News

16 February 2015

South Port NZ - Interim Result Announcement

South Port Media Release
Bulk Cargoes drive strong first half for South Port

South Port New Zealand has recorded markedly improved earnings over the six months to 31 December 2014 and Directors have approved an increase in interim dividend.

The Directors are pleased to confirm that in the past six months South Port achieved record first half cargo flows, notably in bulk trades, in contrast to the slow start encountered in the first half of the 2014 financial year.

The Chairman, Mr Rex Chapman, said the cargo throughput of 1.479 million tonnes compared with 1.379 tonnes in the prior corresponding period („pcp‟) and the prior first half record of 1.390 million tonnes set in the December 2011 half.

This level of activity drove a record interim net profit after tax of $3.29 million, compared with $2.68 million in the pcp, said Mr Chapman. The earnings result confirms that South Port has sustained the momentum of the full 2014 year, in which the Company has had a record result of $6.68 million.

The Chief Executive, Mr Mark O‟Connor said cargo volumes were ahead by 110,000 tonnes, an improvement of 8%, with a lift in fertiliser and stock food imports despite farmers in the Southern region facing a low dairy pay-out price.

“Consistent log export and petroleum import volumes along with marginally higher NZ Aluminium Smelters import activity, supported the record throughput. However, there were notable declines in fish and sawn timber tonnages.”

The half year was particularly active for South Port‟s dry warehousing division which handles inbound fertiliser, stock food and dairy ingredients as well as export dairy product. In addition, a range of third party tenants received and distributed fertiliser and stock food product.

Increased volume necessitated deployment of additional resources into the Port‟s warehousing area. The impact of a second milk powder dryer being commissioned at OCD‟s Awarua site was significant with export orders and the packing of containers hitting new monthly highs.

Gauging the level of cargo activity in the second half of FY15 is a more difficult task than normal as the market is currently offering up mixed economic signals. Where South Port had anticipated lower farm inputs driven by the subdued dairy pay-out forecasts, this has not been the case in the December half-year. Similarly an expected reduction in log exports has not eventuated in the interim period despite falling demand indicators originating from the Chinese market.

Mr O‟Connor said the sector in which NZAS operates is encountering some more positive trends.

“Firstly, the international aluminium price strengthened in the second half of 2014, albeit from a low base, and the weakening of the New Zealand dollar has also delivered some much needed relief.”

“However, NZAS continues to face challenges in the form of their current transmission charging mechanism. This relates not to the base electricity supply rate but to the charge method applied by Transpower for the use of transmission infrastructure.”

“If this could be modified to more accurately reflect the actual infrastructure use by NZAS, then not only would the commercial success of the Smelter be more secure, but there would also be an opportunity to reinstate the fourth production line at the

Tiwai Smelter.”

NEW CRANE

South Port received its second mobile container crane in September 2014 and after assembly and testing, the crane became operational in late October. Mr O‟Connor said “the $6.3 million outlaid to secure the new crane and a further container capable forklift represents a significant investment for a regional port operator.” The new equipment has delivered the immediate benefit of improved productivity at the Port of Bluff for MSC Capricorn vessels and enabled a reduced operating window to be scheduled for the weekly call.

“Container shipping rates have fallen more recently in the New Zealand market,” said Mr O‟Connor. “One of the drivers has clearly been the new cargo relationship between Kotahi, Port of Tauranga and Maersk.”

“Over capacity in some key trade lanes has also influenced rates as container shipping lines have looked to offer additional incentives to hold market share in an intensely competitive environment,” he added. ”This is likely to have a flow on impact on the breakbulk shipping lines as well.”

“It will be interesting to observe further changes in the market over the coming 12 to 24 months which will be necessary to drive operational cost efficiency and a potential reset of market freight rates.”

South Port continued to roll out the PACE Process Improvement Programme reviewing existing systems and eliminating waste. The company committed $20,000 to Coastguard Bluff last year to a project funding replacement of the existing Coastguard vessel moored at Bluff.

Mr O‟Connor said there were several business development opportunities. South Port continues to evaluate the development of land at Mersey Street, Invercargill, strategically positioned alongside the rail head.

Pioneer Generation is about to undertake construction of its wind farm at Flat Hill near Bluff and will import and store all related project cargo at South Port over coming months. When completed, the wind farm will comprise of 8 Gamesa Windturbines and be capable of delivering 6.8 megawatts of electricity.

Trustpower continues to list among its potential projects the proposed Kaiwera Downs wind farm, located across 2,568 ha of farmland, approximately 15 kms south-east of Gore.

Shell NZ and consortium partners OMV NZ and Mitsui E&P Australia announced in January 2014 that exploration would start in the Great South Basin around the first quarter of calendar 2016.

“This exploration activity is likely to involve a 50-60 day operating period with the planned one well drilling exercise involving a significant operating outlay by the exploration consortium. In the event that a commercial volume of gas is identified in GSB it will take a minimum of 5 years to convert the prospect to an operational stage.

“South Port and regional stakeholders continue to interact with oil and gas exploration companies and remain optimistic about the energy potential available in the Great South Basin.”

OUTLOOK

Looking to the remainder of the current financial year, South Port believes it is prudent to project a softening in fertiliser, stock food and potentially fuel consumption by the farming sector.

“This will likely affect the remainder of FY15,” said Mr Chapman. “Notwithstanding that assumption, the second half of the financial year is traditionally a busier and more profitable 6 month period so a solid contribution to the bottom line is still predicted.” Further, additional resources and therefore costs have been introduced into the business to manage the consistent growth of cargo and warehousing activity over several years.

Based on all presently known factors, South Port estimates that its full year earnings should be in the range of $6.5 million to $7.0 million (FY14 $6.68 million).

After assessing the anticipated year end result, the Directors have declared a fully imputed interim dividend of 7.00 cents per share (2013 – 6.00 cents) payable on 10 March 2015.

FOR FURTHER INFORMATION PLEASE CONTACT:

Mr Mark O’Connor

Chief Executive

South Port New Zealand Ltd

Tel (03) 212 8159


Mr Warren Head

Managing Director

Head Consultants Ltd

Tel (03) 3650 344

Mobile 021 340 650