ports advisory services

ADVISORY

Ports AdvisoryServicesMarch 2006

Ports credentials 14/3/06 12:05

Foreword 3

U.K. overview 4

U.K. market activity 5

How KPMG can help 6

A global perspective 7

The KPMG team 8

Appendices 11


Volume growth, strong cashflows

and redevelopment opportunities have

stimulated interest in U.K. ports from

both property and private equity

players. Furthermore, the need for

increased capacity, which is likely to

be underlined by both the Ports Policy

and Eddington Review, provides great

opportunity for existing operators.

The activity in the U.K. market is part of

a wider global picture. Increasing

shipping volumes, driven predominantly

by strong Chinese economic growth,

have stimulated large scale investment

in ports infrastructure. Governments

have also sought to realize the value of

their ports assets through a number of

corporatization and privatization models.

Whether you are a new entrant,

considering investing in the ports

sector or whether you are an existing

player seeking to develop your

strategy in a changing policy

environment, KPMG’s global network

of firms have the experience and

knowledge to assist you. We have an

international team with an impressive

record of both advising on transactions

and working with governments as

ports policy has evolved.

The KPMG team strives to deliver

clear, pragmatic advice in order to

assist you in making the right choices

as opportunities in this market continue

to emerge. If you have any queries on

this, or any of our services to the wider

transport industry, then please do not

hesitate to contact me directly.

Dr Ashley Steel

Global Chair — Transport

KPMG LLP (U.K.)

“We aim to deliver clear

and pragmatic advice to

help you make the

right choices.”

With a high level of corporate transaction activityand a changing public sector policy environment,the ports sector has emerged as one of themost exciting areas of the U.K. transport market.

Foreword

Ports Advisory Services 3


“Increased road

congestion and a

favorable policy

environment will

act to stimulate

investment in ports.”

In total, U.K. ports handle more than

300,000 shipping movements a year,

including 550 million tonnes of

freight and 36 million international

passenger journeys.

The industry comprises of a mixture of

private, trust and municipal ports:

• privately owned account for

64 percent of tonnage

• trust ports account for 24 percent

of tonnage

• municipally owned account for

12 percent of tonnage.

Source: The United Kingdom Major Ports

Group (UKMPG), 2006

Factors including greater road

congestion, rising fuel costs and

regulation such as the EU Working

Time Directive have caused a significant

increase in inland transport costs.

This has led to opportunities at the

U.K.’s regional ports, as customers

examine new ways of making

distribution more efficient.

A further stimulus for investment is

the increasing size of container

vessels, which has required the

development of ports access and

quayside infrastructure.

Government has acknowledged the

importance of the sector to transport

in the U.K. by announcing a major

review of ports policy. Preparatory

consultations have been completed

and a public consultation is due this

year. The review is expected to focus

on increasing port capacity and

improving access to and from ports.

These recommendations are likely to

be echoed by the Eddington Review,

which has been commissioned

to highlight improvements to

transport infrastructure that will

boost U.K. productivity.

This combination of upward pressure

on volumes and a favorable political

environment has helped to make the

U.K. ports sector increasingly attractive

to investors.

4 Ports Advisory Services

U.K. overviewThe United Kingdom has one of the most diverseports industries in the world, ranging from majordock installations, terminals and fishing ports torecreational harbors and marinas.


Global trends evident in terminal and

ship ownership are having a range of

impacts on the owners and operators

of U.K. ports. These include:

The rise of secondary ports and

specialist terminals: increasing

congestion at a number of major

ports (e.g. Felixstowe) has already

seen nearby and substitute ports

benefit from trade flows that wish to

both avoid the cost, and increase the

certainty that delivery timetables will

be met.

Vertical integration: companies are

increasingly moving up and down the

chain, either through direct asset

ownership (as evidenced by APM’s

purchase of P&O Nedlloyd) or though

managing trade movements (PSA and

Hutchison Port Holdings have both

recently committed to major freight

forwarding systems/companies to aid in

the management of customer goods).

More conferences: in an attempt

to provide better service and more

effectively utilize ships, shipping

conferences are becoming even more

important. This trend, coupled with

increasing ship sizes (especially in

container ships) is increasing the

pressure to expertly handle ships and

minimize transit times.

Taking these factors into account, U.K.

ports are proving increasingly attractive

to new investors due to:

• Growth in volumes and a policy

environment which is likely to

encourage capital investment over

the next decade.

• High visibility of earnings and

strong cash generation due to

the long-term nature of contracts

and the position of ports as

local monopolies.

• The development potential of land

around ports for both residential

and commercial uses.

This is evidenced by recent

transactions which have included

investment from both property players

interested in development potential

and private equity players seeking

financing opportunities:

• In September 2005, the Mersey

Docks and Harbour Company was

acquired by Peel Holdings Limited

for U.K.£771 million.

• P&O is the subject of a takeover by

Dubai’s state-owned ports operator.

Among its many interests, P&O has

shareholdings in over 30 port

operations on six continents.

• In December 2005, Australian

infrastructure fund Babcock Brown

won a takeover battle with the

consortium Endeavour Ports for the

Teesside based PD Ports valuing

the group at around £260 million.

• Takeover speculation surrounding

Forth Ports has resulted in a

20 percent increase in share

price since November 2005.

In addition to these transactions, the

Department for Transport has been

considering how it might realize the

value from the U.K.’s trust ports.

Although much of this portfolio has

little commercial activity, it does

include major ports such as Dover,

Tyne and Milford Haven.

Details of the U.K.’s largest ports and

the major port operators are set out in

the Appendix.


U.K. market activity


“Our team offers a broad

spectrum of specific

professional services.”

KPMG firms have an impressive track

record of providing advisory services

to the ports industry:

• Advising private companies on

acquisitions, from strategic analysis

through to financial and taxation

due diligence

• Providing post-transaction services

such as operational audits,

assessment of health and safety

programs and review of Corporate

Social Responsibility (CSR)

reporting best practice

• Providing advice on major

‘growth’ projects such as capital

investment programs, property

redevelopment and improving

surface access to ports

• Advising on recent developments

in government thinking on the

ports sector

• Working with the Department

for Transport and local authorities

on realizing the value from their

ports assets.

KPMG works together with our firms’

clients to offer tailored support and

help ensure a successful outcome.

Our services include:

Corporate finance

• mergers and acquisitions support

• financing of capital investment

programs

• advice on entry and

expansion strategies

• advice on regulatory issues.

Transaction services

• due diligence

• tax and accounting structuring.

Property advisory services

• advice on redevelopment and

regeneration projects

• consideration of surface

access issues.

Debt advisory services:

• funding structures

including securitization

• financial modeling.

Post transaction services:

• environmental, health and

safety audits

• operational and IT audits

• CSR reviews

• assessment of programs and

management activity.


How KPMG can help

KPMG has a team of advisors with strongexperience in the ports sector. Our experienceallows us to offer an informed and insightful viewof the key challenges facing the industry.


A global perspective

Many of the issues within the

U.K. ports sector are commonly

encountered overseas. KPMG’s

Transport team operates on a global

basis and our international experience

has included advising on acquisition

and financing strategies, regulatory

issues and contract negotiation as well

as due diligence and tax offerings.

KPMG in the U.K.

U.K. ports operator: advised on

expansion into the Baltic States and

entering into a joint venture with a

Finnish company to own and develop

three port facilities.

KPMG in Russia

Russian steel producer: advised on the

acquisition of a controlling stake in St.

Petersburg seaport operator and Tuapse

seaport operator. Provided due diligence

assistance and valuation services.

KPMG in Germany

Major German cargo transport and

logistics organization: provided various

advice on a number of key transactions.


KPMG in Hong Kong

PSA International: performed due

diligence work on the acquisition

of an interest in Hong Kong

International Terminals.

Hong Kong port company and

Chinese shipping company: provided

advice on bids for the Hong Kong

Container Terminal.

Hong Kong based port operator:

advised on the acquisition of a port

operator in Nantong, Jiangsu Province,

operating four berths and a

container terminal.

KPMG in Australia

China ports privatization: assisted

China’s largest port operator on the

potential restructuring of a significant

portfolio of port assets.

Bahrain ports privatization: advised

Bahrain’s Ministry of Finance and

National Economy on the privatization

of the existing Mina Salman Port and

the new Khalifa bin Salman Port.

Jawaharlal Nehru Port Trust: financial

adviser to private sector operator on

its investment in the JNPT Container

Terminal in Mumbai.

Port of Melbourne: adviser for the

Port Philip Bay channel deepening

project, and advised the Victorian

Government on ownership and

operating structures for the former

Port of Melbourne Authority.

South Australian Ports: advised on

prospective regulatory matters to a

bidder in the privatization of South

Australian ports.

Port of Geraldton: advised on the

development of US$75 million

deepening of the access channel and

inner harbor for the Port of Geraldton.

Dalrymple Bay Coal Terminal:

advised a bid team on the potential

regulatory issues associated with

the terminal.


KPMG in the U.K.

Tony Cates

Leads the team’s services in the ports and shipping sector.

Justin Zatouroff

Provides mergers and aquisitions (M&A) advice on transactions in the

transport and logistics sectors.

Lewis Atter

As former Head of Transport at the U.K. Treasury, Lewis has insight into the

direction of Government policy across the transport sector. He advises

KPMG firms’ clients on their responses to the recent White Paper and The

Eddington Review.

Tony Rocker

Leads the provision of due diligence services to the transport

infrastructure sector.

Liam Duffy

Advises public sector agencies and private operators on port projects in the

U.K. and Australia.

Bob Wharton

Carries out strategic appraisals for port developers, provides advice on port

privatization and evaluates proposals for port development.

Jane Evans

Advises on regeneration and redevelopment of transport infrastructure,

including surface access.

Clive Gibbard

Advises on corporate refinancing and securitization opportunities.


The KPMG team

You need to know that the team working foryou has the skills and commitment necessary toprovide you with success.

“KPMG has a dedicated

team of professionals

who have worked on a

variety of ports projects

for both the private sector

and government.”


Global contacts

Michael Cooper (KPMG in Australia)

Adviser to both the public sector and to private consortia on both privatization and

infrastructure investment projects.

Julian Vella (KPMG in Australia)

Advises the public and private sector on ports projects.

Honson To (KPMG in China)

Provides financial advice and due diligence services for port acquisitions.

Rupert Chamberlain (KPMG in Hong Kong)

Advises on projects for port authorities and port operators as well as provision of

advice on ports acquisitions.

Michael Jiang (KPMG in China)

Provides financial advice on port acquisitions.

Soeren Soerensen (KPMG in Denmark)

Delivers a range of financial and transaction services to a major shipping and

port operators.

Hans Bongartz (KPMG in the Netherlands)

Provides advice on ports transactions in the Netherlands including privatizations

and valuation advice.




“”

The KPMG team will aim to

deliver clear, pragmatic

advice in order to assist you

in making the right choices

as opportunities in this

market continue to emerge.


Appendices

U.K. major port operators 12

Largest 20 U.K. ports 13


Owns and operates 21 ports including

Immingham, Hull, Southampton and Port

Talbot. Jointly owns Southampton

Container Terminal and Tilbury Container

Tendril. Other services provided by

subsidiary ABP Connect, Northern Cargo

Services, U.K. Dredging, ABP Marine

Research, AMPorts.

492.2ABP

Name Turnover

U.K. £ million

Other information


“The U.K. ports

sector has recently

witnessed a high level of

transaction activity and

takeover speculation.”

Peel Holdings 341.5 Peel Holdings Limited is a British

transport and property company which

also operates Doncaster and Liverpool

Airports. The Group acquired the Mersey

Docks and Harbour company in

September 2005, substantially boosting

its ports operations.

Hutchison Ports

(U.K.) Ltd

244.6 Operates three ports: Felixstowe,

Harwich International and Thamesport.

Forth Ports 167.2 Operates nine ports: Dundee, Tilbury,

Leith, Grangemouth, Granton,

Methil, Burntisland, Kirkaldy and

Rosyth. Owns 33 percent of Tilbury

Container Services.

PD Ports 133.6 Operates the Teesside and Hartlepool

ports. It owns smaller ports in Howden,

Keadby and the Isle of Wight.

U.K. major port operatorsThe major port operators in the U.K. areoutlined below.

Source: Company Web sites and annual reports,2004/2005



Grimsby and Immingham

Tees and Hartlepool PD Ports 53,819

London Forth Ports/Trust Port 53,289

Milford Haven Trust Port 38,452

Southampton ABP 38,431

Forth Forth Ports 34,892

Liverpool Peel Holdings 32,233

Sullom Voe Municipal Port 23,939

Felixstowe Hutchison Ports (U.K.) Ltd 23,413

Dover Trust Port 20,753

Orkneys Trust Port 17,934

Medway Peel Holdings 14,535

Belfast Trust Port 13,559

Hull ABP 12,443

Clyde (including Ardrossan) Peel Holdings 11,507

Bristol The Bristol Ports Company 10,759

Port Talbot ABP 8,555

Manchester Ship Canal Peel Holdings 6,634

Glensanda Foster Yeoman 5,189

Larne Larne Harbour Ltd 4,984

Largest 20 U.K. ports

ABP 57,616

Port Operator Annual throughput

2004 (000 tonnes)

Source: Department for Transport (DFT), 2004/2005


kpmg.com

Contact details

Dr Ashley Steel

Global Chair — TransportKPMG in the U.K.+44 (0)20 7311 [email protected]

Tony Cates

Head of ShippingKPMG in the U.K.+44 (0)20 7311 [email protected]

Rupert Chamberlain

PartnerKPMG in Hong Kong+852 3121 [email protected]

Michael Cooper

DirectorKPMG in Australia+61 3 9288 [email protected]

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