ASSOCIATED BRITISH PORTS HOLDINGS PLC TRADING UPDATE – YEAR ENDING 31 DECEMBER 2004
In keeping with its usual practice, Associated British Ports Holdings PLC is today issuing its trading statement for the year ending 31 December 2004, prior to the group’s preliminary results announcement, scheduled for 16 February 2005.
HIGHLIGHTS
The key highlights are as follows:
- Turnover from the core UK ports and transport activities for the year ending 31 December 2004 is expected to increase by at least 4 per cent compared with the previous year.
- Underlying operating profit from the UK ports and transport activities for the year ending 31 December 2004 is expected to grow by some 3 per cent compared with 2003.
- £90.4 million of the £130 million share repurchase programme announced during 2004 has been completed.
- The current £130 million share repurchase programme is to be extended by £75 million to £205 million.
PORTS AND TRANSPORT – UK
The UK ports business has continued to develop during the first 11 months of this year.The group’s core business once again benefited from volume growth across its key trades including roll-on/roll-off trade, deep-sea container traffic, vehicle exports, coal imports, and cruise-ship call volumes.Consequently, turnover from the group’s UK ports and transport operations is expected to increase by at least 4 per cent in the year to 31 December 2004.
As previously reported, the cost reduction programme implemented during 2003 will reduce the group’s operating expenses by at least £3.0 million per annum from 2004 onwards.However, these savings will be offset by a reduction in operating profit at ABP Connect, the group’s value-added services operation, following the previously reported decision by Cobelfret to leave the Port of Immingham this October, together with congestion charges (demurrage costs) incurred by the Port of Immingham following strong demand for imported coal. As a result, underlying operating profit is expected to increase by some 3 per cent.
In line with the group’s strategy to grow existing business and develop new business through rigorously targeted investment, new revenue-related investments contracted so far during this year total more than £80 million.These projects have construction lead times of up to two years and will contribute to the group’s results only once they become operational.In particular, the group is pleased with the progress it has made with its major growth projects on the Humber Estuary.During 2004, the group reached agreement with DFDS Tor Line for the £27.5 million development of a roll-on/roll-off riverside terminal at the Port of Immingham, and with BHP Billiton, Drax Power, EDF Energy and International Power for the £44.5 million development of a further riverside terminal for coal imports at the Port of Immingham.Having now received the necessary planning consents, the group has commenced construction of both facilities, which are expected to become operational during the course of 2006.
In addition, the Department for Transport is currently considering the necessary planning consents for the development of a £30 to £35 million shortsea container riverside terminal at the Port of Hull.
The development of a fourth riverside terminal at the Port of Hull also continues to be explored.
PORTS AND TRANSPORT - USA
The performance of AMPORTS, the group’s business in the USA, has continued to improve.Vehicle volumes grew by 4.8 per cent in the first 11 months of the year, led by increased KIA imports into AMPORTS’ facility at Baltimore, Maryland, and increased General Motors’ imports into AMPORTS’ terminal at Benicia, California.
Notwithstanding the weakening of the US dollar against sterling, turnover from AMPORTS’ ports and transport operations (which excludes property investment income) is expected to be similar to last year.Operating profit, which has benefited from increased vehicle storage revenue and reduced overhead costs following last year’s streamlining and relocation of the head office to Jacksonville, Florida, is expected to improve by at least 30 per cent compared with 2003.
PROPERTY INVESTMENT AND DEVELOPMENT
The group’s policy of selling non-operational, port-located property and exploiting the potential of its property portfolio continues. As previously reported, operating profit from property investment rentals in the UK and USA for 2004 will be lower than 2003 due to sales made last year and during the course of this year.
Following the sale of Caspian Point, the group’s last office development in Cardiff Bay, to Norwich Union for £16.5 million in May, the group expects turnover from property development to be substantially up on the corresponding period one year ago.As the overall base sale price of all of the assets sold to Norwich Union was broadly equal to their net book value, property development operating profit is expected to increase modestly.
By the end of 2004 the group expects to exceed its initial target of £200 million of non-core property and land disposals set at the beginning of 2000.Earlier this year this target was extended by a further £50 million to £250 million.
ASSOCIATESSouthampton Container Terminals and Tilbury Container Services have generated growth in container throughput in the first 11 months of the year of 5.3 per cent and 11.1 per cent, respectively.Consequently, operating profit from the continuing operations of associates for 2004 is expected to be above the level achieved last year.
The sale of the group’s 45 per cent interest in the Cardiff Bay Partnership to Norwich Union was completed in May.Up to the date of sale, the Cardiff Bay Partnership contributed£0.8 million to operating profit.It will be reported as a discontinued operation in the 2004 results.
EXCEPTIONAL ITEMSIn April, the Government rejected the group’s application to develop the Dibden Terminal deep-sea container port at Southampton.As a result the group incurred an exceptional charge of £44.9 million in this year’s interim results.
As previously reported, Cobelfret, a roll-on/roll-off customer of ABP Connect at the Port of Immingham, moved to a competing facility this October. In order to achieve a reduction in the group’s cost base following this move, the group is undertaking a voluntary early retirement scheme for UK employees, together with a restructuring of ABP Connect’s operations.This will result in a one-off exceptional charge of some £7.0 million this year and will produce annual cost savings of at least £4.5 million from the beginning of 2005.The group is in active discussions with customers concerning new roll-on/roll-off business to fill the spare capacity created by Cobelfret’s departure.
NEW ACCOUNTING STANDARDS
The group adopted Financial Reporting Standard (FRS) 17 – Retirement Benefits in full in 2004.This has no impact on the group’s cash flow.As reported at the time of the 2004 interim results, pre-tax profit for the previous year has been adjusted and reduced by £11.1 million for comparative purposes.
The group’s FRS 17 surplus as at 31 December 2003 was £34.4 million and the group’s main defined benefit pension scheme remains in surplus today.
The group’s project to assess and plan for the adoption of International Financial Reporting Standards (IFRS) from 1 January 2005 is well advanced.The group intends to provide a reconciliation between its UK GAAP and IFRS results for 2004 prior to the publication of its first set of IFRS results.
SHARE REPURCHASE PROGRAMME
In April, following the Government’s decision not to approve the Dibden Terminal development, the group announced its intention to commence a new £100 million share repurchase programme to increase the efficiency of its capital structure.Following the sale of its property interests in Cardiff Bay, the group extended this programme in May by a further £30 million. To date, the group has completed £90.4 million of this programme by repurchasing 20.3 million shares at an average price of 445 pence per share, before costs.
Against the background of the group’s strong operating cash flow, and having considered the future capital requirements of the group, the directors have decided to extend the current share repurchase programme by a further £75 million.It is intended that this additional £75 million of capital will be returned to shareholders over a three-year period commencing after the completion of the previously announced £130 million programme.The directors believe that the extended share repurchase programme will result in the group’s gearing level returning to its previously stated range of 50 to 70 per cent.
BORROWING FACILITIES
In November, the group completed the refinancing of its existing revolving credit facility with a new £600 million revolving credit facility that expires in February 2010.The new facility provides the group with improved pricing and increased financial flexibility.Together with the group’s existing £295 million of outstanding Eurobonds and its strong operating cash flow generation, the group is well placed to fund its 10-year investment programme of at least £400 million in its core UK ports business and its share repurchase programme.
PROSPECTS
The group will continue to concentrate on the development of its major growth projects on the Humber Estuary.Construction of the first two of these projects, involving a combined investment of £72 million, has already commenced and they will become operational and start contributing to the group’s operating profit during 2006.
The core UK ports business, the primary driver of the group’s performance, is expected to grow by some 3 per cent in 2004.The group also has the competitive advantage of many long-term contracts secured over recent years with quality customers.This leads the board to believe that the group is also well positioned to deliver growth in the UK ports business in 2005.
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