Ports upbeat over trade fluctuations

By Peter V O'Brien

Friday 1st September 2000

Company reports and general statements have confirmed expected improvements over the previous year, subject to the occasional exception, such as Air New Zealand which absorbed a change in accounting policy for tax.

While the gains were spread across industry sectors, some of the buoyancy in comments was tempered with caution, particularly about the state of the currency and general economic health (O'Brien Column, page 47).

While medical equipment supplier Ebos Group's profit for the year ended June 30 was similar to the previous year at $4.24 million, compared with $4.25 million, it was a good effort considering the problems facing the company.

Ebos is a relatively small organisation compared to the main listed companies but comments in the preliminary report were indicative of the economic situation.

The company said the results were on a par with last year and represented "quite dramatically" the merits of the expansion policy, in spite of a weak dollar and challenging trading conditions.

There was a currency impact in an industry that cannot absorb the full flow-on effects of price adjustments in a short time frame.

Reports from two port companies - Port of Tauranga and Ports of Auckland - said little about the economy when reporting increased profit. The former made the point the port would always, to some extent, be affected by international trade fluctuations, but it had taken the necessary steps to establish a buffer against future volatility.

Port of Tauranga's activities include diversification in geographical terms, having expanded from its Mt Maunganui base to a facility in Auckland and a joint venture with Northland Port Corporation to develop and operate the Marsden Point port.

Chairman Fraser McKenzie said the Marsden Point development was another example of the company's recognition that growth opportunities cannot, and should not, be confined by geographical boundaries.

It may also be a recognition that geographical diversification could add to the mix of goods moving through a port, allowing it to iron out fluctuations in trade when some products are "on the up" while others are in a downturn.

Mr McKenzie seemed to confirm that point when he said the diversification strategy enabled the company to deliver a record profit in the latest year, despite relatively static volumes in its traditional cargo mainstay of logs.

Ports of Auckland chief executive Geoff Vazey commented on the state of the economy when presenting the company's result.

He said the New Zealand economy had enjoyed strong export growth (which can, presumably be related to improvements in commodity prices and a weaker dollar).

The agricultural sector had done well, although most of that export growth had been in commodities handled through the regional ports.

Mr Vazey then flipped the coin, saying the manufacturing export sector in Auckland had been steady but had not enjoyed an export boom.

Imports remained strong through most of the year.

Mr Vazey was more optimistic than some other executives about the economy. He said the outlook for the current year was positive, with most forecasts for strong economic growth, but he then said conditions had fluctuated and remained sluggish at the start of the financial year, although container volumes had come back well.

The port companies' improved results have had a limited effect on their share prices. Ports of Auckland sold at $4 on Monday, compared with a high of $5.60 for 2000 and a low of $3.65, while Port of Tauranga was at $5.50, its high and low this year being respectively $6 and $4.90.

South Island regional services company Reid Farmers noted the well-known improvement in agribusiness and expected more progress in the current year.

Reid Farmers' profit increased from $4 million in 1999 to $4.6 million in the year ended June 30, a movement of 14.9%.

There was also an improvement in Wrightson's result, again reflecting the improvement in rural sector activities, although the company would have benefited from its restructuring after abandoning the earlier, unsuccessful plans to make a massive switch in direction.

Reid Farmers' shares attract little attention, a matter reflected in relatively low price movements, despite its solid profit record. They were 87c on Monday, with the 2000 high/low range being 45-60c.

Wrightson has had a good run this year and closed on Monday at 55c. The shares' 2000 high was 68c and the low 35c. In 1999 the figures were 46c and 32c respectively.

While the outlook for agriculture may be good, farmers will probably treat improved returns as an opportunity to reorganise their debt levels and put something away for the proverbial rainy day.

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