Ports of Auckland delivers net profit of $21.1m

20 August 2008

MEDIA RELEASE

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Ports of Auckland delivers net profit of $21.1m

Integrated upper North Island container business may be desirable

Ports of Auckland today announced an after tax net profit of $21.1m for the year ended 30 June 2008.

The Company’s 2007 net profit after tax of $64.6m (restated from $61.1m) included rental income from leases of the Western Reclamation property portfolio and a gain on the transfer of this property portfolio to Auckland Regional Holdings.

Port operations revenue and other income was up 3.9% to $169.4m and reported port operations earnings before interest and tax (EBIT) up 2.3% to $52.8m. Port operations EBITDA was up 5.3% at $71.9m.

Total container business volumes were up 8.8% for the year to 840,993 TEU, with full import volumes up 3.0% and full export container volumes down 2.7%. Trans-shipment volumes were up by 62.6%.

Excluding the loss of Wynyard Wharf volumes, resulting from the Wharf’s transfer to Auckland Regional Holdings in March 2007, General Wharves breakbulk (non-containerised) cargo volume through the Auckland port increased 2.4%. Wynyard Wharf cement and bunker fuel volumes will revert to Ports of Auckland once the relocation of Golden Bay Cement is completed and a planned bunker barge is built.

Vehicle imports were up from 168,299 in 2007 to 173,373, as importers moved to bring cars into the country ahead of new vehicle emission exhaust standards which took effect on 1 January 2008.

Growth was also experienced in cruise liner visits, with 70 calls by 30 cruise liners in the 2007/08 season, compared to 49 calls by 20 liners in 2006/07.

Depreciation and amortisation increased to $19.1m from $16.7m due to the investment in straddle carriers and the expansion of Fergusson Wharf during 2006/07. Interest costs increased from $24.2m to $28.6m.

A final dividend of $7.19m has been declared, payable on 21 August to Auckland Regional Holdings. Dividends paid during the financial year were $22.7m.

Managing Director Jens Madsen said it had been a challenging and exciting year for Ports of Auckland, in tough economic and market conditions.

“We are working proactively to improve our underlying business, constantly looking for new and innovative ways to enhance performance.”

“The international shipping industry continues to face unprecedented fuel cost increases and freight rate pressure due to a global over-supply of tonnage. These pressures – combined with a difficult economic climate - are also felt by the Port sector.”

“Taking a long-term perspective, this past year we have focused on building and re-engineering our organisation to meet the challenges of the future. A new management team is now in place, with a strong focus on productivity enhancements and cost management.”

Mr Madsen said negative factors in the result included the impact of Waikato drought conditions and a loss of volume during the last quarter of the financial year.

However, Mr Madsen said the impact of new business wins, including the return of the Hamburg Sud Trident service in conjunction with the Maersk Line OC1 service to Auckland, and the addition of the reconfigured NZS/X South East Asian Service import call, would flow through to the business in FY09.

“Overall, these recent service changes represent a positive net gain to Ports of Auckland.”

Mr Madsen said a two-day strike and four rolling strikes at the Port’s container terminals in late 2007 had also influenced the result.

“We are optimistic that our Collective Employment Agreement negotiations with the Maritime Union of New Zealand will be concluded within the next few weeks.”

Mr Madsen said Ports of Auckland, and the wider New Zealand port sector, would continue to face significant challenges in the short to medium term.

“Specific risks to the business include market volatility, fuel prices and competitor activity. A soft economic outlook is expected to impact on FY09 results and volumes.”

“We are focused on building our business for the long term, as shown in the Port Development Plan released in late 2007, and the completion of our capacity study. We are currently reviewing the optimum timing for our envisaged capacity investments.”

Mr Madsen said the Company’s focus on productivity had begun to pay off, with crane rates improving 5.7% from FY07 to FY08, and staff hours per container continuing to reduce.

“We have been able to achieve modest overall price increases following the renegotiation of a number of customer contracts during the year. In total, however, these gains are not sufficient to entirely offset ongoing cost pressures.”

“Looking forward, Ports of Auckland’s natural advantages include scale, proximity to New Zealand’s largest market and the ability to cater for larger ships without significant channel dredging.”

“These factors mean that, as the trend to larger ships and hubbing continues, we are well-positioned to capture future container trade growth, in the interests of the upper North Island and indeed of New Zealand as a whole.”

Integrated upper North Island container business may be desirable

The sustainability of New Zealand’s existing port sector investments, the industry’s ability to invest in the future, and the global competitiveness of the country’s supply chain might be assisted by the purchase of Port of Tauranga’s container business by Ports of Auckland, Mr Madsen said.

“It is widely recognised that structural changes are needed in the port sector. Although the 2007 Port of Tauranga/Ports of Auckland merger proposal was not successful, the rationale for changes in the industry in the upper North Island is still strong.

“In the face of tough competition from the Australian ports, New Zealand needs world class port infrastructure and a logical approach to future investment in the port and intermodal sectors.

“A single, integrated container business at the upper North Island would also facilitate a more sensible and coherent approach to investment in supporting infrastructure - in road, rail and coastal shipping.”

“The Ports of Auckland’s container business is New Zealand’s largest and comprises the major part of Port of Auckland’s business,” Mr Madsen added.

ENDS

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