Chairman’s Address – Annual Meeting 2008

12 November 2008

CHAIRMAN’S ADDRESS – LYTTELTON PORT OF CHRISTCHURCH ANNUAL MEETING 2008

Chairman Rodger Fisher’s address to the Annual Meeting held at 11am on 12 November 2008 at the Christchurch Town Hall.

“The 2008 financial year has been a very positive one for Lyttelton Port of Christchurch, producing strong results in terms of profit, revenue, volumes and productivity. Despite the wider challenges we face, and the impact of increased operating costs, it is pleasing to see that LPC continues to perform strongly.

In the 2008 financial year we recorded positive movement in all financial indicators. This year we reported a higher Net Profit After Tax than anticipated at the beginning of the financial year. NPAT was $10.3 million, which was 7.3% higher than that reported for the 2007 financial year. Earnings Before Interest, Taxes, Depreciation and Amortisation were $30.9 million in the year ended 30 June 2008, and this represented an increase of 14.9% on last year’s figure of $26.9 million. Revenue rose to $83.4 million for the 2008 financial year, which was 9.2% up on 2007’s figure of $76.4 million.

In light of these results, the Board of Directors declared a dividend of 3.6 cents (fully imputed for tax) for the second half of the 2008 financial year. This dividend will be paid out today. This brought the total dividend paid out of operating profits for the 2008 financial year to 5.1 cents per share.

I would now like to talk about our people. It disappoints me that people who should know better still comment on LPC’s poor industrial relations record. Today it is not correct and this is something I fell very strongly about. People are the cornerstone of the port’s operation, and without their contribution the port could not achieve results such as those I have just outlined. Our operational staff work in all weather conditions, 24 hours a day, seven days a week, loading and unloading the goods that keep Canterbury moving. Management, staff and unions have continued to work well together this year.

Within LPC significant change has occurred that has resulted in the development of more co-operative and constructive working relationships. The signing of a second three year Collective Agreement in May this year is indicative of these advances, as are increases in productivity and improvement of service levels.

A major achievement for us this year was the successful settlement of the main Collective Agreement with the Combined Unions. This new main collective agreement – covering the majority of our operational staff – was again agreed for a three year period. The new employment agreement took effect as of 18 April 2008, following directly on from the expiry date of the previous three year agreement. The relatively quick resolution to this negotiation was reflective of the willingness of all parties to come to a mutually acceptable solution with minimal disruption to our customers. It provides LPC the internal continuity and stability which is necessary to secure and grow our business.

It has also been particularly pleasing to note the contribution our staff have made to our business efficiencies. In the Container Terminal alone labour productivity increased by 8.8% last year.

Management has also noted that staff are keen to see the equipment they use given more functionality, so that they can increase productivity even further. This very good work has not gone unnoticed by our customers either. Several shipping lines in Australia recently commented to Peter Davie and Marketing Manager Derek Nind on the improved productivity at Lyttelton Port of Christchurch.

Our Management team have been instrumental in achieving these successes, and on behalf of the Board of Directors I congratulate them on a job well done. With their input we have made significant advances to our internal culture, we have improved systems and procedures resulting in further efficiencies, and we have maintained and gained new services. The Board and I are very comfortable with our Management team’s abilities to guide the company through the uncertain times we are all likely to face going forward. Managing costs are going to be a major focus for us all.

This year it is even more difficult for any company to predict the economic future. Economic conditions worldwide seem set to continue worsening and there appears to be no prospect of any immediate significant change to that situation. However, fuel prices have dropped markedly and are forecast to continue to decrease, which is certainly positive news for our industry. At LPC our fuel expense for a year is $3-4 million.

This is now the interesting part. You will be pleased to know that the results for the first four months of the new financial year have been better than expected – particularly in light of the economic recession both locally and globally. Volumes in the Container Terminal for the first four months of the year are up 7% compared to the same period last year. However, while Container Terminal volumes continue to be strong, we remain mindful of the current global conditions, and are therefore cautious about the remainder of the financial year.

Coal volumes to 31 October are up 52% on the same period last year; however, we expect the full year volumes to be 10 – 15% above last year. We continue to work closely with Solid Energy New Zealand regarding their ongoing service and infrastructure requirements.

These increases in coal and container volumes have contributed to a pleasing growth in total revenue, up almost 9% on the same period last year. We are, however, seeing a decrease in car volumes which reflects the impact of changes to emissions regulations that were introduced in February this year. Such a decrease is also to be expected in the current economic climate.

I’d like to commend our staff on handling the increased container volumes, and I am particularly pleased with productivity improvements. For the first four months of the new financial year the average crane productivity has increased 4% on the same period last year.

Net Profit for the first four months is up almost 25% on the same period last year. This is driven by higher revenues and some deferred expenditure, which will be incurred later in the year. However, we are cautious regarding the remainder of the year, given the recessionary environment we are in and the future likely impacts of the financial crisis.

We are a company that is volume driven and we have quite high fixed costs. With what we are seeing coming out of Europe, China, USA, Australia and to some degree New Zealand we cannot expect to be immune.

On that basis as of today, we continue to expect the full year’s Net Profit After Tax for the year ending 30 June 2009 to be approximately $10m, plus or minus 5%, which is in line with our earlier forecasts.

We will be able to give a further update at the time of releasing our six months result in February 2009.

Last month we announced publicly that a Memorandum of Understanding had been signed between Port Otago Limited and Lyttelton Port Company to explore a merger of their respective port operations. The focus is on operational integration to strengthen the performance and future of both companies. Both our Board and the Port Otago Board believe that significant efficiencies and other benefits that could not otherwise be achieved will result from the proposed integration.

This - while only stage one of the process - is a significant step forwards in port rationalisation, a path we believe is imperative for the long term sustainability of New Zealand ports. The need for port rationalisation within New Zealand has long been recognised. This investigation takes up that challenge.

An operational merger such as this could help future proof both ports and it is important for both LPC and Port Otago to continue contributions to the economy at the same or better level than currently.

Our customers also have specific requirements that necessitate long-term infrastructure worth millions of dollars and an operational partnership could potentially allow for co-ordinated port development.

An element we recognise as important with any future company structure is that each port should retain ownership of its core physical assets such as wharves and land. We recognise this is of significant importance not only to shareholders, but also to local interests. To ensure that core port assets remain in local control, the structure being considered involves the legal separation of the infrastructure assets from the operations and commercial activities that occur at each port.

The integration of the operations of Port Otago and LPC would result in:

Co-ordination of future expenditure to avoid duplication

Reducing the environmental impacts through co-ordinated road and rail use

Increased productivity at each port

The joint development of new services

Significant efficiencies being achieved

A steering group representing both companies has been established to work with an independent advisor to explore the potential benefits and recommend a path forward. We, together with Port Otago, are committed to investigating the potential challenges and benefits of all the options, and then recommending an appropriate path forward. This process will consider the interests of all stakeholders, as well as any legal obstacles to integration.

This is a major step forward. However, whilst there is much support for this process from the two Boards, I must emphasise again that this is the first stage and there is significant work to be done.

Port Otago Chair John Gilks and I are both enthusiastic about beginning this process of exploration and investigation. We are confident that there is a robust process in place to ensure both companies give serious consideration to how the companies could work together in the future in the interests of all stakeholders."

ENDS

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