year ended June, 30, Port of Tauranga 81.9% and South Port 71%.

Port companies are currently performing well but a fair proportion of their profitability can be put down to buoyant primary exports and a volume rise in imports.

That situation could last for, say, up to the three years but the cycle will eventually turn.

The companies would be foolish to rely solely on existing business and ignore opportunities for expansion and/or diversification.

North Island companies led the way in this area.

Port of Tauranga and Northland Port Corporation are involved in a 50/50 joint venture to develop a new deepwater port at Marsden Point, which the former company said reflected its multi-port growth strategy.

The company has established the country's "first integrated inland port operation," Metroport.

Ports of Auckland has been trying to develop an inland port in Palmerston North with Tranz Rail. Import and export containers would be railed directly to and from Auckland on a dedicated daily service.

There were problems with that proposal and the companies put it "on hold" while they investigated a broader relationship.

Ports of Auckland's largest initiative was a plan to open "micro-ports" in the Auckland region to take services directly to key import and export customers.

A micro-port is a depot that receives containers trucked from exporters in the immediate area and also delivers import containers to trucks for a "short hop" to local importers premises.

The first sites, which will be either in Manukau or East Tamaki, will be operating by the end of the year.

New operations, such as those outlined, are important for port companies if they are to break the constraints imposed by cargo volume growth, economic conditions and the concentration of their major assets (port infrastructure) on single port sites.

They add a developmental and growth element to the utility concept, which would, if things worked out, be an additional attraction for private investors who like capital appreciation with their "regular and steady returns."

PORT COMPANIES SHARE PRICES (c)
Company	Aug 31 2001	Feb 26 2001	2000/01 high	2000/01 low	% change Feb26/ Aug 31	Equity total assets %

Lyttelton	170	173	190	135	-1.7	59.6
Northland	208	168	231	120	+23.8	92.2
Pt of Tauranga	720	600	725	490	+20.0	84.0
Pts of Auckland	566	535	610	365	+5.8	81.9
South Port	128	122	130	88	+4.9	76.8
NZSE40 cap index (1)	2060	1984	2174	1868	+3.8	N/A

(1) rounded

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