Strategic Report

Strategy

The Port of Milford Haven is a diverse organisation, however as the global oil and gas industries are subject to market fluctuations the need to diversify further is becoming increasingly important. The Port has identified its strategy as:

  • Targeting and securing long-term sustainable income streams
    It is identifying and developing new business that will improve its earnings and provide security now and into the future;
  • Managing and maintaining property, land and equipment
    Looking after and creating new economic opportunities for the Port;
  • Building strong partnerships
    The Port is working with other organisations to make its plans happen as they cannot be executed in isolation;
  • Understanding customers
    The Port is aiming to provide the best service possible to all of its customers. To do that it needs to fully understand their needs.

Business Model

Milford Haven Port Authority (the Port) is the statutory harbour authority for the Port of Milford Haven. The Port, along with its subsidiaries, represents the Group. It operates on a commercial basis, charging port fees for providing conservancy and pilotage services to the vessels delivering or collecting products at the principal terminals located on the Milford Haven Waterway. It also owns and operates a property portfolio at sites in Milford Haven, port facilities at Pembroke Dock and the newly acquired retail park at Havens Head. As a Trust Port, the Port does not have shareholders. All profit is retained and is available for re-investment into the business in support of its key objectives.

The Port sustains a nationally important portfolio of businesses engaged in the production and distribution of energy and energy fuels. This activity accounts for over 5,000 jobs in Wales and substantial continuous investment into the local economy. As a commercial entity in active competition with all other ports, the Port is financed through retained profit after corporation tax and conventional bank lending.

Business Review

Port of Milford Haven's 2016 and 2017 trading figures

Liquefied Natural Gas (LNG) throughput, and therefore income, was lower in 2017 than in 2016. Activity unrelated to the marine operations improved slightly over the preceding year with some growth at Pembroke Port, returns generated from solar investments and rental streams from the property portfolio. The retail park acquired in the year has substantially increased the property portfolio and is a means of diversification to assist with profits during times when LNG volumes are volatile. Fish volumes landed in the year at 2,990 tonnes were higher than the 2,791 tonnes landed in 2016. The marina portfolio showed a growth in turnover and profit from the previous year.

Capital expenditure included further investment in the Milford Waterfront development and the purchase of Havens Head Retail Park, installing a petrol facility to support the fishing industry and berth holders at Milford Marina, and a new patrol boat. The Port finished the year with £16m of cash and is therefore well placed to continue investment into its trading base and maintain business critical assets as the need arises.

Milford Haven Properties Limited, a subsidiary company, operates a solar farm. A Pension Funding Partnership has been created resulting in the Port’s pension scheme investing in a financial instrument which is in turn funded from the profits of the solar farm. This structured investment has provided a cost effective mechanism for eliminating the deficit as explained further in Note 20 (See Financial Report).

Significant costs continue in respect of recovery payments to the Pilots National Pension Fund (PNPF).

Future Prospects

The uncertainty of gas volumes is expected to continue into 2018 and beyond, although the Port notes market analysis pointing to increases in supply over the coming years. The Port is currently conducting a consultation with employees to close the MHPA Retirement Benefit Scheme to new entrants. While operating cash flow therefore could dictate the speed of investment, the Port continues its strategy of diversification with a focus on its key projects - Milford Waterfront and Pembroke Dock Marine. The Port expects to renew and expand its borrowing facilities to support these developments but will manage the associated risk accordingly. It will take a more active role in the promotion of the Milford Waterfront destination in 2018 including provision of tourism operations. The Port expects the Pembroke Dock Marine project to continue within the Swansea Bay City Deal and is focused on obtaining planning and associated consents in 2018. Both of these key projects support the vision of ‘Building the Haven’s Prosperity’.

Principal Risks and Uncertainties

The Board reviews the overall business risk register on an annual basis. Risk appetite has been defined for specific risk categories and is included in the Risk Management policy. The principal risks and uncertainties facing the Port and actions taken to mitigate these risks are:

  • Failure to Provide Safe Navigation:
    A Safety and Environmental Management System (SEMS) is used in conjunction with a marine risk register to identify and mitigate risks as low as reasonably practicable. The SEMS is monitored continuously and frequently reassessed ensuring continuous performance improvement. The Port is committed to complying with the Port Marine Safety Code (PMSC) and reviews the Maritime Coastguard Agency’s emerging PMSC compliance trends report to determine where improvements could be made.
  • Acts of Terrorism:
    The Haven is considered a vital part of the UK critical national infrastructure. In conjunction with the major terminals on the Haven, regular exercises are conducted with authorities that have responsibility for preventing terrorism and supporting response plans.
  • Uncertain LNG Activity:
    As experienced in 2017, the significant reduction in LNG activity supports the need to diversify the Port's revenues into new areas of business, reducing the impact of oil and gas market influences or the loss of a major customer.
  • Loss of Port Infrastructure:
    These critical assets are required to deliver services to the Port's customers. The Port is committed to ensuring adequate stewardship and maintenance, and sustains a strong balance sheet to support this.
  • Inability to Deliver Development Plans:
    The development of Milford Waterfront and Pembroke Dock Marine are key strategic goals for the Port. The required consenting processes coupled with inherent construction risks are closely managed.
  • Impact of Increase in Pension Costs:
    Current employees are members of a defined benefit scheme based on career average earnings. The Port continues to work collaboratively with the trustees of that scheme to provide a cost-effective solution in this regard. The Pension Funding Partnership is such an example. Some operational pilots elected to become members of the Pilots’ National Pension Fund, a multi-employer defined benefit scheme. The Port continues to closely monitor the ongoing position of this Fund.

Other Financial Risks

The Port’s financial instruments comprise borrowings, cash and various items such as trade debtors and creditors that arise directly from its operations. The Port is not generally exposed to movements in exchange rates as it trades in sterling (GBP) with major customers and currencies other than sterling are only occasionally used.

The Port’s policy is to ensure that current cash reserves are held for future development of its infrastructure. The Port invests its cash balances in UK banks with low-return/low-risk deposits. The Port finances its operations with a mixture of retained earnings and term debt. Loans are at a fixed rate or based on LIBOR and the Port has a revolving credit facility to support short-term needs and future investments.

Key Non-Financial Performance Indicators

The Port runs an effective Assurance Framework (AF) to provide a mechanism for reporting incidents, near misses and concerns, whether they are minor or major in nature. Employees are encouraged to submit AF reports which resulted in the number rising from 247 in 2016 to 318 in 2017. During the year the number of near misses fell from 81 to 20, concerns increased from 67 to 124 and incidents rose from 99 to 174. It was pleasing to record zero lost time accidents in 2017.

Health and SafetyZero lost time incidents in 2017

The Port is considered to have achieved a high level of health and safety compliance. 2017 saw continued focus on promoting an even stronger health and safety culture across every aspect of the business.

In 2017 the Port’s ability to deliver solid results safely was due in no small part to the commitment of employees. Operating safely is the Port’s highest priority. In 2017 there were zero lost time accidents. However, the number of non-lost time accidents increased from 3 in 2016 to 9 in 2017. The Port has delivered improvements in several key areas including development of new procedures, local work instructions and working practices. While the Port already meets strict international and national health and safety standards, it is further committed to continual improvement in order to make sure it meets or exceeds benchmarks set by the UK ports industry.

The ongoing investment in health and safety measures has delivered steady improvements. The Port has established a number of new initiatives to address health and safety performance across the organisation and to reinforce the message that health and safety is everyone’s responsibility.

Initiatives for 2017 included:

  • Developing further and reinforcing the Assurance Framework to ensure the comprehensive management of risk in all its forms are being managed appropriately in pursuit of the Port’s objectives
  • Reviewing and updating the SEMS
  • Providing improved safety-critical communications to employees, contractors and visitors through the HSE notice boards and other communication processes
  • Reviewing and assessing contractor competence to ensure that work is carried out safely.

The Port’s focus on increasing its public facing activities introduces new challenges. 2017 proved to be another busy year with a wide range of events, all of which were delivered safely without any reported incidents. Unfortunately during the summer months, Milford Marina and Hakin Point once again became popular for the dangerous activity of tombstoning. The proactive approach undertaken by the Port and local police helped prevent further tombstoning activities from taking place and ensured that no one was injured.

Port Marine Safety Code

The PMSC sets out a national standard for every aspect of port marine safety. Its aim is to enhance safety for everyone who uses or works in the UK port marine environment. The PMSC is endorsed by the UK Government, the devolved administrations and representatives from across the maritime sector. While it is not mandatory, these bodies have a strong expectation that all harbour authorities will comply. The PMSC is intended to be flexible enough that any size or type of harbour or marine facility will be able to apply its principles in a way that is appropriate and proportionate to local requirements.

As the duty holder under the PMSC, the Board is fully committed to providing a safe environment for any person within the Port of Milford Haven limits. A SEMS has been formulated in such a way as to embrace the concepts and standards of both the PMSC and the Guide to Best Practice, and is subject to both internal and external audit.

During the year the improvement plan included the following:

  • Review the Milford Haven and Pembroke Dock Bye-laws
  • Engage more actively with Port stakeholders
  • Update navigational risk assessments
  • Update the SEMS
  • Update the Port Emergency Plan

Under the PMSC, the Port is expected to have an annual Safety Plan and to publish the results of how it performs against the plan. In 2017 this consisted of 73 actions for the marine division to achieve, with a target of 95% completed. 69 of the 73 were completed, achieving the 95% target rate.

The Board formally declares its compliance to the PMSC every three years; this is now due and has been completed for 2018.

Port Security

The Port recognises that terrorist threats seriously disrupt society, not only through direct terror-like attacks but also via indirect threats. International seaports and large goods flow form vulnerable targets.

During 2017, terrorism continued to be a global concern, further emphasising the need to follow the requirements of the International Ship and Port Facility Security Code (ISPS Code). The ISPS Code does not state specific measures that each port and ship must take to ensure the safety of the facility against terrorism, due to the many different types and sizes of these facilities. Instead it outlines a standardised, consistent framework for evaluating risk - enabling governments to offset changes in threat with changes in vulnerability for ships and port facilities. This includes:

  • Port facility security plans
  • Port facility security officers
  • Security equipment and infrastructure

In addition, the requirements for port facilities include:

  • Monitoring and controlling access
  • Monitoring the activities of people and cargo
  • Ensuring security communications are readily available

These plans are constantly reviewed, updated and approved by the Department for Transport. The security of the nation's borders and the prevention of terrorism is the responsibility of the UK Border Force and Security Services. These services work daily with all main operators on the Haven to keep the Waterway secure.

There were no reported security incidents during 2017.

Approved by the Board of Directors and signed on behalf of the Board.