McPherse Thompson, Assistant Editor – Business
A combination of factors, including high electricity costs which increased by 30 per cent despite the adoption of several conservation methods by one of its subsidiaries, resulted in a significant decline in operating profit for the Kingston Wharves group during the last year.
However, the number of motor vehicles handled for the regional transhipment hub and domestic market continued to register gains, accounting for an improvement of 3,902 units or 8.2 per cent, and 2,344 or 25.9 per cent respectively during the year.
The growth in the handling of transhipment motor vehicles, which started in 2010 and saw growth in that year as well as 2011, is expected to continue going forward, chairman and chief executive officer, Grantley Stephenson told shareholders at the company’s annual general meeting at the Jamaica Conference Centre, downtown Kingston on Thursday.
The group recorded a 4.7 per cent or $142.9 per cent increase in revenue, which moved from just over $3 billion in 2010 to $3.1 billion last year. However, group operating profit decreased by 30.48 per cent from $921.7 million in 2010 to $640.8 million in 2011, outweighing the gains made in revenue.
Kingston Wharves, which Stephenson said contributed 87 per cent of the group’s operating profit, achieved a marginal 2.56 per cent increase in revenue from $2.44 billion to $2.50 billion.
However, its operating profit declined by almost 11 per cent from $865.1 million in 2010 to $770.1 million.
The group also reported that the economic downturn and competitive pressure contributed to a reduction in transhipment and domestic container volumes.
Expenses for the terminal operations grew by $356.1 million in 2011 to $1.95 billion from $1.6 billion in 2010. “Increased expenditure for financing, staff costs, utilities and fuel cumulatively accounted for the bulk of the increases in total expenses,” according to Kingston Wharves’ management.
Revenues of the security arm of the group, Security Administrators Limited, increased by six per cent from $386 million to $410 million. However, there were increased expenditures in security fees arising from the government’s increase in the minimum rates payable to security guards, as well as increased rates payable to other levels of security officers and administrative staff.
There was a 21 per cent increase in sales revenue for another subsidiary, Harbour Cold Stores Limited as a result of a renewed demand for storage space in the last quarter of 2011.
However, revenue from interest income declined by 36 per cent in 2011 due to lower interest rates and reduced amount on deposits as a result of a dividend payment of $100 million to Kingston Wharves.
Harbour Cold Stores recorded a pre-tax profit of $51.7 million for 2011, 26 per cent less than the $70.1 million achieved in 2010.
“HCS continues to be adversely affected by the high costs of electricity,” said the management in its report to shareholders, adding that “despite several conservation methods employed, electricity costs increased by 30 per cent in 2011.”
According to the report, “the prevailing negative global economic and political factors continue to impact the drivers of the local economy and the business environment in which the company operates, especially our major customers from the food industry and its network of distributors and retailers whose volumes in storage have diminished.”
Moreover, Harbour Cold Stores “has lost many of its larger business customers who have relocated their cargo to their own cold storage facilities constructed to improve inventory and logistics management and to gain an overall reduction in costs,” the report said.
Stephenson said that “in order to maintain our focus on improving efficiency, during the year we acquired one additional Gottwald crane at a cost of US$3.6 million, and also two Reach stackers at a cost of US$1.1 million.” This brings the number of Gottwald cranes to four and Reach stackers to 11 and according to the company’s financial report, its investment in technology was being done with a view to saving money in the long-term.
The Kingston Wharves CEO said that generally, the tonnage of cargo handled has also declined over the years, again as a consequence of the economic conditions in Jamaica.
“So there are less containers coming in, less general cargo such as cement, steel, lumber and those major commodities,” he said.
At the meeting, shareholders approved, among other things, the appointment and designation of directors to the board of Kingston Wharves consequent to an amendment to the company’s articles of incorporation as a result of the creation of a block of newly authorised shares giving Jamaica Producers Group Limited a bigger stake in the port company.
Shareholders who approved the creation of the new block of shares in March this year, had also agreed to an amendment to Kingston Wharves’ articles of incorporation giving shareholders holding a block of not less than 21 per cent the right to appoint, remove and replace up to three directors.
That amendment is applicable to National Commercial Bank – the largest shareholder in Kingston Wharves – which chose Ramon Pitter, Karlene Bailey and Stephen Lyn Kee Chow as its specially appointed directors to the board.
The amendment is also applicable to Jamaica Producers’ Group, elevated to second largest shareholder by virtue of its 25.46 per cent shareholding in Kingston Wharves. Shareholders also agreed to the appointment of Charles Johnston, Jeffrey Hall and Kathleen Moss as Jamaica Producers’ Group specially appointed directors.