Port operator Asciano (AIO) has survived what amounts to an ever so small downgrading of expectations for its businesses for 2014.
The company’s shares ended 4c higher at $4.88 – on another day in the past week, say Monday or last Friday, it might have been handed a stiffer penalty by nervy investors looking for black lining in every announcement.
But after an analysts trip to assets in NSW on Tuesday, Asciano released details of what it told them late in the day and the market accepted the reduced expectations for 2014 in its stride in yesterday’s big rise.
Asciano reduced its expectations for growth in its ports business in the 2013-14 financial year because of the sluggish pace of economic growth and what it called challenging trading conditions (a phrase favoured by a number of other companies).
CEO John Mullen said the company is responding to the tough trading conditions and weak economy by focusing on cost cutting, and reducing its capital expenditure spending.
The ports and rail company still expects its pre-tax earnings and revenue for the second half of this financial year to be higher than in the first half, but has emphasised the tough economic environment.
Asciano chief executive John Mullen told analysts on Tuesday that trading conditions remained challenging, especially for transport such as its bulk-rail operations, which were linked to a ”soft domestic economy”.
"Despite the difficult environment still expects a positive year broadly in line with previous guidance and market consensus expectations," Asciano said in Tuesday’s briefing documents.
It has revised down its expectations for market growth in container volumes from an annual rate of 4% to 5% to 1% to 2%. He said container handling volumes remained ”slightly negative” in the second half (pointing to weak demand and imports).
But it said that coal haulage operations in Queensland and NSW were still strong.
Asciano’s Patrick stevedoring operations also face a threat from Hutchison Ports, which has begun operations in Brisbane and will open a container terminal in Sydney in 2014.
To cope with the arrival of Hutchison, Asciano is planning to cut costs by replicating its automated terminal in Brisbane at its operations at Port Botany in Sydney.
It already has begun laying off 270 of its 511-strong workforce at Port Botany as it moves to the automated container straddles, which shift containers around the port terminal. This promises significant cost savings, but has taken years to introduce.
Asciano said it will now book all of the redundancy costs – about $17 million after tax – this financial year (which is what analysts call, ‘front loading’).
Construction has also begun on the $383 million redevelopment of its Port Botany container terminal in Sydney which is expected to be finished in around a year’s time.
