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NCSP Group Strategy
Early in 2011 NCSP Group executed a major transaction that will have significant impact on the company’s strategy. On January 21, PJSC NCSP acquired 100% of Primorsk Trade Port Ltd, the operator of the largest and most modern oil loading terminal in Russia.
The acquisition of PTP Ltd was a transformative step for NCSP Group that enabled the company to dramatically increase the scale of its business, expand its geographic presence, and gain access to new markets and new opportunities for organic growth and acquisition of port assets. The acquisition secured NCSP Group’s leading position by cargo turnover among European port operators and vastly increased its lead over its nearest competitors in Russia.
An essential condition of this deal was the sale of the controlling stake in PJSC NCSP to the beneficiaries of Primorsk Trade Port Ltd, represented by JSC Transneft and Russian businessman Ziyavudin Magomedov. NCSP Group financed the acquisition of PTP Ltd with cash in hand and bank financing. Sberbank of Russia provided PJSC NCSP with a loan of $1.95 billion for a term of seven years.
NCSP Group strategic development:
Construction of new cargo terminals Organic growth through the construction and launch of new transshipment capacity is a key element of NCSP Group’s business development strategy. The Group plans to continue capital investment in construction of specialized terminals at the ports of Novorossiysk, Baltiysk and Primorsk in the framework of its comprehensive investment program. This program will dramatically expand Group’s throughput capacity in container cargo, oil products, crude oil and new types of bulk and general cargo.
Acquisition of new assets
Acquisition of promising stevedoring assets in Russia and abroad is the second key element of the Group’s business development strategy. Efforts in this direction may be continued within the limits of the company’s financial capability and obligations, including potential projects by NCSP Group’s controlling shareholders.
Modernization NCSP Group is continually analyzing its operations for opportunities to expand the throughput capacity of cargo terminals and boost cargo turnover by updating equipment at existing facilities. The Group spent $33.2* million for this purpose in 2010.
Raising operating and financial efficiency
NCSP Group aims to maximize the utilization of its cargo terminals and take full advantage of its competitive advantage in level of service, wide market reach, scale of operations and price policy. The Group will also continue to optimize the structure of cargo turnover in order to increase the proportion of high-margin cargo and services.
Consolidation of subsidiaries
NCSP Group is pursuing a consistent policy to streamline management, eliminate redundancies, optimize costs and maximize the benefits of centralized management. The Group will also strive to further consolidate subsidiaries as the opportunity arises.
Taking advantage of external fac tors
NCSP Group plans to expand its business by taking advantage of external factors such as comprehensive government programs to develop Russia’s transport infrastructure, major infrastructure projects in related sectors, and major social projects such as the 2014 Olympics and Paralympic Games in Sochi.
* The amount is either a non-IFRS measure or according to management reporting data.
Investment program
NCSP Group continued to implement its investment program in 2010, building new cargo terminals and modernizing existing transshipment facilities. Accumulated investment in new construction since 2006 totaled $485.7 million** as of the beginning of 2011, including $96.5 million** invested in 2010.
NCSP Group is currently implementing the following projects to build and expand cargo terminals and related businesses:
Construction of a container terminal with annual capacity of 1.2 million TEU to increase transshipment volume and market share on the container cargo market. The project will be carried out in several independent stages, which will provide the necessary flexibility in implementation. The new terminal will be able to handle container ships with capacity of up to 10,000 TEU. The first phase of the project is scheduled for completion by 2014 with the launch of a marine terminal with throughput capacity of 450,000 TEU. The cost of the first phase is estimated at $372 million*. The second phase of the project will involve building an intra-port logistics terminal linked to the marine terminal by shuttle trains.
Construction of a fuel oil terminal with annual capacity of 4 million tonnes. This project is being implemented by LLC Novorossiysk Fuel Oil Terminal, a 50–50 joint venture that NCSP Group formed with a major international oil trader. In 2010 the company worked on construction of a tank farm, railroad offload ramps and berthing infrastructure, as well as assembly of equipment. Investment in 2010 totaled $48.2 million*, including $34 million* financed by LLC Novorossiysk Fuel Oil Terminal. The terminal is expected to launch operations at the end of 2011 or in early 2012. The project calls for building a tank farm with capacity of 82,000 cubic meters, two railroad offloading ramps for 60 and 48 tank cars, process pipelines and other facilities.
The overall cost of the project is estimated at $234.7 million*, including $85 million* to be financed with PJSC NCSP’s own funds.
Expansion of throughput capacity at the grain terminal of PJSC NGT by 2 million tonnes per year. The project includes plans to expand grain storage capacity to 188,000 tonnes and boost the productivity of train and truck unloading facilities from 2.9 million tonnes to 4.5 million tonnes and from 700,000 tonnes to 2.4 million tonnes per year, respectively.
There are also plans to install a new conveyor line and ship loading machine. The estimated capital cost is $37 million*. Construction work on terminal facilities was not done in 2010 due to the Russian government’s ban on grain exports.
Expansion of LLC BSC’s container terminal to increase throughput capacity to 400,000 TEU per year. This project includes upgrading the berts, construction of warehouse space, engineering networks and acquisition of loading equipment. A total of $33.2 million* has been invested since the start of the project, including $22.6 million* spent in 2010. Investment in 2011-2014 will total $61.8 million*.
The Sheskharis Oil Terminal reconstruction project at PJSC NCSP. The project involves reconstruction, capital repairs to the oil terminal and modernization of its equipment, as well as construction of an additional loading bert (1A). Upon project completion, scheduled for 2012, the terminal’s throughput capacity will increase by 15 million tonnes, from 50 million tonnes to 65 million tonnes of oil per year.
The project will cost more than $150 million*. The company spent $23.1 million* on the Sheskharis reconstruction in 2010, bringing the total amount invested since the project was launched to over $121 million*.
OJSC IPP tank farm reconstruction. The project will involve dismantling four fuel tanks with capacity of 5,000 cubic meters, and construction of three new tanks with capacity of 10,000 cubic meters to replace them. The project will also include the reconstruction of process pipelines, allowing for isolated processing and storage of light oil products; construction of an additional pumping station for light oil products; and modernization of process control and safety systems. The reconstruction will be carried out in stages, without halting operations.
In order to expand its towing business, NCSP Group in 2009 signed a contract for the delivery of three new ocean tugs at a total cost of $29.9 million. The Group completed the acquisition of the tugs in 2010, and one has already begun operating at the Novorossiysk Port.
Primorsk Trade Port Ltd, which was acquired in January 2011, is implementing two projects: construction of a bunkering facility at Primorsk Port and transshipment of oil products delivered by rail. Work is currently underway to connect them to external infrastructure.
NCSP Group completed the first stage of its investment program in the period from 2006 to 2009, carrying out seven projects: • Reconstruction of the OJSC NLE container terminal, expanding throughput capacity nearly sixfold, from 60,000 to 350,000 TEU per year; investment in the project totaled $86.4 million*.
• Reconstruction of NLE’s forest products terminal, expanding throughput capacity by 36.4% to 3.0 million cubic meters at a cost of $14.8 million.* • Construction of a grain terminal at PJSC NGT with capacity of 500,000 tonnes per month at a cost of $82.6 million.* • Construction of a bunkering fuel transfer terminal at OJSC IPP with capacity of up to 648,000 tonnes per year at a cost of $19.8 million.* • Construction of the first phase of a specialized container terminal at LLC BSC, expanding throughput capacity to 100,000 TEU per year; investment in this phase totaled $7.7 million.* • Construction of facilities to transship light oil products (diesel fuel, gasoline) at OJSC IPP with capacity of up to 1 million tonnes per year, at a total cost of $35.7 million.*
* The amount is either a non-IFRS measure or according to management reporting data.
NCSP Group successfully completed the first stage of its investment program last year under the growth strategy the Group adopted in 2006.
The program created a complex of modernized multi-purpose stevedoring facilities and new more efficient, specialized transshipment terminals.
The growth results achieved in the past year despite the global downturn confirmed that the Group’s strategy is effective not only under the favorable trends seen in 2007-2008, but also during periods of turbulence in the Russian and global economies. The Group’s continued profitable operation against the backdrop of challenging market conditions confirms that the key principles of NCSP Group’s strategy as described here are sound and viable.
NCSP Group plans:
To continue capital investment to increase throughput capacity and efficiency: The Group’s chief objective is to grow cargo turnover while increasing revenue and profitability. In 2009 NCSP Group launched the second stage of its long-term investment program. The program will increase the throughput capacity of specialized facilities at the port by modernizing and expanding existing facilities and building new capacity to handle the Group’s regular cargo and attract new kinds of cargo.
To increase capacity, volume and productivity without heavy investment: NCSP Group is constantly analyzing its operations to identify additional opportunities and take steps to expand throughput capacity, more efficiently utilize capacity, and to increase cargo volume and revenue in ways that do not require substantial capital investment.
To optimize the cargo and services mix: NCSP Group will continue optimizing its transshipment capacity mix and the range of services it provides, relying on the competitive advantages of its stevedoring companies and price policy. The Group intends to focus on attracting high margin types of cargo when market conditions are good and to maximize utilization of capacity during economic downturns.
To continue to benefit from the consolidation of subsidiaries: NCSP Group will work to cut costs, eliminate overlapping services and achieve higher returns on working assets.
To strategically leverage external factors: the growth of cargo turnover in the region in view of the 2014 Olympics and Paralympic Games in Sochi, and the accelerated construction of the Burgas-Alexandroupolis oil pipeline. <-->
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