POTL Annual Meeting 2023: Chair & Chief Executive’s Address

Chair's Speech Chair - Julia Hoare I'll start with the highlights and challenges of the past year for the Port of Tauranga Group. The 12 months to June 2023 was certainly a year of two halves. In the first, we were assisted by an increase in container transhipment, and we saw the welcome return of cruise ships over the summer. In the second half of the year, we experienced the impacts of the extreme weather events in the North Island. While Port of Tauranga was fortunate enough to not incur any damage to port infrastructure, there was significant disruption to transport networks and some cargo volumes were affected. Cyclone Gabrielle, in particular, caused much damage across the forestry sector. This resulted in the early harvesting of some cyclone-damaged trees. As a result, export log volumes through Tauranga remained strong throughout the year. Since April, we have seen a significant decrease in imported container volumes due to a weaker domestic economy, as reflected in the national trade data reported by Statistics NZ over the last two quarters. Despite these impacts, I am pleased to report that the company performed well and returned another year of excellent financial results. Group Net Profit After Tax increased 5.2% on the previous year, to $117.1 million. This was largely driven by the parent company earnings, which increased 7.7% while subsidiary and associate company earnings declined 10.7%. Total revenue was $420.9 million, an increase of 12.2%. Costs also grew substantially, especially for labour and fuel. Operating expenses increased 15.6% to $210.6 million. In addition, renegotiation of our contracts with KiwiRail led to a significant increase in rail costs, which is likely to have caused modal shift for some importers in particular. The Board declared a final dividend of 8.8 cents per share, to bring the total dividend for the 2023 financial year to 15.6 cents per share - a 6.1% annual increase. As New Zealand's largest port, we continue to invest in the capacity, resilience and efficiency of the New Zealand supply chain. We have recently opened the Ruakura Inland Port in Hamilton, directly connecting the Waikato region by rail to our facilities in Auckland and Tauranga. It is a 50 year, 50:50 joint venture with Tainui Group Holdings or TGH. In TGH we have found a long-term partner that shares our vision and values. The partnership brings together our expertise in cargo handling and logistics and TGH's deep regional connections and we look forward to continuing to strengthen our relationship. Ruakura Inland Port is a real game changer for the Upper North Island freight network, unlocking environmental and economic benefits for importers and exporters based, or soon to be based, in the Waikato. Inland ports play a crucial role in our vision for a more integrated and efficient Upper North Island supply chain. This investment is the latest in more than a decade of developments designed to ensure New Zealand remains competitive internationally, by facilitating visits from bigger container ships. Our strategy supports New Zealand's decarbonisaton efforts, addresses shipping capacity constraints and protects our nation's access to its global customers. There is still one crucial development urgently required. As you are no doubt well aware, we have been trying to obtain a resource consent to convert some of our land at Sulphur Point into a third container ship berth. This development has been included in the Regional Coastal Environment Plan for decades, and formal consultation began back in early 2019. An Environment Court hearing on the application was held across three weeks in early March this year. We are still waiting for an outcome and are hopeful of an imminent resolution. The berth project is critical to the New Zealand economy. Without it, importers and exporters will face capacity constraints within a few years. We already have a number of weekly services on our waiting list for berthing windows. The project is an essential one for building resilience too. The catastrophic weather events of this year have demonstrated once again that New Zealand is in need of greater resilience and capacity in the national supply chain. Concurrently, we are pursuing our plans to automate new container storage areas at the terminal. The automation is planned to both accelerate our decarbonisation progress and increase our capacity within the current footprint. Our biggest source of greenhouse gas emissions is diesel use, so opting for all-electric automatic stacking cranes offers significant efficiencies over an equivalent diesel straddle operation. Leonard will expand on the automation project in his presentation. Our capacity-building plans are critical to the future of New Zealand Inc. We simply cannot meet our trade needs as a nation without investment in infrastructure, particularly in the Upper North Island freight network - including ports. The current regulatory framework does not always encourage nor facilitate investment in new or existing infrastructure - even when it is environmentally sound and/or critical to the national economy. In our view, there are challenges in upgrading existing assets to ensure they are fully utilised. As a result the adoption of new technology such as automation may be delayed. Therefore we are missing out on the associated economic and environmental benefits, including decarbonisation opportunities. The new Government has an opportunity to smooth the path for sound investment, as well as deliver the required transport infrastructure, to facilitate a truly integrated, resilient and cost-effective Upper North Island supply chain. Port of Tauranga is strongly focused on decarbonisation as part of our commitment to long-term sustainability. We have made significant progress in improving fuel efficiency and reducing waste and, in accordance with New Zealand's commitment under the Paris Agreement, are committed to reaching net zero greenhouse gas emissions by 2050. Our Scope 1 and 2 and key Scope 3 emissions have been audited annually since 2017. We are undertaking a large volume of work to prepare us for the new, comprehensive Climate-Related Disclosures regime. We have engaged external expertise to assist us with this work, and we have been supported by external advice at a governance level too. We will produce our first audited Climate-Related Disclosures report with our annual results in 2024. We are also mindful that our future disclosures will also need to consider the Taskforce on Nature Related Disclosures. As promised at last year's Annual Meeting, we have undertaken a thorough benchmarking exercise on Directors' fees and, as part of our information accompanying our resolutions, we have shared with you a summary of the independent report by Ernst & Young. EY has provided us with benchmark data for a comparator group of New Zealand companies of similar size or operations. What we are recommending to you today raises Port of Tauranga Limited directors' fees to the top of the bottom 25th percentile of this sample group, meaning the fee level of 75% of the companies in this group are above the amount we are requesting approval for in our resolution. I will comment more on this shortly. Our last directors' fee review was undertaken in 2021. Since then, the regulatory and compliance landscape has continued to evolve. The remit of our Audit Committee has been expanded to include broader sustainability and our obligations under the Carbon-Related Disclosures regime. The Board has also recently established an additional Board sub-committee, the Health and Safety Committee, to assist us in focusing even more deeply on our health and safety practices and responsibilities. Whilst we consider we have a strong health and safety culture, the performance of the New Zealand port industry has rightly been in the spotlight in recent years and we must continue to pursue continuous improvement. There is always room for improvement. We believe our recommendation sets the fee pool at a level that will continue to attract and retain high-performing Directors. We are seeking shareholder approval for an increase in the aggregate Directors' Fee Pool to $1.125 million. In that figure we have included headroom of around 16%. It is not our intention to use this headroom to increase base fees this year, and our proposed individual fee increases are set out in the resolution. Rather, it gives us flexibility to accommodate additional duties as required, future CPI increases where appropriate, and also gives us some flexibility to manage transitions around Board appointments. We will deal with the relevant resolution at the conclusion of Leonard's presentation. On behalf of Directors and the company, I would like to thank Sir Rob McLeod, who will soon retire from the Board after seven years' service. Sir Rob is one of the two directors appointed by our cornerstone shareholder, Quayside Holdings, and as a result of Sir Rob stepping down from the Quayside board, he will cease to also be a Port of Tauranga director. Sir Rob's insights and expertise have been highly valued, and his commerical acumen and sound judgement have served us well over the last few years. As announced last week, Quayside Holdings has recommended the appointment of Fraser Whineray as their second representative on our Board. Fraser brings a wealth of executive experience, including as Chief Operating Officer at Fonterra and Chief Executive of Mercury. He has also held governance positions with Tilt Renewables, Opus (which is now WSP), and AgriZero. His deep understanding of global trade and supply chains will be invaluable as we continue to invest in resilience and capacity for the benefit of the New Zealand supply chain. Fraser will replace Sir Rob at the end of October. As the announcement was outside the statutory timeframes to be included in our 2023 resolutions to you, our request for your approval of his appointment will be included in the resolutions at our 2024 Annual Meeting. I'd now like to invite Leonard to share his update on the company's trade and operational performance over the past year and some guidance on what we can expect in FY2024 and beyond. Chief Executive's Speech Chief Executive - Leonard Sampson Thank you, Julia, and kia ora koutou As Julia described, it was a year of two halves - as we moved away from the congestion that has plagued our operations whilst at the same time balancing the impacts of a downturn in import demand and sluggish global commodity prices. Once again, our diversity of cargoes and long-term freight agreements with key customers have helped us remain resilient. In March this year, New Zealand ports reinstated proforma berthing windows after more than two years of extreme congestion. Prior to March, more than two thirds of vessels arriving at Tauranga were off schedule - putting unprecedented pressure on our facilities at the container terminal. You can see from this graph the impact on storage volumes at the container terminal due to the lack of shipping reliability has been significant, with over 5,000 containers more than usual levels. The improvements since March in schedule integrity are helping to return productivity to normal levels. Our crane rate (which is the moves per hour by crane) has over the past 3 months has averaged 30 moves per hour, after dipping to the low-20s during the peak of congestion. Looking at cargo trends over the past year, total trade decreased 3.5% to 24.7 million tonnes, imports decreased 7% to 9.0 million tonnes, whilst export volumes decreased 1.5% to 15.7 million tonnes. Container volumes for the year decreased 5.1% to 1.18 million TEU. Log exports however, increased for the year 2.6% to 6.2 million tonnes, with an unexpected boost in the second half of the financial year due to an influx of cyclone-damaged trees that were harvested early. Dairy exports, including transhipment cargo, increased 2.7%, whilst meat exports increased 3% in volume. Kiwifruit exports were impacted by weather and fruit quality issues, decreasing 20.3% compared with the previous year. - However, the long-term outlook for the kiwifruit remains strong. We welcomed 88 cruise ships over the last summer season, and the first cruise ship of this season arrived on October 18th. At present we have 112 cruise vessels booked over the next few months - close to our record 116 visits in the 2018-2019 season. We are excited about the new business opportunities presented by the Ruakura Inland Port, our joint venture with Tainui Group Holdings. The inland port - which is directly connected via rail to the Tauranga container terminal as well as MetroPort inland Port in Auckland, is part of the Ruakura Superhub, a giant logistics and commercial precinct near central Hamilton. The Superhub's first tenants include Kmart, which has started importing containers through the inland port, with a new dairy cool store due to start exporting next month. Our subsidiary company, Quality Marshalling, is operating the inland port on behalf of the joint venture entity. The facility gives us some headroom whilst we pursue our plans to increase capacity at the Tauranga Container Terminal, with the construction of a new berth and introduction of terminal automation, both within the current footprint. We are close to selecting a vendor for the automation project, which will also help us to improve safety, reduce fuel consumption and reduce greenhouse gas emissions. We have completed an $11 million dollar electricity infrastructure upgrade in anticipation of the development, the new technology involves fully-electric, rail-mounted gantry cranes, together with manned, hybrid straddles running between the container stack and ship-side. I will now play a short video now that demonstrates how the berth extension and automation developments will work together. Similar automation models are already in use in some of the world's most efficient container terminals, including Singapore, Shanghai, London, Antwerp, and Melbourne. I can reassure you that we will not be testing new or unproven technologies. In the meantime, we are continuing to invest new equipment that is more fuel efficient, improves safety and increases productivity. Last month we received four new hybrid straddle carriers, which are currently being commissioned. We already have three in the fleet which have proven to be around 25% more fuel efficient than our older diesel-electric models. In May we took delivery of our new pilot launch, the Troy Evans, named after the late pilot and tug master who helped design her. Troy was an internationally recognised champion of marine safety, and the new launch contains a raft of new safety features. We have recently dismantled the oldest container crane in our fleet, which was commissioned when the container terminal started in 1992, and in January next year we will start assembly of a new crane after it arrives from the Liebherr factory in Ireland. From a safety perspective, Port of Tauranga continues to take a lead role in port sector safety, with involvement in both the Port Industry Association and Port Health and Safety Leadership Group. Our own Pat Kirk, GM Health and Safety, is the current chair of the Port Industry Association and is part of the sector wide Leadership Group. Pat has been heavily involved in the development of industry-wide initiatives such as, the Fatigue Risk Management System, and draft Approved Code of Practice. Both initiatives have been developed in consultation with business, unions, and regulatory agencies - Maritime NZ and WorkSafe. Port of Tauranga continues to take its environmental responsibilities very seriously, with a special focus on air and water quality in and around the port. Dust generation from port activities complies with the National Environmental Standard for Air Quality - but that's not good enough for us. In the past few years, we have installed additional wind fences, increased wharf sweeping and improved traffic management and cargo handling systems. We've utilised water misting hoppers to handle dry cargo from bulk ships and strictly enforce wind limits on handling potentially dusty cargoes with newly installed alarm lights to alert stevedores when wind speeds have exceeded safe thresholds. Pollution monitors on the port boundary show a significant improvement in air quality since 2019, and over the past year, we have increased funding for air quality monitoring within the Mount Maunganui industrial area which has helped to facilitate the Bay of Plenty Regional Council to introduce supplementary air sensors into nearby residential areas. The Council is now posting real-time air quality indicators on its website with the 12 new sensors designed to detect particulate matter, including salt-laden air and as nitrogen dioxide, which is generated from petrol and diesel vehicles as well as vessels. Port of Tauranga also has an extensive water quality monitoring programme as part of our stormwater resource consents. We test for suspended solids, heavy metal toxicants and other contaminants. All monitoring results are currently well within compliance of consent limits, as well as the Australia/New Zealand Conservation Council guidelines for marine water quality. However, as with air quality, we are not content to just comply with consented conditions and in this regard, we are currently investigating new technologies to further improve stormwater quality, particularly on the older Mount Maunganui wharves. As Julia mentioned, we have started preparations to report under the new, mandatory Climate Related Disclosures regime and increased frequency and intensity of major weather events are being factored into our infrastructure planning. It is likely that we will continue to see an increase in operational delays, as well as higher insurance premiums and other associated costs. From an emissions perspective, our total greenhouse gas emissions for the year decreased 7.3% to just over 40,000 tonnes. This was primarily due to reduced cargo volumes. However, whilst total emissions reductions are a priority, we also closely monitor our emissions intensity - which is greenhouse gas emissions per cargo tonne. I am happy to report in this regard we reduced greenhouse gas emissions intensity by 3.8% over the past year. Of course, our biggest opportunity to significantly reduce emissions in future lies in automation. The all-electric automatic stacking cranes produce significantly fewer emissions than an equivalent diesel straddle operation. The trend to larger, more efficient vessels also has benefits for New Zealand's overall export emissions profile, as they produce fewer greenhouse gas emissions per container. This will continue to encourage New Zealand's shippers to aggregate cargo to the big ship services that currently only call at Port of Tauranga. I'll now give a quick update on trade in the first quarter and our outlook for the financial year 2024. As expected, we have continued to see global economic volatility, with total trade down 9.0% in the three months to 30 September compared with the same period last year. Coastal shipping changes along with an early end to the kiwifruit season and slow start to the dairy export season have all been contributors. Softening international commodity pricing and demand, has had an impact on some key exports as shippers as have hit pause to instead focus on building inventory, or look for alternative export markets. Our total container volumes for the period decreased 20.9% to just over 250,000 TEU, with the main impact from reduced transhipment volumes decreasing 31% as a result from changes in vessel rotations. Containerised imports are down 23% on the previous year reflecting weaker domestic consumption and significant increases rail costs. However, we do expect some recovery in the next few months, with the usual pre-Christmas boost to imports. Based on the first quarter's results, we expect full-year earnings to be in the range of $95 to $107 million dollars. As always, our strong diversity of cargoes, income streams, and our underlying operational efficiency, will continue to hold us in good stead. It is clear however that rising costs, softer international commodity prices and geopolitical conflicts will continue to create challenges for trade. Before I wrap up, I'd like to thank our team members for their dedication, this photo was taken a few weeks ago when our staff and their families supported "The - Keep New Zealand Beautiful 2023 Clean Up" - by collecting over 150 kilograms of rubbish from the streets and beaches of Mount Maunganui. I'd also like to thank our business partners for their continued support, especially in helping us to get projects, such as the Ruakura Inland Port up and running. Thank you too, - to our customers, who remained patient and understanding through what we now call "the congestion years". Finally, my appreciation to you, - as shareholders, - for your continued support. Together we are connecting New Zealand and the World. Nga mihi nui kia koutou katoa. Thank you. End CA:00420647 For:POT Type:MEETING Time:2023-10-27 13:07:14