Cargo business may dampen POT's margins

By Phil Boeyen, ShareChat Business News Editor

Wednesday 21st November 2001

Ratings agency Standard & Poor's has expressed some concerns over the Port of Tauranga's (NZSE: POT) recent purchase of local cargo company, Owens Services BOP.

The agency has assigned the port company a BBB+ long-term rating and A-2 short-term rating with a stable outlook, but says the ratings have been constrained by the Owens purchase.

"While POT's business position is strong, the acquisition of Owens will see a step change in its operating profile and somewhat constrains the rating.

"The concern is that the marshalling business is labour-intensive, it presents some business integration risks with existing operations, and will increase the company's exposure to the highly cyclical log trade."

S&P says the latest ratings reflect the port's position as NZ's largest bulk export port by volume and its improved competitive position for container trade, as well as its moderate financial profile.

"Offsetting these strengths are the port's modest service area and low cargo diversity, and its evolving business profile with the acquisition in October of Owens Service BOP."

S&P is forecasting that the Owens business will depress the port's operating margins to about 40% from 58% in the 2001 financial year.

"Furthermore, the higher interest expense associated with the doubling of total debt to $185 million in fiscal 2002 will restrain a material improvement in the earnings in the near term."

The agency says the forecast capital program is not onerous but comments that "the port's demonstrated appetite to pursue growth strategies adds some uncertainty to the future capital needs."

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