Record cargo and profit, but future unclear

Mark O'Connor
Mark O'Connor
South Port has delivered a record profit on record cargo volumes, largely from dairying, fertiliser and petroleum, marking the 20th anniversary of its stock market listing.

However, clouds are forming on the horizon with the dairying downturn, the possible effects of the Fonterra-Maersk transport network and the future of the Tiwai Point aluminium smelter, all major contributors to South Port operations.

South Port pushed a record 2.72 million tonnes of bulk cargoes across its wharves for the year to June, boosting port and warehousing revenues by 7% to $31.3 million, with after-tax profit up 2.8% to a record $6.5 million; beating its own earnings expectations.

The 16c-per-share dividend takes the full-year dividend to 22c, equalling last year's, with a total payout of $5.64 million.

South Port chief executive Mark O'Connor said the record 2.72 million tonnes was slightly ahead of the record set in 2012.

''The 8% improvement in volume was largely driven by stock food and logs while other cargo categories maintained their more recent buoyancy.

''Imported stock food volume was double the full-year 2013 level, registering a new record for this cargo category,'' Mr O'Connor said.

In taking into account several cyclical cargo factors, Mr O'Connor said for 2015 South Port was forecasting a similar overall cargo level but a slightly lower level of after-tax profit.

Craigs Investment Partners broker Peter McIntyre said the year's trading was a ''very positive result'' and good management left the port company with a strong balance sheet.

Dairying and forestry had been strong contributors, offering good revenue, but he questioned how much growth might be ahead from those sectors.

''Its a question of whether the [commodities] cycle has hit a peak and if this is as good as it gets. It's going to be a challenge for South Port to repeat the last two or three years,'' he said.

Mr O'Connor said cargo tonnage from New Zealand Aluminium Smelters (NZAS), owned by mining giant Rio Tinto, was ''steady'' and the Tiwai plant continued to focus on achieving further business efficiency gains.

''[However] key decisions will be required by this significant customer within the next 18 months as it works through the implications of potentially securing a reduced contracted parcel of electricity from Meridian Energy,'' he said.

Tiwai Point was unable to be sold by Rio Tinto and took a contentious $30 million Government handout to continue operating in 2013. The lifespan of the ageing, loss-making Tiwai Point is secured only until early 2017.

Mr O'Connor said despite a recent trend of falling global dairy prices, participants in the sector would have experienced ''strong financial returns over the past season''.

''The dairy industry continued to be an important contributor to South Port's overall activity, providing a growing volume of import and export cargoes,'' he said.

Port chairman Rex Chapman said in his business outlook, that a major topic preoccupying the freight industry was the ''flow-on effect for cargo providers'' of Kotahi; a new freight alliance with Fonterra and Silver Fern Farms, which delivers more containers to Port of Tauranga, and shipping giant Maersk.

''We believe that the significant scale of the freight now being directed by Kotahi/Port of Tauranga/Maersk will send ripples out into the New Zealand market''.

Time would tell whether this ultimately resulted in less competition and capacity and created higher costs for some exporters and importers.

South Port noted the downturn in the international softwood chip commodity market, resulting in lower annual volumes.

Log exports surged to their highest level at 390,000 tonnes, and while demand had softened, logs, woodchips and sawn timber represented almost 25% of South Port's total cargo volume.

Fertiliser and petroleum products remained ''sizeable bulk cargoes'' and contributed positively to overall performance, both delivering volumes which tracked closely to the year's buoyant levels, he said.

A slow first quarter saw overall container handling decline from 34,800 last year to 32,700.

Mr O'Connor highlighted South Port's investment in a second mobile harbour crane and forklift, for $6.3 million, which is aimed at maintaining competitive shipping options for local shippers. More staff would be hired in the months ahead.

Mr McIntyre said while the investment was a positive, given the strong sources of export products, there remained questions over longer-term growth prospects.

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