Treasury Business Leader

This is a success story from one of our Members in Treasury Peer™. Tim de Knegt took over in July 2012 as Treasurer at the Port of Rotterdam with a position that could have led to an overhedge. Investments in port infrastructure (existing port area & newly created Maasvlakte 2) simply became much less costly than expected, while the company’s operational results were more positive due to better than expected trade activity. This better than expected situation meant that credit facilities, obtained in 2008, were not used fully in 2012, unlike forecasted prior to obtaining the facilities. This is how a Business Leader solve such challenges.

As reported from the Port of Rotterdam on February 8th, 2013:

THE FINANCIAL POSITION OF THE PORT AUTHORITY DEVELOPS BETTER THAN EXPECTED

Port Authority transfers €290 million to the Dutch State and increases dividend.

Next month, the Port of Rotterdam Authority will transfer €290 million to the Dutch State. This is eight years ahead of the schedule planned in 2005. In 2005, the Dutch State, the Municipality of Rotterdam and the Port Authority agreed that the Port Authority would receive a total amount of €726 million from the Dutch State in 2011 and 2012 as a contribution towards the construction of Maasvlakte 2, and that the Port Authority would pay a similar amount by means of extra dividend to the Dutch State, spread out over a number of years, as of 2021. In addition to this one-off repayment of €290 million, the Port Authority will structurally increase the annual dividend to the Municipality by around €13.3 million and to the Dutch State by around €5.5 million. Paul Smits, Chief Financial Officer of the Port Authority: “The financial position of the Port Authority is developing better than forecasted. This is partly due to fact that the Maasvlakte 2 project is costing less than forecasted. There have been virtually no setbacks during its construction. Last year we entered into discussion with both our shareholders. In consultation, we changed the agreements from 2005 and this allows us to spread our cash outflows over a longer period. That is more favourable for us. At the same time we are meeting the request of the shareholders to raise the dividend in the short term. On balance we pay the same amount in dividend in the end.”

In 2005 the Dutch State, the Municipality of Rotterdam and the Port Authority agreed that the Dutch State would contribute €726 million to the construction of Maasvlakte 2. The Dutch State transferred this amount in 2011 and 2012. An additional agreement was that from 2021 the Port Authority would increase the dividend to both shareholders to 60% of the profit. In the past years this has been around 35% of the profit. The year 2021 was chosen, because the new port area is expected to provide a significant income flow by then.

Combination of developments

The fact that the Port of Rotterdam Authority can already repay a part of the so-called Dutch State contribution to the construction of Maasvlakte 2 as well as increase the dividend from 2013 is due to various developments. The construction of the first stage of Maasvlakte 2 has progressed successfully thus far, investments in the existing port area were lower than estimated in the past years and the Port Authority has kept good control of the operating costs, while throughput also developed positively.

Better distribution of expenditure

The Port Authority has several reasons for revising the agreements. Firstly, the Port Authority expects to invest hundreds of millions of euros in the development of the second stage of Maasvlakte 2 after 2021. The new agreements allow for better distribution of expenditure (dividend and investments) in the next two decades. It was agreed that the repayment to the Dutch State of €290 million and the extra dividend will be deducted from the dividend to be paid after 2021. The agreements have thus no negative effect on the long-term investment programme of the Port Authority which is required to realise Port Vision 2030.

Making use of loan facilities

The second reason is that the loan facilities arranged by the Port Authority in 2008 can be maximally used. Based on forecasted income and expenditure at that time and the associated amount of money to be borrowed, the interest percentage for these loan facilities was fixed with an interest rate swap. This runs until 2032 and does not involve any obligation for collateral. This swap allowed the Port Authority to know how much interest it had to pay in the next years and the company mitigated the risk of increasing interest rates. Due to the favourable developments outlined above, the Port Authority now borrows less money than anticipated in 2008. By repaying €290 million to the Dutch State now and increasing the dividend, the financial facilities will now be used fully.

So far the two shareholders received 4% dividend on the value of the contributed capital in the Port Authority. The Municipality is shareholder for 70.83%, whereas the Dutch State has 29.17%. Together they received €65.1 million regular dividend in 2012: the Municipality received €46.1 million and the Dutch State €19 million.

For further information: S. Poppe, S.Poppe@portofrotterdam.com, +31 (0)10 252 14 27, +31 (0)6 224 66 553