Grantley Stephenson, chairman and chief executive officer speaks about the expansion of Kingston Wharves in this November 2006 Gleaner photo. - File
The servicing of a hefty J$2.6-billion debt, compounded by continuing devaluation and a steep downturn in business, continues to challenge the finances of Kingston Wharves Limited (KWL) even as CEO Grantley Stephenson pores over his business in search of costs to slash without hobbling the port.
Stephenson, who is also KWL's chairman and third largest shareholder, is faced with a high debt financing bill coming off an expansion programme that the port company wrapped up last year.
The debt stock of the listed public wharf, port security and cold storage provider is made up largely of US dollar loans from local bankers FirstCaribbean Jamaica.
The largest loan of US$26.6 million - priced at the US six-month LIBOR plus 2.75 per cent and structured over five and a half years, with an 18-month grace period which ended in May last year - was used to finance KWL's latest berth expansion to accommodate larger vessels.
Development programme
KWL has been borrowing US dollars to pay for its capital development programme since 2005.
"We have been severely hit by the devaluation of the Jamaican dollar and the devaluation was greater in the last quarter than in the first nine months," Stephenson told the Financial Gleaner, bracing for more bad news for the last quarter.
Finance costs amounted to $176 million for the first nine months of 2008, an increase of 31 per cent over the same period in 2007. Charges for the full year reached $183 million in 2007, compared to $122 million in 2006.
The current phase of the capital expansion project, completed since April last year, Stephenson says, has drastically improved the entity's competitiveness amid a 10 per cent drop in business volumes in the third quarter of 2008.
KWL's fourth-quarter financials, expected to be released anytime now, could reflect further negative impact.
"The effect of the global recession on Jamaica was evident from as early as May 2008," said the KWL chief executive, when shipping volumes started to show an appreciable fall-off.
Domestic cargo imports
Not only are some manufacturers and distributors bringing in less raw materials and goods, at times avoiding the port of Kingston to save on wharf costs, but domestic cargo imports have also nose-dived with household barrels from the traditional sources - United States and United Kingdom - declining by up to 18 per cent over 2007.
Kingston Wharves is the minority operator on the port of Kingston, where Kingston Container Terminal (KCT), which recently reverted to management control by its owner, the Port Authority of Jamaica (PAJ), accounts for 80 per cent of port operations by volume.
KWL has also lost some business, valued by the managing director at $100 million a year, to KCT, from some transshipment clients opting for greater synergies and seeking to cut out added costs for the movement of cargo from KW's terminal to the Port Authority's facility for dispatch.
The cumulative effect of the decline in business was reflected in KWL's third-quarter after-tax earnings, which fell by 54 per cent to $31.1 million over the June 2008 quarter.
A less than one per cent increase in revenues to $662 million was overshadowed by a 10 per cent jump in operating costs.
Nine-month profits to September were down 4.3 per cent to $195.4 million from $204.2 million in the same period of the previous year.
Reduced earnings had also been recorded in the second quarter, following a fairly strong performance in the first three months of 2008.
While admitting to an inability to precisely predict the long-term impact of the current downward business trend on KWL's balance sheet, Stephenson was optimistic that his bottom line won't suffer any major erosion.
"The focus is to preserve what we have and I believe our more than 3,000 shareholders can remain confident that we are taking steps to do so."
Top shareholders
KWL's top shareholder is National Commercial Bank; the Kingston Portworkers Superannuation Fund holds the second largest block of shares.
The port's terminal operations contribute about 80 per cent of KWL's operating revenue with subsidiaries Security Administrators Limited (SAL) and Harbour Cold Stores Limited, its refrigeration and cold storage outfit, accounting for the remainder.
For the foreseeable future, Kingston Wharves will focus on the reduction of expenses. A further $5 billion, which two years ago, Stephenson told the Financial Gleaner was required to fully modernise the terminal infrastructure, will not be sourced anytime soon, he says.
"It would be devastating if we were to borrow money now."
Last year the company sent home 30 workers outsourcing 10 of the functions in the cost-cutting exercise, a measure which resulted in a two-day strike at the port. The chairman and CEO declined to say if more staff cuts are on the horizon.
Part of the cost-cutting strategy, he says, has been more attention to preventive maintenance of equipment and the introduction of programmes to monitor maintenance cycles, while eliminating waste.
But not all expenditure is on hold.
Having recently installed a new Tideworks computer system, the same technology being utilised in port operations in Panama, KWL is looking to take its process automation even further with a US$5 million investment over the next five years, funded from revenues.
Kingston Wharves handles mainly domestic cargo import: household shipments, motor vehicles and bulk industrial goods, such as unrefined salt, bulk liquid, fuels, lumber and steel.
In 2003, the company was sold by former owners GraceKennedy Limited, which felt the projected returns on the billions of dollars of investment required to bring the facility up to optimal standards, was not a lucrative proposition.
Since the change of ownership and the injection of capital, Kingston Wharves has almost doubled its revenues from $1.16 billion to $2.6 billion, and has grown its profits.
Attention to sal
Much attention is also being given to growing the subsidiary SAL, which has expertise in port security, particularly, anti-narcotics operations and now provides specialist services to shipping lines as well as consultancy services throughout the Caribbean.
The intention, Stephenson says, is to have SAL provide security services for the entire Newport West.
In the meantime, KWL is highlighting its focus on quality service, having been voted by the shipping lines as the number-one Caribbean multi-purpose port in 2006 and 2007.
Having met and surpassed the target of growing throughput from 250,000 to 300,000 twenty-foot equivalent units (TEUs) from is berths 8 and 9 expansion, the chairman and CEO said investment in physical facility, state-of-the-art equipment and information technology infrastructure is already starting to pay off.
Staff training and retraining have also helped to move productivity - measured as the number of containers loaded or unloaded per hour - from 10 lifts per hour to an average of 23 lifts.
huntley.medley@gleanerjm.com