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Lower first half for South Port

Media release

Friday 4th February 2005

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Under-utilisation of container handling infrastructure at Bluff caused by shipping industry cutbacks in response to soaring charter rates has continued to impact on South Port New Zealand Ltd into the 2005 year.

As signalled in the 2004 Annual Report and again at the 2004 Annual Meeting, the 2005 year is shaping as a "more challenging trading period for the Company," said the chairman of South Port, John Harrington.

South Port benefited from strong growth in containerised cargo in the half-year to 31 December 2003 as a result of the Trans-Tasman Butterfly Service calling at Bluff on a weekly cycle.

This service ceased in January 2004 and as a consequence, containerised cargo volumes have shown a decrease. "The inability to date to attract a replacement Trans-Tasman shipping service or coastal container linkage has meant that South Port's marine and cargo handling resources have not been fully utilised."

Secondly, as a direct result of high foreign exchange levels and increasing ocean freight costs, the export of logs through South Port ceased at the start of the current financial year.

"Until such time as these economic factors show improvement, key exporters of logs will be unable to achieve acceptable margin levels and therefore be forced to extract value from their product in the domestic market," says Harrington.

"On a more positive note, firm import tonnages were registered in fertiliser and petroleum products while export volumes saw lifts for sawn timber, medium density fibreboard, pebbles and general cargo."

Recorded cargo volumes at 1,014,000 tonnes in the six months ending 31 December 2004, fell 10% from 1,129,000 tonnes in the previous corresponding period.

Operating revenue was $6,479,000, compared with $7,759,000 in the first six months of the 2004 year.

Earnings before interest and taxation were $1,732,000 ($2,152,000 in 2004). Net profit after taxation at $1,090,000 ($1,310,000 in 2004) is back 18% and is regarded as satisfactory by directors when all external factors are taken into consideration. Included in the interim profit is a one-off property transaction gain of $186,000 (nil in 2004).

Reflecting a more difficult trading outlook, the directors have declared a fully imputed interim dividend of 2.25 cents per share (2.75 cents in 2004), payable on 5 March 2005.

South Port's largest cargo volume customer, New Zealand Aluminium Smelters (NZAS) is evaluating several options related to its long-term energy requirements and some could potentially have a positive impact on South Port. NZAS currently moves over 1 million tonnes of raw material and finished metal annually across the South Port owned Tiwai Wharf.

The chief executive, Mark O'Connor, says South Port is undertaking discussions with a number of shipping companies with a view to filling the cargo distribution gap that exists on southern New Zealand.

"Substantial cargo volumes are being generated in the region and the manufacturing and consumption base in the South is not signalling lower activity levels."

"However, because of the ongoing impact of international freight market conditions and the positioning adopted by major shipping lines servicing Australasia, it is unlikely that new container shipping linkages will be secured in the short term."

The company continues to have the support of its core cargo customers and of the direct calling services Tasman Orient Line and Jebsens International/NZ Lumber Shippers.

O'Connor says South Port believes distribution of containerised cargo by coastal feeder shipping services is "a viable option for international carriers."

"With the increasing cost of vessels and direct port calls, the Australasian shipping environment should eventually reshape to accommodate a more extensive coastal container distribution system."

By maintaining its container handling capacity South Port will be able to act positively to any industry changes.

South Port has provided earnings guidance for the full year with a forecast of a financial result approximately 20%, or $400,000, lower than the $2,042,000 result in full year 2004.

"Notwithstanding this forecast reduction in profitability, South Port will generate a strong operating cash flow in the current financial year, aided by non-cash depreciation charges and limited future capital expenditure demands," said Harrington. "In addition, the directors continue to assess the most effective use of the company's strong balance sheet."

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