Port of Tauranga

ANNUAL REPORT

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Matters Relating to the Electronic Presentation of the Audited Financial Statements

In relation to the audit report included in the financial statements of Port of Tauranga Limited for the year ended 30 June 2011 included on the Port of Tauranga Limited's website, the Port of Tauranga Limited's Board of Directors is responsible for the maintenance and integrity of the Port of Tauranga Limited's website. We have not been engaged to report on the integrity of the Port of Tauranga Limited's website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and related audit report dated 18 August 2011 to confirm the information included in the audited financial statements presented on this website.

Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
 
Glenn Keaney
KPMG
On behalf of the Auditor-General, Tauranga, New Zealand

CHAIRMAN'S REPORT

Introduction
The past financial year has seen Port of Tauranga's long-term strategy continue to deliver benefits for the Company, the Bay of Plenty region, and New Zealand. We have seen strong growth across most cargoes which, combined with a continued strong focus on containing costs, has seen Group net profit grow by 17.2% in 2010/2011.

Financial Performance
Underlying Net Profit After Tax for the year ended 30 June 2011 was $57.9 million - up 17.2% on last year's $49.4 million underlying Net Profit After Tax (NPAT). Earnings Before Interest Tax Depreciation and Amortisation (EBITDa) is up 16.6% to $109 million, demonstrating the strong cash flows of the Group. Our net debt has decreased $12.4 million to $186.1 million after paying $40 million in dividends and $21.9 million in capital expenditure. Our debt to debt plus equity ratio is at 29.3%, which is a prudent position to be in the current economic climate.

Our diversification strategies have served the Company well as the New Zealand economic recovery over the past year has, as I predicted in last year's report, been "slow and patchy". We are now far from being a bulk and largely log dependent port. Our containerised tonnage now represents 40.5% of total trade.

Earnings growth has come from across the Group, with solid performances reported by our associate companies C3 Limited and Northport Limited and also our recently acquired subsidiary Tapper Transport Limited.

Trade
Overall, trade volumes increased by 12% to 15.4 million tonnes. Imports rose by 14% and exports by 11%. Once again, the strong performing cargoes included forestry products, fertiliser and stock feed supplements. Changes in trade volumes are outlined further in the Chief Executive's review.

Dividend
Directors have declared a final dividend of 21 cents per share, on top of the interim dividend of 10 cents per share. This brings the year's total dividend to 31 cents per share - an increase of 6.9% on last year's dividend distribution.

Directors
Bill Capamagian, who was on the Port of Tauranga Board of Directors for 16 years, retired in December. I would like to thank Bill for his long service. We will miss his good sense and wealth of experience.

Our new independent Board member, Keith Tempest, was the Chief Executive of TrustPower for eight years, retiring in 2009. He is currently a Director of NZ Bus Limited, Crown Fibre Holdings, Transpower Limited and UltraFast Broadband Limited.

Mr Keith Tempest will offer himself for election at the Annual Meeting.

Messrs Parker and Pilkington retire at the Annual Meeting in accordance with the Company's constitution and offer themselves for re-election.

Staff
This Port has a great management team. It is very small in comparison with comparable businesses, comprising five people who work as an integrated team, often working by agreement in each other's titular areas and all attending Board meetings. It's not a common model and possibly only works with very good people. These are very good people!

Throughout the business, Port of Tauranga staff work co-operatively and often multi-task. It's efficient, proves a more interesting work environment and staff turnover is very low. They've performed very well in a year of considerable change and challenge.

Industry Environment
Importers and exporters are increasingly making moves towards greater control and efficiency in their supply chains through integration.

This trend has long been recognised by Port of Tauranga, which is already the most vertically integrated port in New Zealand. We hold investments in other New Zealand ports, stevedoring, marshalling and logistics companies.

We are also the only New Zealand port to promote competition within our container terminal.

Over the past year, we have further developed our freight village at MetroPort Auckland with the addition of a new freight consolidation and warehousing facility - MetroPack Limited. This joint venture with our associate company C3 Limited and subsidiary Tapper Transport Limited is delivering immediate efficiency benefits to our customers.

Log export volumes have continued to strengthen over the year and the demand for New Zealand supply looks to be robust for the foreseeable future. The Ministry of Agriculture and Forestry expects strong demand to continue through 2011 and 2012. This demand is being driven primarily by China, due to strong economic growth and the effects of a reducing supply from Russia - a traditional supplier to China. The consensus is that China's appetite for raw materials will continue, and that demand will also come from other growth economies such as India.

The New Zealand Shippers' Council released its long-awaited report on bigger ships in August 2010. The report suggested that Tauranga should be the first port in the North Island to become 7,000 TEU-ship capable, and that it should be done within five years. That is our intention.

The report recognised that Port of Tauranga's preparations were well underway and noted that the investment required is much less than for other ports. Tauranga also has the space and transport connections to handle larger volumes of cargoes.

Future
Port of Tauranga is an essential infrastructure provider, which requires us to make decisions with a view to the future. We must think about what the Port may need to provide in five years, in ten years, and even 50 years' time.

For that reason, the Board supports an ongoing capital expenditure programme that will see significant investment over the next few years.

Much of this investment will be at the Sulphur Point Container Terminal, which will undergo its first major expansion since it was established two decades ago. The works include wharf extensions, the purchase of a sixth Liebherr gantry crane and the dredging of our shipping channel and berths to handle larger vessels. We intend to maintain our position as New Zealand's most efficient port.

We see this investment as vital to Tauranga continuing to be chosen as the North Island's hub port and New Zealand's Port for the Future.

The Board's policy is to maintain a strong capital base to sustain the future business development of the Group and maintain market confidence. The Board endeavours to strike a balance between the potentially higher returns possible with more borrowings, versus the security afforded by a sound capital base. Our treasury function has been managed to provide some of the lowest interest rates in New Zealand on the debt that we do have.

Whilst the global economic outlook remains uncertain we expect further earnings growth in the coming year.

John Parker
CHAIRMAN