Ports of Auckland doesn't distract with hyperbole

Friday 28th September 2001

Some believe that success comes from measuring and analysing every aspect of a business.

Ports of Auckland obviously subscribes to this approach and its latest annual report shows an impressive depth of knowledge on the most obscure topics. The company handles 57% of all the containers, 70% of general cargo imports and 29% of general cargo exports in the North Island. A ship leaves Auckland bound for Australia every 18 hours, Europe every 24 and North America every 36.

One 40ft container unit holds less than two 20ft units.

In their reviews of the year to June, chairman Neville Darrow and chief executive Geoff Vazey demonstrate a firm understanding of the business by explaining it in a straightforward yet comprehensive manner.

While the bottom line was better than last year, in other ways the result was so-so. Both men prefer to use the term "solid."

A financial highlights table at the front of the report shows the company benefited from a $2.8 million unusual gain, which improved its net profit to $44.3 million from 2000's $42.8 million (after an unusual loss of $2.5 million).

Mr Darrow doesn't attempt to gloss over this and one of his first comments is to explain that the unusual gain came from a refund of land rates resulting from a successful legal battle with the Auckland City Council.

His first comment is a description of how lower marina income in a non-America's Cup year caused the company's reported revenue to drop 3% to $149.5 million.

What is not explained is how profitable that marina income was and whether the decline was responsible for the fall in Ports of Auckland's gross profitability this year.

Its ratio of gross earnings (ebit) to revenue shows a margin of 42.9% this year, down from last year's 43.3%. However, this is still better than 1999's margin of 38.2%.

Notes to the accounts show revenue on port property fell from $18.7 million to $12 million and net profit from $12.7 million to $9 million. Its marinas undoubtedly make up a large part of this income.

Another note shows America's Cup Village Ltd (ACVL), the loss-making subsidiary of the port's parent organisation Infrastructure Auckland, paid $1.7 million last year for onshore and offshore licenses and nothing this year.

The note also says ACVL losses "were offset against profits of Ports of Auckland," generating a tax benefit of $7.5 million. This seems odd because ACVL is described as a subsidiary of Infrastructure Auckland, not Ports of Auckland.

Mr Vazey is able to quote the exact number of motor vehicles (145,600), dairy products (480,000 tonnes) and average ship turnaround (14 hours, down from 17 last year). While it is unlikely he carries this information in his head, it is a tribute to the company's computer systems that he is able to find such numbers when he needs to.

The application of technology to what has traditionally been a conservative, labour intensive, utility operation is also shown up in its e-commerce services, which mean 90% of all imports are transacted without paper documentation.

Rather than dwelling on operational minutiae, however, investors look to the chief executive to deliver the big picture.

Fortunately, Mr Vazey also does this, with comments on shipping and port industry trends, capital investment requirements, strategic plans and economic outlook - not bad for what amounts to little more than six pages of text.

The Ports of Auckland report meets stakeholders' need for information in an efficient and presentable manner without resorting to hyperbole or distracting bells and whistles.

This is a measure of a company that believes it can manage its owner's capital effectively - and has confidence in its ability to continuing doing so.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. Internet: www.mcewen.co.nz, Email: davidm@mcewen.co.nz

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