Chief Executive's Report
Alec Don, Chief Executive, Port of Milford Haven
Alec Don
Chief Executive, Port of Milford Haven

In 2017 the Port achieved a turnover of £22.4m and profit before tax of £2.6m.With profit at less than half the figure for 2016, the numbers demonstrate very forcefully the continued impact of extreme volatility in our earnings from Liquefied Natural Gas (LNG).

Total volumes through the Port in the year were 32.1m cargo tonnes, down 2.8m tonnes from the previous year. The balance of where our revenues come from is, however, steadily changing. In August, the Port completed the acquisition of Havens Head Retail Park, and new development is now underway at Milford Waterfront. On a full year basis, the five major terminals handling large vessels now account for just over 60% of our revenues compared to 70% in 2015, and the Group generated operating cash flow of £7.6m. Whilst we are reducing our dependence on earnings from energy fuels, they are still the majority of our business.

LNG

The Port of Milford Haven is a deep water port and the UK’s largest energy port. The infrastructure and the skill base retained along the Waterway is positioned to accommodate very large vessels safely, efficiently and without harm to our natural environment. This requires substantial and continuous investment over a long cycle which is not matched by the pattern of trade, specifically of LNG throughput. To illustrate the volatility, in 2011 the Port handled 126 LNG vessels. In 2013 this had fallen to 54, rising again to 91 in 2015, before falling to a low of 36 in 2017 - just over one quarter of the throughput in 2011. This volatility is driven by the differential in the price of wholesale gas in the UK market compared to other markets such as the Far East and Latin America. The impacts of this are potentially substantial, not only in terms of the over-arching ability of the Port to finance its investment plans, but also simply in the context of delivering a sustainable marine operation able to support the trading patterns of its customers over the cycle.

Operating Costs

At the headline level, total operating costs appear relatively stable at £19.8m in 2017 compared to £19.9m in 2016. This does however mask a number of pluses and minuses that warrant explanation. Pension costs in 2017 were, at £2.3m, nearly £1m higher than in the preceding year. This additional charge taken through the profit and loss account is based on a technical calculation driven by accounting standards of the true annual cost to the Port of funding pension obligations. The calculation is highly dependent on current long term interest rates which reduced significantly in 2016 and which led to the £6.6m reversal of the Port’s scheme into a 10% deficit position shown in 2016’s accounts. The accounting entries serve to underline why, in terms of employee benefits, it is now almost universally the case that businesses have moved substantially towards offering defined contribution schemes only. The Port’s policy is to provide employee pay and benefits in line with the median market and therefore it is currently consulting on a move to a defined contribution scheme for new employees.

Strategy

Against this background, the Port is moving forward with plans for new development and investment at Milford Waterfront and Pembroke Port. Our vision for Milford Waterfront is to create a desirable place to live, work and play. The development will bring together innovative leisure experiences, smart living and vibrant retail spaces creating almost 600 new jobs in Milford Haven. Intrinsic to the plan is to revitalise the fishing industry based at Milford Waterfront and to stimulate opportunities for businesses to diversify into onsite processing and aquaculture. Construction of the first new build property is now underway at Milford Waterfront and our revised plans have been substituted in connection with finalising the outline consent. It is pleasing to report that, as a result of addressing community concerns, the proposed entrance arrangements have been successfully amended, completely removing the need to relocate the listed Old Docks Office building - a substantial heritage gain achieved through close collaborative working with the Welsh Government and Pembrokeshire County Council. It demonstrates the important role played by all our stakeholders in delivering our goals. Having acquired Havens Head Retail Park we are now also investing in our capacity to market and grow Milford Waterfront as a visitor destination within Pembrokeshire.

For Pembroke Port the vision is no less forward looking. The global face of energy is changing; hydrocarbons remain a key commodity but are fast being joined in importance by renewables and our activities and investments look to accommodate both industries. Pembroke Port is envisaged as the heart of a new development, Pembroke Dock Marine, which seeks to support the growth of marine renewables. The revised facilities will also have relevance to multiple marine facing industries such as boat building, ship repair, nuclear, and other project-based fabrication and logistics which will help attract additional industries and increase supply chain resilience. Significant progress was made in 2017: The Swansea Bay City Deal (SBCD) bid, which is expected to deliver £1.3bn investment into the Swansea Bay City Region, was signed by Theresa May with Pembroke Dock Marine accounting for £76m of this package. The Port has subsequently committed to an early stage investment of up to £650,000 to go through the design and consenting process for the proposed changes to its port infrastructure.

Both of these plans are closely aligned with the objectives of the Wellbeing of Future Generations Act, the Welsh Government’s Economic Action Plan and the UK Government’s Industrial Strategy. All of these depend upon the delivery of a prosperous local economy with good career opportunities that allow individuals to approach life with growing levels of confidence, prosperity and personal fulfilment in a clean environment rich with culture and vibrancy. We see clear alignment between these aims and our own vision to ‘Build the Haven’s Prosperity’.

Our focus is to establish strong clusters of interrelated activity able to attract inward investment, increase opportunities for Pembrokeshire’s existing businesses and grow the region’s economy. The gain is not just for industry; enhanced revenues will drive higher taxes which can be invested within the region’s social services and there will be employment and upskilling opportunities to drive enhanced personal growth.

Brexit

Britain’s expected exit from the European Union continues to be negotiated by the Government. We do not see that our investment plans will be substantially affected by the outcome of the Brexit negotiations, although it is possible to envisage that some of our business areas could be affected. We have been working with national and local politicians and industry to provide information and work towards beneficial outcomes. With our ferry operation in mind, we have set out to ensure that any future border relationship with Ireland is structured to minimise financial impact and maximise growth for both Ireland and Wales. We continue to represent the needs of our fishing fleet including our Belgian and Spanish customers who provide opportunities for local inshore fishermen to access higher value markets via cost effective logistics. With Welsh control of quotas alongside new fleet investment, we believe there could be a substantial opportunity to provide additional support and breathe new life into this valuable industry.

We do believe that post-Brexit, the level of competition between regions and between countries will increase. We therefore continue to make the case that, as it takes back control, Britain in general and Wales in particular need to adopt an industrial and development strategy that empowers port areas to attract investment and drive economic activity and growth.

Safety and the Environment

The Port is a complex environment with multiple operations. At all times our focus is to ensure that all these operations are running safely and people are protected in their activities. A lot of work has been undertaken in 2017 and is ongoing to review our Safety and Environmental Management System, as well as reviewing our Risk Register and strengthening the performance of our Assurance Framework, which is designed to use near-miss data to analyse events and improve our operation.

Alongside the rest of the UK, increasing attention is being paid to mental health. We signed a Mental Health pledge with Time to Change Wales which has in turn led to the development of a wellbeing programme. I am delighted to report that after a successful partnership with the Paul Sartori Foundation in 2017 as our Charitable Cause of the Year, staff have voted for Mind Pembrokeshire to be our Charitable Cause of the Year in 2018.

We remain vigilant towards Waterway pollution and place emphasis with all the major users of the Haven on recording all spills, no matter how small. We conducted a major multi-agency pollution exercise during 2017 to test our combined response capability.

Closer to Home

The Port is fortunate to have a dedicated body of staff who are fully committed to doing their jobs to the highest possible standards and working together as a team to ensure, first and foremost, that the Port is a safe operation.

Our challenges include being able to adapt to the opportunities and challenges thrown up by changing digital horizons. I continue to be amazed at our employees’ ability to simultaneously deliver our daily operations whilst also driving internal change. Change that occurs at a seemingly ever-increasing pace yet is vital in ensuring we continue to deliver excellence and support regional growth.

Our staff are the lifeblood of our business and I thank them for making it a success. We have many longstanding employees at the Port who have worked hard to shape our business. They are joined this year by new team members across the organisation and together we will learn from each other and shape the direction of our united futures.

I would also like to personally recognise Bill Hirst, who retired as Harbourmaster and a member of my Senior Management Team, after almost 18 years’ service with the Port. Bill played a key role in coordinating the safe arrival of the LNG industry to Pembrokeshire, and we wish him well in his retirement.

Prosperity

We firmly believe that prosperity is greater than just increased financial wealth - it is about developing opportunities for employment, upskilling, and enhancing personal wellbeing. We work tirelessly on delivering that prosperity, moving forward with steady confidence. It is unquestionably a challenge to have to deal with the extreme volatility of the energy markets.

We have to face these challenges head-on but, with both Pembroke Dock Marine and Milford Waterfront now emerging as plans in delivery mode, the Port is playing a key role in creating a new economic reality for Pembrokeshire.

Alec Don

Chief Executive