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True test of job creation will be its effect on port companies

Friday 3rd March 2000

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It will be interesting to see what effect the government's initiatives to create more new jobs will have on the share prices of listed port companies.

Economic Development Minister Jim Anderton's revamped Commerce Ministry - to be known as the Ministry for Economic Development - and a job-generating Industry New Zealand are supposed to result eventually in thousands of new jobs, but so far the publicity has lacked the nuts and bolts of how the aim will be achieved.

Assuming - and it is a big assumption - Mr Anderton's vision became reality there would be an obvious spinoff to port companies among other groups.

The port organisations are one of the economy's bellwethers, because they handle the country's imports and exports; the trading activities that make the country tick, irrespective of the growing place of services in economic indicators.

The table shows the movement in port company share prices since 1998 and updates a similar table publisher when The National Business Review examined the sector on October 8 last year.

Prices improved in most cases from the levels of last October, increasing the gains from the 1998 lows and, with the exception of Ports of Auckland and South Port, did better than the NZSE 40 capital index over the same period.

Before considering the recent profit performances of the port companies, it is worth looking at the government's ambitions on the jobs front.

No economy just happens to create a massive number of new jobs with the wave of a hand, or a magic wand (for those who prefer cliches) and it is obvious New Zealand is not exempt from that principle.

Mr Anderton said the initiatives on unemployment and its counterpart of job creation marked the end of the "hands off" period of managing the economy and the beginning of a time of partnership.

There was nothing particularly revolutionary in that, apart from the rhetoric.

No country, including New Zealand, has allowed totally free markets and that has included the supposed capitalistic bastion of the US.

Some New Zealand ideologues might say the US would be better off if it stopped intervening in the market through numerous public agencies such as the Securities and Exchange Commission and even its Athletic Commissions, although the latter in some states have had problems controlling some extraordinary activities in sport.

Substantial job creating could happen, depending on how the hands-on and partnership concepts are developed, but any favourable result would be incremental, rather than an instant fix.

Back to the port companies.

Ports of Auckland is the biggest of the five with total assets worth - at book value - $301.64 million at December 31.

The company earned $20.41 million in the six months ended December 31, a 17% increase on the profit of $17.47 million in the corresponding period of the previous year.

There were unusual items, but insignificant in relation to the outcome.

Analysis of the company's earning, provided in the mandatory segment breakdown, showed a modest increase in profit before interest and tax from port commercial operations, but a doubling of gains from port property transaction, compared with the corresponding first half of the previous year (but more than the full-year return) assisted the result.

Ports of Auckland's results benefited from sale of berthing rights at the Westhaven Marina, although the company was optimistic about the future of basic cargo handling activities.

Chief executive Geoff Vazey reported an increase in tonnages through the port and chairman Sir Richard Carter said the outlook for the next six months was sound.

"We are expecting steady returns in the second half of this financial year. The container business, in particular, is operating in a complex and competitive environment."

Sir Richard said there was aggressive competition from other ports and strong pressure from shipping lines on port pricing, but the company was in a strong position for future volume growth.

Lyttelton Port Company had a similar story when reporting a 30.4% in half-year profit for the six months ended December 31.

Managing director David Viles said the company must still deal with the continuing, and considerable, pressure from its customers to reduce prices and continue to find ways to be more competitive in an aggressive business environment.

Nothing wrong with aggressive business environments, but the scheme to increase all those jobs under the government's policy has two sides.

More people in work reduces welfare payments and increases revenue when the employed pay tax.

The other side is the paradox beloved of economists.

More employment could result in inflationary wage pressure, without an increase in overall productivity.

Port companies' share price performance

CompanyMarch 11999/001999/0019981998% change from
(Share prices in cents)2000highlowhighlow1998 low
Port of Tauranga555648400435231+137.6
Ports ofAuckland500720465700475+5.5
South Port 941108011785+9.4
NZSE 40 capital index19972293199723501668+13.7

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