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STATEMENT OF CORPORATE INTENT YEAR ENDING 30 JUNE 2013

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Newcastle Port Corporation Statement of Corporate Intent 2012-13

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CONTENTS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. PURPOSE OF THE CORPORATION OBJECTIVES OF THE CORPORATION NATURE AND SCOPE OF OPERATIONS STRATEGIC DIRECTIONS MAJOR STRATEGIC INITIATIVES FINANCIAL PERFORMANCE TARGETS CAPITAL WORKS PROGRAM SOCIAL PROGRAMS AND NON-COMMERCIAL ACTIVITIES FINANCIAL ASSET AND LIABILITY MANAGEMENT RISK OVERVIEW AND IMPACTS STATEMENT ADDRESSING SHAREHOLDER ISSUES HALF YEARLY REPORT AND OTHER INFORMATION QUARTERLY REPORT OTHER INFORMATION TO TREASURY REPRESENTATION AND COMMITMENT STATEMENT 1 1 1 2 3 4 4 5 6 6 6 7 7 7 7

ACRONYM
BP Cape Vessel EBITDA AIFRS Mt Mtpa NPC NSW Panamax Vessel Ports Act PSOL PWCS SOC Act SCI SVA TAMS TCorp TEU tpa Treasury WACC

DESCRIPTION
Business Plan A large cargo vessel that is greater than 55,000 gross tonnes Earnings Before Interest, Tax, Depreciation and Amortization Australian Equivalent International Financial Reporting Standards Million tonnes Million tonnes per annum Newcastle Port Corporation New South Wales A mid size cargo vessel that is between 35,000 and 55,000 gross tonnes Ports and Maritime Administration Act 1995 Port Safety Operating Licence Port Waratah Coal Services State Owned Corporations Act 1989 Statement of Corporate Intent Shareholder Value Add Total Asset Management Strategy NSW Treasury Corporation Twenty Foot Equivalent Unit Tonnes Per Annum NSW Treasury Weighted Average Cost of Capital

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1.

PURPOSE OF THE CORPORATION

The purpose of Newcastle Port Corporation is to provide safe, effective and sustainable port operations and to deliver efficient port development that enhances the economic growth of the Hunter Region and New South Wales.

2.

OBJECTIVES OF THE CORPORATION

The principal objectives of Newcastle Port Corporation are prescribed in the Ports and Maritime Administration Act 1995 and the State Owned Corporations Act 1989 as: to be a successful business and, to this end: to operate at least as efficiently as any comparable businesses; to maximise the net worth of the States investment in the Port Corporation; to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate these when able to do so; to promote and facilitate trade through its port facilities; to promote and facilitate a competitive commercial environment in port operations; to improve productivity and efficiency in its ports and the port-related supply chain; to ensure that its port safety functions are carried out properly; where its activities affect the environment, to conduct its operations in compliance with the principles of ecologically sustainable development contained in s6(2) of the Protection of the Environment Administration Act 1991; and to exhibit a sense of responsibility towards regional development and decentralisation in the way in which it operates.

3.

NATURE AND SCOPE OF OPERATIONS

Section 10(2) of the Ports and Maritime Administration Act provides that the principal functions of Newcastle Port Corporation are: (a) (b) (c) to establish, manage and operate port facilities and services in its ports; to exercise the port safety functions for which it is licensed in accordance with its operating licence; and to facilitate and co-ordinate improvements in the efficiency of the port-related supply chain.

In order to meet its objectives and perform these functions Newcastle Port Corporation provides the following services in the Port of Newcastle to port users and other stakeholders: Port operations provide a safe, navigable deep water port at the Port of Newcastle; co-ordinate vessel movements into, out of and within the Port; provide pilotage services for vessel movements into, out of and within the Port; provide wharf and cargo handling facilities; promote and facilitate a competitive commercial environment in port operations; co-ordinate handling of dangerous cargoes in the Port; and co-ordinate response to any spill of oil or noxious chemicals.

Port development develop port assets to attract new port business or to provide enhanced service to existing customers; attract private sector investment to develop port assets for new port business or to provide enhanced services to existing customers; and provide opportunity to new or existing port customers to lease land in the Port to develop facilities to handle cargo or provide enhanced port related services within the Port.

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Port Supply Chain facilitate and co-ordinate improvements in the efficiency of the port-related supply chains.

Over the next four years there are no substantive activities that Newcastle Port Corporation plans to divest.

4.

STRATEGIC DIRECTIONS

Newcastle Port Corporations strategic direction for the period from 1 July 2012 to 30 June 2015 (the SCI period) is focussed on fulfilling its purpose and meeting its prescribed objectives. The key elements of that strategy are: For Newcastle Port Corporation SAFETY is its number one priority. NPC is committed to the safety of its people and has actively sought to establish a strong safety culture in NPC and across the Port of Newcastle. Newcastle Port Corporation is committed to building a SUSTAINABLE BUSINESS having regard to all of its statutory objectives. NPC will continue to focus on increasing shareholder value and returning an appropriate dividend to Government. NPC will through the publication of its Strategic Development Plan for the Port of Newcastle communicate the plan for the efficient long term development of the Port of Newcastle. NPC will continue to provide quality technical advice to Government. NPC will comply with all of its legal responsibilities including performing all its port safety functions as required by the Port Safety Operating Licence and the port security obligations under the Marine Transport and Offshore Facilities Security Act (Cth). NPC will ensure it has the people, the assets, the know-how and the culture to meet its objectives and deliver a consistently high standard of service to its customers and to anticipate and deliver the future needs of its customers. Newcastle Port Corporation is committed to GROWING TRADE and IMPROVING PRODUCTIVITY & EFFICIENCY in the Port of Newcastle and in the supply chains that support the Port. The coal producers that export through the Port of Newcastle have made long term contractual commitments to significantly increase coal exports at the Port of Newcastle. NPC will ensure that the Port of Newcastle is able to handle this growth. Through its role as a member of the Hunter Valley Coal Chain Co-ordinator NPC will with industry identify and seek to address any constraints that may prevent the Hunter Valley Coal Chain efficiently exporting all coal exports contracted by the coal terminals. NPC will continue to advise Government on coal chain issues and if industry is not able to adequately address any constraints in the coal chain, NPC will make appropriate recommendations to Government on any required action. NPC will provide the framework to grow trade through the Mayfield site. NPC will expand its non-coal bulk commodities by facilitating the development and operation of new bulk liquids facilities in the Port and to continue to work with customers to address supply chain constraints and develop new opportunities to expand.

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Newcastle Port Corporation is committed to FOSTERING COMPETITION in the Port of Newcastle. NPC will encourage viable competition within the Port of Newcastle. NPC will seek to prevent the use of Port facilities or access to the Port by any operator in a monopolistic or anti-competitive way. NPC will have regard to the State and National competition Issues when dealing with major port development projects. Newcastle Port Corporation is committed to DELIVERING OPPORTUNITY FOR THE HUNTER REGION. NPC is providing enhanced community interaction with the Port through a strategy involving: community sponsorships, education; information; Port access and information points; and Port tours. Newcastle Port Corporation has a set of VALUES that it holds and expects its people to keep. NPC is committed to safety, customer service, teamwork and leadership. NPC does not tolerate: unsafe acts, double standards, bullying or harassment.

5.
5.1

MAJOR STRATEGIC INITIATIVES

NPCs Coal Export Strategy

NPCs strategy for managing the growth in export of coal through the Port of Newcastle has a number of components: supporting the Hunter Coal Export Framework as the mechanism for providing access to and growth in coal export terminal capacity; effective planning of the Port that provides for expansion of coal export infrastructure in the Port to occur on Kooragang Island; ensuring that NPCs operations are resourced (or readily able to be resourced) to ensure that it can meet the coal export task of the Hunter Valley Coal Chain; utilising the Hunter Valley Coal Chain Co-ordinator and internal resources to understand what assets and resources will be required and when; utilising the Hunter Valley Coal Chain Co-ordinator as a forum to engage with the coal industry on how to efficiently address potential constraints in the Port and how they might be overcome; through the Hunter Valley Coal Chain Co-ordinator engage with the coal industry on constraints in other parts of the coal chain that might affect throughput through the Port; and continuing to review the HVCCC and the coal chain generally to assess how efficiently it is operating and advise Government on such issues including any recommendations for regulatory action.

5.2

Executing NPCs Mayfield Strategy

Newcastle Port Corporation has a long standing strategy to grow non-coal trade through the development of the Mayfield site. NPC will continue to pursue the development of the site in accordance with that strategy. NPC notes that the NSW Government through Transport for NSW is developing the NSW Freight and Port Strategy pursuant to its obligations through the COAG process to prepare these strategies as New South Wales response to the National Port Strategy and National Freight Strategy. NPC is working with Transport for NSW on the NSW Freight and Port Strategy.

5.3

Executing NPCs Bulk Liquids Strategy

Newcastle Port Corporation has identified the import of bulk liquids as a major growth opportunity for the Port. NPCs strategy for growing bulk liquids trade is to establish a bulk liquids precinct at the Western end of the Mayfield site with a dedicated bulk liquids berth with future bulk liquid opportunities to be developed in the precinct.

5.4

Executing NPCs Non-Coal Trade Strategy

Newcastle Port Corporation has a strategy to grow non-coal dry bulk, general cargo, break bulk and project cargo through the integrated management of NPCs seven multi-product common user berths. The strategy involves seeking to more effectively utilise NPCs assets so as to better serve the customers requirements, avoid demurrage on non coal vessels and to grow trade.
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5.5

Publishing the Strategic Development Plan

Newcastle Port Corporation has developed a Draft Strategic Development Plan for the Port of Newcastle. NPC will seek stakeholder and community comment on the Draft Strategic Development Plan and after having regard to that consultation NPC will move to publish its Strategic Development Plan. The Strategic Development Plan will guide the development of the Port of Newcastle over the next 30 years and will be the key planning tool for engaging with the Newcastle and Hunter community concerning the Port.

6.

FINANCIAL PERFORMANCE TARGETS

Newcastle Port Corporation has identified the following financial performance targets which are consistent with the corporate direction and the commercial performance objectives: improve coal trade revenue; improve non-coal trade revenue; improve commercial property revenue; control and minimise expenditure; target capital investment on delivering long term benefits to the Corporation; achieve an agreed overall return on assets and dividend to Government; achieve equal or better than the TCorp cash hourglass facility benchmark return on funds invested; and limit exposure to debt interest rate risk.

Trade forecasts have been determined on an individual commodity basis, using information supplied by customers, industry bodies and research organisations. Trade forecasts are used in a model to calculate income. It has not been necessary to use Treasury data on macro economic forecasts for this analysis.
Table 1 Annual Financial Performance Targets (Tabling Version) 2011-12 2012-13 Actual SCI Earnings before Interest, Tax, Depreciation and 41.92 38.06 Amortisation ($m) Earnings before Interest and Taxes Operating Profit Before Tax Operating Profit after Tax Target Dividend Payout Ratio Return on Average Assets Return on Average Equity ($m) ($m) ($m) (%) (%) (%) 36.30 28.08 19.55 70. 7.5 6.6 31.92 24.71 16.70 70 6.3 5.4

2013-14 Forecast 47.37 41.08 33.03 23.02 70 7.9 7.0

2014-15 Forecast 57.73 51.29 44.61 31.13 70 8.8 7.9

2015-16 Forecast 68.70 61.57 52.82 36.87 70 9.2 8.0

7.

CAPITAL WORKS PROGRAM

In accordance with the Premiers Memorandum No 2001/18 (Working with Government State Infrastructure Strategic Plan) and the Total Asset Management Manual 2002, Newcastle Port Corporation has prepared a Capital Investment Strategic Plan as part of its asset maintenance strategy. Newcastle Port Corporations capital investment program has been developed through a strategic review of the top priorities identified. Capital investment is a major contribution to achieve Newcastle Port Corporations organisational goals. The investment program has been formulated to: ensure NPC complies with its regulatory and statutory responsibilities; maintain or enhance NPCs service delivery through the renewal of key port assets; and
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facilitate growth in trade or commercial property revenue through investment in infrastructure.

Newcastle Port Corporations capital allocations are determined through a process of annual review of the twenty year Capital Works Plan and adjustment of the annual Capital Works Budget. Table 2 provides forecast capital works expenditure for 2011-12 financial year and the following three years. A number of capital projects in forward years are subject to shareholder approval and are therefore indicative only.
Table 2 Capital Works Program Overview and Financing 2011-12 2012-13 Actual SCI $000 $000 Program by Component on Capital Works: Requirements for Growth 1,425 15,310 Requirements for Renewal or Maintenance 7,990 1,855 of Assets Capital Expenditure Needed for Regulatory 355 1,005 Compliance Internal funding Borrowings 9,770 14,014 4,156

2013-14 Forecast $000 4,090 6,972 440 11,502 -

2014-15 Forecast $000 2,000 9,075 150 11,225 -

2015-16 Forecast $000 50,030 3,195 190 21,927 31,488

8.
8.1

SOCIAL PROGRAMS AND NON-COMMERCIAL ACTIVITIES

Social Programs

Table 3 Non-Commercial Activities Major Sponsorships Program Title Total Program Cost 2011-12 Projection 2012-13 SCI 2013-14 Forecast 2014-15 Forecast Mandate

Maritime Festival long standing sponsorship of this community festival on N/A the Port. Conservation Volunteers Australia program to address noxious weed in area adjacent to $36,000 the Port. Hunter Valley Research Foundation long standing sponsorship of this regional not for N/A profit economic and social research institution Starstruck long standing sponsorship of N/A regional school music and dance event.

$25,000

$25,000

$25,000

$25,000

NPC Board

$12,000

$12,000

$12,000

NPC Board

$9,000

$9,000

$9,000

$9,000

NPC Board

$9,000

$9,000

$9,000

$9,000

NPC Board

8.2

Non Commercial Activities

No non-commercial activities are planned to be undertaken.

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9.
9.1

FINANCIAL ASSET AND LIABILITY MANAGEMENT

Investment

During the SCI and Business Plan period Newcastle Port Corporation will hold minimal cash in investments. The funds will be very short term and used for cash flow management purposes only. The Corporation has adopted a risk management policy for investment management that provides appropriate controls on NPCs investing powers. Newcastle Port Corporation will benchmark its investment performance against the TCorp cash facility. Newcastle Port Corporation is currently using TCorp as an investment fund manager.

9.2

Debt Position

Newcastle Port Corporation has a NSW Treasury approved borrowing global limit of $85 million with approval to access the TCorp come and go facility up to $30 million. As at 30 June 2012 the current capital value of the core debt was $67 million and consists of both floating and fixed debt. TCorp currently manage the Corporations debt portfolio in accordance with NSW Treasury endorsed risk management policies.

9.3

Derivatives

Newcastle Port Corporation has NSW Treasurer approval for the use of derivatives for financial risk management purposes. NPC has approved TCorp trading in derivatives for the purpose of moving the Corporations debt position within predefined limits to minimise debt servicing costs. Permitted derivative instruments are as follows: interest rate futures; interest rate swaps; basis and coupon swaps; forward rate agreements on interest rates; options on interest rate futures; options on interest rate swaps; options on Treasury Corporation bonds; and other interest rate options related products including caps, collars and floors.

9.4

Superannuation

The following details are provided for the defined benefit superannuation position of NPC as at 30 June 2012: $M Funding (all schemes) Liability (all schemes) Under funded superannuation Book carrying value 36,362 (41,986) (5,624) (5,624)

10. RISK OVERVIEW AND IMPACTS

The major risks and potential impacts are addressed in NPCs risk register which was reviewed by the NPC Board in March 2012. A copy of the risk register is attached.

11. STATEMENT ADDRESSING SHAREHOLDER ISSUES

The Corporation has not been advised by the Voting Shareholders of any issues to be addressed in the Statement of Corporate Intent.
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12. HALF YEARLY REPORT AND OTHER INFORMATION

Pursuant to Section 23 of the State Owned Corporations Act 1989, the Newcastle Port Corporation Board will deliver to the Voting Shareholders, one month after the end of the first six months of the year, a half yearly report on the operations of the Corporation. The financial statements contained in the half yearly report will be general purpose reports prepared in accordance with Australian accounting standards including AASB1029 Interim Financial Reporting.

13. QUARTERLY REPORT

Newcastle Port Corporation Board will deliver to the Voting Shareholders, one month after the end of each quarter, a quarterly report on the Corporations operation.

14. OTHER INFORMATION TO TREASURY

Newcastle Port Corporation will submit to NSW Treasury: forecast financial statements via the Treasury On-line Electronic System (TOES); forecast financial distributions and tax equivalents via the budget round forecasts; and forecast capital works program via CAPTOES.

15. REPRESENTATION AND COMMITMENT STATEMENT

The Board of Newcastle Port Corporation confirms the following: The performance targets within the Statement of Corporate Intent are based on and supported by the Corporations Business Plan. The Corporation has a Strategic Asset Management Plan, which is as far as practicable consistent with the principles of the Total Asset Management (TAM) requirements for updating the NSW State Infrastructure Strategy (SIS) (TPP 08-2) and the NSW Government Procurement Policy (TPP 04-1). Its asset maintenance policies and processes are adequate and appropriate to manage and control risks associated with physical assets. Where relevant and applicable, the Corporation will comply with the NSW Government Procurement Policy (TPP 04-1) for budget-funded procurements of goods or services including construction, except for any accreditation schemes which form part of this policy. The Corporation will comply with requirements for major infrastructure coordination and delivery to the extent that these apply to State Owned Corporations. Where relevant and applicable to the Corporation, Projects of State Significance have been identified in accordance with the criteria set down in the Guidelines for the Assessment of Projects of State Significance (TPP 02-4). In-principle approval from Cabinet Standing Committee on the Budget (Budget Committee) and final approval from the Voting Shareholders has been received for Projects of State Significance planned to commence in 2012-13. The requirements of the Financial Appraisal Guidelines (TPP 07-4) have been complied with for capital expenditure projects proposed to commence in 2012-13. All known key risks and major emerging contingent liabilities which could materially impact the current and future results of the Corporation have been disclosed.

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As a SOC, the Corporation will comply with NSW Treasury Circulars on accounting policy matters applicable to SOCs, as listed in Attachment 1 of the Guidelines for Developing the 2012-13 Statement of Corporate Intent and Statement of Business Intent. The Corporation is aware of the internal audit and risk management policy outlined in NSWTC 09/08 Internal Audit and Risk Management Policy and the associated TPP 09-5 Internal Audit and Risk Management Policy for the NSW Public Sector. The Corporation has demonstrated its own practises are consistent with standards recommended for Australian Securities Exchange (ASX) listed companies and where appropriate, has applied any additional requirements that are set out in NSWTC 09/08. The requirements of the Treasury Management Policy (TPP 07-7) have been complied with and related party interests, which may represent a possible conflict of interest for Directors have been disclosed. The Corporation will comply with the NSW Government wages policy. The Corporation was consulted, but not directed to comply with the Premiers Memorandum No 2010-03, Strengthening Aboriginal Employment Opportunities and Community Partnerships; the Corporation acknowledges and supports the objectives of Memorandum No 2010-03. The Corporation will comply with the requirements of Premiers Memorandum No 2009-04, Official Travel within Australia and Overseas. The Corporations Chief Executive Officer has an employment contract and performance agreement. The employment contract is appraised annually with the next appraisal scheduled for October 2012. The Corporations Board agrees to provide the Voting Shareholders with financial and other information, including information on major capital expenditure projects, on a quarterly basis to assess the performance against commitments in this SCI and to assess the value of the Shareholders investment in the business. The Corporations Board agrees to comply with Section 3.4 (Continuous Disclosure) of the Reporting and Monitoring Policy for Government Businesses (TPP 05-2).

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Newcastle Port Corporation Statement of Corporate Intent 2012-13