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Monday, 27 May 2013

APMT's portfolio shifting weight from mature to emerging markets

APM Terminals is going to focus its investments on emerging markets, where it can set up facilities to unlock bottlenecks, CEO Kim Fejfer told Port Finance International. An example of this strategy is the Badagry project, in Nigeria, which he says will be “by far the largest port in Africa.”

APMT will not however neglect mature markets, where it sees a need for modern infrastructure to accommodate ultra-large vessels. The company is thus developing a fully automated terminal in Maasvlakte 2, the extension of the port of Rotterdam which opened to shipping last Wednesday.

APM Terminals posted a profit of $166M for the first quarter of this year, compared to $226M in Q1 2012, when gains were registered from the sale of Maersk Equipment Service Company ($48M) and the sale of half of its stake in the port of Xiamen, China ($21M). “If you exclude the extraordinary gains from the first quarter of 2012, then our earnings are up compared to last year,” said Kim Fejfer, adding that the return on invested capital was 12% in Q1 2013.

“We are quite satisfied with our performance. What has not totally lived up to our expectations is the volume development,” APM Terminals’ CEO said during the phone interview with Port Finance International.

APMT handled 8.6 million TEUs between January and March, exactly the same as during Q1 2012. “We were flat in terms of volume when the market was up by 2-3%,” said Fejfer. He linked it to the overweight of Northern European and Northern American ports in the group’s portfolio, adding that he expected to see a change “in the coming quarters.”

From a two-speed to a three-speed market

“Since the global financial and economic crisis in 2008 and 2009, we have seen what we call a new normal, with a lower general growth in the container industry than what we were used to before,” he said. He described a strong divide between “emerging markets which have grown very well and mature markets which have grown at a much more modest pace.”

According to him, the situation has recently evolved from a two-speed to a three-speed market for container trade. Northern, Southern and Western Europe, together with the United States, Japan and Korea, are facing “decelerated growth”. He predicts these mature markets will now grow by 3% a year. The second group he identifies includes Eastern Europe, Central and South America, and South Asia, where “it’s healthy but it’s volatile.” A “strong and solid growth” is only to be found in Africa, the Gulf, South-East Asia, and China. There he predicts a 7-8% annual growth.

In those different markets, APMT implements different strategies. “In mature markets, where growth is slow and where bigger and bigger vessels are coming in, you see a need for true world-class operations. And that is what we focus on in those markets,” said Fejfer. “In emerging markets, it is more about finding bottlenecks in the supply chain and then help countries and the industry to unlock these bottlenecks by placing infrastructure in these locations.”

Asked how APMT would allocate its future investments between these different types of markets, Fejfer answered: “I’d think that the majority of our investment will be towards developing markets. This is where there is a real need for new infrastructure.”

He gave the example of Nigeria, which suffers from port congestion. “The country is booming. Container volumes grow by 8 to 10% on an annual basis. And by 2017, there will be no more capacity available.” Lagos, 10 million inhabitants, is “the second fastest growing city in Africa, the seventh fastest growing city in the world right now. So there is immense pressure on the city’s transport infrastructure. And Lagos is the gateway for cargo in and out of Nigeria, handling almost 90% of the container traffic.”

APMT is already present in Nigeria: in Onne and in Apapa, the port of Lagos. “We are improving and expanding our current facility. But the really exciting thing that we are working on right now is the port of Badagry,” Fejfer said.

Located 55km west of Lagos, Badagry was chosen by APMT for this greenfield project. Announced last year, the complex is to include a free-trade zone and a port for container trade, bulk, liquid and general cargo, Ro-Ro, as well as support facilities for oil and gas exploration. “It will be by far the largest port in Africa: 7km of quay wall,” said Fejfer.

The budget will be “very substantial”, he added, and APMT will be the main funder, although it is working with partners. Among these partners are Macquarie, Terminal Investment Limited (TIL), and Nigerian companies Orlean Invest and Oando. Backed by the Port Authority, the Lagos state, and the federal government, the project is on the right tracks, said the CEO. Construction is due to start early 2014.

Asked which current APMT investments seem most promising, Fejfer replied: “The ports that we develop in South America – in Costa Rica, in Mexico, and in Brazil – are very promising ports, from a demand point of view. There is a substantial need for new infrastructure in those places. I also think that the port we are developing in Rotterdam, in Maasvlakte 2, is very exciting. When that port opens, it will be the most modern container terminal in the world, fully automated from the quayside until the container is loaded on a truck.”

Construction of the jointly owned Brasil Terminal Portuario, in Santos, Brazil, has been completed and operations are expected to commence during this quarter.

In the last quarter, APM Terminals has won a concession in Turkey and another one in Ivory Coast, while it has agreed to sell part of its stake in a Belgian terminal. All of which seem part of a strategy to balance its portfolio, by reducing the group’s presence in mature markets while increasing it in emerging ones.

In summer 2015, APMT will start operating the Aegean Gateway Terminal (AGT) which Petkim, the Turkish subsidiary of Azerbaijan’s state oil company, is building in Nemrut Bay, near Izmir.

In a consortium with Bollore Africa Logistics, APM Terminals also won a 21-year concession for Abidjan’s second container terminal, which is expected to start operating in 2016.

Meanwhile, the Netherlands-based operator decided to sell to China Shipping Terminal a 24% stake in APM Terminals Zeebrugge, Belgium. The operation, scheduled to be finalised in late June, will bring down its own share from 75% to 51%, enough to remain the majority shareholder.

Because the whole thing is about balancing, not divesting.

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