Port goes through growth phase

By David McEwen

Friday 4th October 2002

A port can make a country's economy.

Singapore, which used its position on the world map to create one of the busiest ports in the world, which became the engine room for its economic growth, is a good example.

Auckland, too, was founded on its port, which was a key factor in its establishment in 1840 as the country's capital.

The latest Ports of Auckland annual report makes a feature of this heritage, comparing today's high-tech methods and products with the wool, timber and kauri gum that made up the main exports early on. Refrigeration opened the market for lamb and then containerisation changed everything, transforming cargo handling from muscle power to machines and computers.

The port has poured millions of dollars into building its infrastructure to handle container ships. This week it was rewarded with the contract to handle the new-generation 4100-TEU containerships of the P&O Line, after a tender process hotly contested by other ports.

The port's report for the year ended June 30, 2002, spells out how importantly it perceived its need to win this tussle for the mega containers and much of its content is an unabashed to pitch for the business.

It offers a "scorecard" where the port's investment in "fast new cranes, state-of-the-art tugs," technology and other features are catalogued in point form.

This is another example of how an annual report can aim to address different audiences, whether customers, shareholders or suppliers.

The company is paying a fortune for this glossy document, so it might as well milk it for all its worth. And it is a comprehensive document. It covers every aspect of the port's businesses, right down to every oil split or environment incident of the past year, and how it was dealt with.

The port demonstrates its commitment to stakeholder communication by including a rare item. This is a "reader feedback" postcard, which asks readers to rate the report for presentation, clarity of information, range of issues covered and so on.

They are then urged to post it back after identifying themselves as shareholders, media, institutional investors and so on. This is an effective and very cheap way of improving the port's communications.

Another nice touch is the display, in its statement of corporate governance, of a list showing the number of meetings each director was supposed to attend and the number they actually arrived at.

While commonplace overseas, this information is not often displayed in local reports. Aside from anything else, putting these statistics on public record must improve meeting attendances no end.

When it comes to making a profit, ports aren't expected to be market darlings. Steady growth a few percentage points above the inflation rate usually suffices.

However, Ports of Auckland has done a lot better than that.

In the year to June, earnings before interest and tax rose by 10% to $70.4 million, on a 6% increase in revenue to $158.5 million. Earnings per share were up 8% to 36.1c

Chairman Neville Darrow warns, "The coming year is likely to be challenging in an economic climate that is showing few signs of growth." But that was before he heard the good news about Ports of Auckland winning P&O's container handling business.

Ports of Auckland is one of those companies many investors are happy to tuck away into a corner of their share portfolio and forget about. They know it will plod away steadily, never producing great returns, but also seldom disappointing.

With its low debt and reliable cashflows it appeals to income investors not too fussed about the share price.

That has been the track record of the shares until October 2000. Since then the share has delivered a surprising burst of energy, rising from $3.50 in October 2000, to around $6.10 now.

The port's increased popularity as a freight hub servicing the wider North Island market is driving this growth. Short-term sluggishness aside, this trend is likely to continue.

David McEwen is managing director of the Investment Research Group. www.irg.co.nz, davidm@irg.co.nz

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