Ports of Auckland Ltd’s profit shrank in the year to June and the company has declared no final dividend for its owner, Auckland Council.
The company also envisages cutting dividends from 80% of after-tax profits to 20% for the next 2 years to fund its investment programme.
The port company released its annual report on Friday. Company chair Liz Coutts put the result this way:
“Behind Ports of Auckland’s red fence, our people have quietly been delivering change. An amazing amount of change. We have achieved a number of world & New Zealand ‘firsts’. We continue to adapt to meet the demands of a growing Auckland & regional New Zealand, while also being a sustainable business. We are investing in new technology & our people to ensure we are a world-class port company. This year’s report provides a look at some of our key transformation projects.”
Key financial points (2018 in brackets):
Pretax profit, down 27.5% to $62 million ($85.5 million)
Group revenue, up 2% to $248.1 million ($243.2 million)
Reported net profit after tax, down 29.8% to $53.9 million ($76.8 million)
Underlying profit after tax, down 24% to $45 million ($59.2 million)
Return on equity, down 33.6% to 10.1% (15.2%)
Capex, up 8.6% to $104.8 million ($96.5 million)
Dividends – interim down 21.6% to $18.6 million ($23.8 million); no final dividend ($27.3 million)
The report gives blunt reasons for less profit & more costs:
Underlying profit fall: as a result of reduced space due to automation work, the loss of a service and a cyclical decline in car volumes
Capex increase: to increase capacity & productivity and improve safety
No final dividend & cut in next 2 years’ dividends: to fund the port investment programme.
The number of cars brought in through the port was up by just 1424 from the previous year to 218,651, but the dwell time – the average time it takes to move every car off the wharf – was down 24% to just under 2½ days. That, & other volume statistics:
Container volumes, down 3.5% to 939,680 (973,722) TEU – 20ft-equivalent units
Cars & light commercial vehicles, down 14.3% to 255,252 units (297,678)
Bulk & breakbulk volumes (including cars & light commercial vehicles), down 3.3% to 6.5 million tonnes (6.8 million tonnes)
Non-car bulk & breakbulk volumes, up 7.4% to 3.7 million tonnes
Containers moved by rail, up 17.5% to 107,755
Cruise ship visits, up 17.6% to 127 (108)
Cruise ship passengers, up 21.3% to 330,088 (272,060)
Transforming the port
While talk of shifting the port continues to be raised occasionally, which the annual report acknowledges, chief executive Tony Gibson focused on transforming operations, including on-land freight movement, transport alternatives & hubs:
“Significant progress has been made on the automation of our container terminal. Most infrastructure work is complete, and we are now in the final phase of testing.
“We have started construction of a new car-handling building, which will increase capacity at our car terminal. It is due to be completed in August 2020.
“We took delivery of 3 new container cranes, and commissioning has now been completed. The cranes are being used in automation testing.
“We opened the first customer facility at our Waikato Freight Hub and completed construction of a new road connection to the hub.
“As part of our plan to reduce our emissions to zero by 2040, we have bought the world’s first electric tug, and announced plans to build a demonstration hydrogen production & refuelling facility, which is due to open in 2020.
“We have received consent to dispose of dredged material at sea, in one of 5 official New Zealand disposal sites.
“We are preparing a consent application to deepen our shipping channel and are aiming to lodge the application later in 2019.”
What Mr Gibson had to say in the annual report about getting freight to & from the port is worth contemplating, because the solutions aren’t straightforward:
“While we are making considerable efforts to increase port capacity & efficiency, the off-port supply chain is under pressure and remains a constraint on the efficient movement of freight in & out of the port, and around the country. Investment is needed in road & rail to support Auckland’s growth and, while the port works 24/7, distribution centres, importers’ warehouses & empty container depots largely do not.
“As a result, the port is often busy with trucks during weekdays, but has ample capacity on weekends & at night. A shortage of truck drivers makes it hard for trucking companies to find enough staff to be able to utilise the off-peak hours, and a chicken-&-egg situation has developed. For example, empty container depots could open 24/7 but won’t unless there is demand, but the demand can’t be created because there aren’t enough truck drivers.
“This year we have been working with others in the supply chain industry to find ways to solve this problem. Some of the answers lie in our own business rules, which we can use to incentivise behaviour change. For example, this year we have introduced a fee for trucking companies that book slots to pick up containers from the terminal but do not use them. This wastes capacity that could be used by other companies. The change has resulted in an 84% reduction in no-shows. We are working on other ways to increase the off-peak use of container terminal capacity, but this is a harder problem to solve and will take some time.
“For rail, the main limiting factor at present is cost. It is the flip side of having a perfectly positioned port. Because we are in the central city, the destination for imports is close by. Delivery to & from Auckland is fast, cheap and comes with fewer carbon emissions than it would for containers delivered to other ports. But this works against rail. Trucking is faster & cheaper over short distances. Moving containers by rail has other benefits, which aren’t necessarily reflected in the price. If we can encourage more containers to be moved by rail to our freight hubs, there will be fewer trucks in the city centre, and fewer of the negative impacts associated with trucking: emissions, noise & congestion.
“To overcome this, we are working with KiwiRail to try to increase the efficiency of our rail service and increase the number of rail services to the port. This is not to say trucks are bad – they are an essential part of the supply chain – but there simply isn’t room on the roads for all containers to be moved by truck. We are also keen to reduce the external impacts of the port on local communities, and these include the impacts of trucks.
“Looking to the future, we are aware that the successful implementation of our freight hub strategy will mean more containers are carried by rail, especially from our Waikato Freight Hub. The completion of the city rail link will deliver a significant increase in passenger services. Together, this means that while current rail capacity is sufficient, there is an urgent need for more investment in infrastructure on the main trunk line between Southdown & Wiri, and possibly further south, to cater for future growth. We are pleased that the current Government is backing rail and has expressed support for the construction of a third & possibly fourth rail line in this area. Known as the third & fourth mains, construction of both would future-proof rail capacity in this area for both passenger & freight growth.
“We look forward to the release of the Government’s rail strategy later this year, which we hope will clarify the date of construction for this & other important rail infrastructure.
“The road network is also problematic, with the link from the port to the motorway along the Strand & Beach Rd often congested. Auckland Council’s city centre masterplan refresh includes plans for the Strand, with suggestions that it be widened & ‘boulevarded’ to improve access & ‘liveability’. It is good to see some progress on plans for this important access route, but we have yet to see the full detail and there is no start date for the necessary work.”
Attribution: Company release, annual report.