Port Otago achieves near-record profit, despite Covid-19

Media Release – 30 September 2020

Port Otago Limited has achieved a near-record profit of $50.5 million for 2019/20 and delivered $10 million of dividends to its shareholder, the Otago Regional Council.

Port Otago Chairman Paul Rea says the result reflects the benefit of a balanced portfolio approach to ensure diversity of earnings across businesses reducing the impact of Covid-19. "To deliver such a healthy result during this year – of all years – is a testament to how robust the business is, supported by a balanced risk base."

Revenue from port-related businesses – containers, bulk cargo and cruise – had a challenging year, down 9% on the previous year. While the container business was impacted by Covid-19, it was changes to Maersk networks and a consequent reduction in transship volumes through Port Chalmers that had the most significant impact. Bulk cargo volumes of 1.5 million tonnes were down on the previous year's 1.8 million tonnes, due to lower log export volumes under Covid-19 lockdown restrictions. The anticipated record cruise season was cut short, but still saw 112 ships and 204,000 passengers visit Dunedin – similar to last year's 115 ships and 229,000 passengers.

The financial year result underlined the significant contribution made by Port Otago's property business. The annual revaluation of the investment property portfolio directly impacted on the company's bottom line, adding an unrealised gain of $27.9 million.

Shareholder equity increased to $549 million with an equity ratio of 84% at June 2020. The average return on capital employed was a healthy 9.6% for the year.

Presenting the financial results to Port Otago's shareholder Otago Regional Council today, Mr Rea said the 12-month period included redevelopment of the Dunedin town wharves into a fit-for-purpose Dunedin Bulk Port. "In December, Port Otago acquired the ENZA building and extended the Fryatt Street log yard. Alongside these landside investments, a 20-month project to deepen the Upper Harbour Channel to 8.5 metres was completed. The result is a more efficient and safer channel, allowing larger loads of goods in and out of the Dunedin Bulk Port."

The 2019/20 year also saw further investment in workplace safety. This included on-going installation of hard barriers to separate people from machine, regular safety-focused Runanga, roll out of the TimeTarget rostering software and continual critical risk analysis.

"From a community perspective, our biggest achievement for the year was silencing the problematic Rio class ships. For more than a year, the low-frequency rumble emitted by the Rios disrupted our community. All six Rios now have silencers retrofitted and these ships are now the quietest visiting port. The patience of our community was appreciated, as was the multi-million dollar investment by ship owners Maersk."

Sales of land from the Te Rapa Gateway Industrial Park development were on target at $13.9 million this year, significantly lower than the previous year's total of $22.7 million. The drop in section sales is a result of the Te Rapa Gateway project being more than 75% complete, with the majority of land development costs incurred and sections either sold or held for future warehouse developments.

The construction of two warehouses at the Oak Road Industrial Park in Wiri, Auckland was the major project for the property business during the year at a cost of $20 million. The completion of the warehouses was delayed due to suspension of work on site during lockdown Level 4 but both warehouses were completed just after balance date. One warehouse is already leased long term to the Auckland City Council, with the second currently available for lease.

During the year we completed the construction of two further standalone warehouses of 1700m² and 1300m² leased to NZ Windows and New Zealand Post and six smaller office/warehouse units at the Te Rapa Gateway development. Our property business has developed four larger warehouses and a group of 12 smaller office/warehouse units at Te Rapa, held for long term rental yield. The industrial park is now approximately 75% complete and we have 11 hectares of land available for sale or for design, build, lease opportunities in the future.

Late last year, Port Otago's Board made a commitment to shape the business for future sustainability. Mr Rea: "As a result, this year's annual report is an 'integrated report'. Our strategic thinking balanced a range of objectives when making decisions and prioritising capital and resourcing, but we weren't convinced we had all bases covered. We started with a process to better understand what matters most to our stakeholders and the business. With these material priorities in mind, we have been working on how the port creates value across non-financial as well as financial measures. Mr Rea: "This is a new approach to our business and it will take time to evolve and become imbedded in our thinking. Like Health and Safety is now, it will become something we do every day in every aspect of our business, truly integrated."

Looking ahead, the consequences of Covid-19 are yet to be understood and we anticipate further impacts to global trade, our customers' supply chains and ultimately our businesses. The Government has banned the entry of cruise ships into New Zealand waters and it is uncertain when they will be allowed to return. We continue to support the New Zealand Cruise Association to advocate on behalf of the cruise industry and to work with government agencies and cruise lines to develop safety protocols and processes to enable the safe return of cruise ships to the New Zealand coast. We anticipate no activity from the sector in the coming season, eliminating the contribution from cruise service revenues to the group.

The bulk and container businesses are expected to be impacted by slower global and domestic conditions, providing headwinds for our customers to contend with in the year ahead. Our cost management focus signals the tightening of our belts, considered necessary to balance the needs of the shareholder and the wider stakeholders, particularly our port staff. We will continue to invest for the medium to long term in infrastructure and internal IT systems to support our customers and improve productivity. We anticipate cruise, bulk and container activity to recover in the medium to long term, so the challenge for us is to be a leaner and more efficient business, positioned to support our customers' growth.

Reflecting on the future, we do expect slightly lower earnings from the group in the year ahead. The diversity of our four businesses and the strength of our financial position, provide the resilience needed to ensure Port Otago overcomes any economic downturn and continues to invest to support our customers across Otago and Southland.


Mr Paul Rea Mr Kevin Winders
Chair, Port Otago Limited Chief Executive, Port Otago Limited
Tel 021 993 700 Tel 027 432 1530



Annual Report 2020