Port of Tauranga Annual Meeting: Chair & CE’s Address

Port of Tauranga Limited Annual Meeting
17 October 2018

David Pilkington, Chairman


Good afternoon Ladies and Gentlemen and welcome to this year’s Annual Meeting of
Shareholders of Port of Tauranga Limited, being held for the first time here at ASB Baypark.

I am David Pilkington and I am the Chair of Port of Tauranga Limited.

I am pleased to present my overview of Port of Tauranga’s performance over the past year.

We remain New Zealand’s largest, fastest growing and most productive port.

A buoyant New Zealand economy saw cargo volumes increase 10.2% over the year, to nearly
24.5 million tonnes of cargo. We handled almost 1.2 million TEUs, an 8.9% increase on the
previous year, and 40% of all containers handled in New Zealand.

Revenue increased 10.9% to $283.7 million, producing a record Group Net Profit After Tax of
$94.3 million - a 13% improvement on the previous year.

Our hub port strategy is gaining momentum. Transhipment, where containers are transferred from
one service to another at Tauranga, has grown 23.3% in the past year.

These results are a direct consequence of our expansion programme to accommodate larger
vessels. Our six year investment in building capacity was completed in 2016, and the effect on
container ship sizes was almost immediate.

Australian and New Zealand shippers are now taking advantage of our fast and efficient
connections to North Asia, North America and South America and transhipped containers now
make up around a quarter of total TEUs.

And it is not just larger container vessels that are calling. We are seeing bigger bulk vessels too,
as well as larger cruise ships.

The mega cruise ship Ovation of the Seas brought in 4,900 passengers three times last summer,
and she will call seven times this coming summer.

Looking at the Port of Tauranga Group as a whole, we saw generally good results from our
associate and subsidiary companies over the year.

Quality Marshalling is doing well in diversifying its business in niche cargo handling and container
services. QM has managed to secure the contracts to operate our container terminal’s straddle
carrier maintenance workshop, as well as refrigerated container monitoring.

2


We are building a new warehouse for Coda Group at our MetroPort Christchurch inland freight
hub at Rolleston. Coda will use this new facility to handle Westland Milk’s dairy exports.

PrimePort Timaru had a good year in terms of cargo volumes, which increased 19% overall.
However, repair and maintenance costs hit PrimePort’s bottom line and will continue to do so for
some time as we continue to upgrade the infrastructure.

Timaru Container Terminal volumes increased 5% to a new record of more than 89,000 TEUs.

And Northport also saw increased traffic, particularly forest product exports continuing to grow.
Our fledgling container operations have also showed growth following the decision by MSC to
extend their seasonal service.

Our subsidiary and associate company earnings increased 11.9% on the previous year to $16.4
million.

We are pleased to have paid ordinary dividends for the year of 12.7 cents per share, a 13.4%
increase on the previous year. We also paid the third of four special dividends to shareholders
as part of our capital restructure programme.

New Zealand’s port sector continues to face challenges, particularly around the economics of
capital investment.

The Office of the Auditor-General recently wrote to port company Chairs and CEOs, raising a
number of issues identified in its annual audit of the sector. It found considerable variation in port
companies’ approach to valuations. We remain firmly of the view that many ports are making
uneconomic investment decisions with some earning less than 2% Return on Equity.

We strongly support the Auditor-General’s advice to port companies to use fair value, based on
the expected cash flows to be generated.

In Port of Tauranga’s case, we seek a minimum return of 8.5% after tax on any significant capital
investments.

I would like to thank our Chief Executive, Mark Cairns, and his team for another outstanding year.
We also congratulate our Chief Financial Officer, Steve Gray, who was recognised in the 2017
Deloitte Top 200 Business Awards, winning the CFO of the Year gong.

We are proud of our strong and productive relationships with our staff, and their unions. However,
we do have concerns about the Government’s planned changes to the industrial relations
framework. Specifically, we oppose the repeal of the ability for employers to opt out of Multi
Employer Collective Agreement negotiations. If the opt out provision is repealed, we fear
industrial issues at one port will potentially lead to national strikes across the total sector,
something we have not experienced since the ‘70s.

We are still hopeful that the Coalition Government will heed the concerns expressed by Business
New Zealand and international conventions endorsing the voluntary nature of collective
bargaining, and amend this portion of the Employment Relations Amendment Bill.

Health and safety has remained a priority in the past year and my fellow Directors and I have
taken the opportunity to visit several of our operational sites to observe first hand and be briefed
on safety-related strategies.

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We have also undertaken an external audit of our health and safety practices to gauge our
effectiveness at a Board and senior management level against best practice.

We are also endeavouring to replicate our progress in health and safety with our environmental
performance. You will see environmental and social performance indicators feature more
prominently in our reporting - such as our annual report this year - and Mark will outline some of
our recent initiatives in this area. You can be assured that the Board takes our ongoing “licence
to operate” and the future sustainability of our business very seriously.

I’ll hand over to Mark now to share some of the operational highlights for the year as well as the
outlook for the 2019 financial year and beyond.


.

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Port of Tauranga Limited Annual Meeting
17 October 2018

Mark Cairns, Chief Executive

Thank you David. Kia ora koutou. I am Mark Cairns, privileged to be your Chief Executive of New
Zealand’s largest, fastest growing and most productive port. Thank you all for your attendance
this afternoon to hear about the highlights of the last financial year as well as our plans for the
coming year.

As the Chairman has outlined, we had an outstanding year, with our hub port strategy really
starting to pay off in terms of cargo throughput, as well as diversity in the types of cargo we
handle. Transhipment now represents a quarter of our container volumes. While the revenue per
container is lower, the benefit is that there are no road or rail movements outside of the port gate
and the containers spend a shorter time tying up ground slots in the terminal.

Our expansion over recent years has provided community benefits also, with larger cruise ships
such as the Ovation of the Seas and the Queen Mary 2 visiting Tauranga. Neither of these vessels
can safely berth in Auckland due to their size.

I have been asked by a shareholder to extend a vote of thanks to the staff who made the visit of
the Queen Mary 2 possible, giving locals and visitors a rare glimpse of one of the most iconic
trans-Atlantic ocean liners in the world.

She also commented on the orderliness and tidy appearance of the wharves, the cheerfulness of
the security personnel and the water cannon farewell from our tug crews. Thank you, Elizabeth,
for your kind comments.

Tourism Bay of Plenty estimate that the 113 cruise ships already booked for this season (an
increase of 36% on last year) will contribute more than $90 million and 1,200 jobs to the Regional
Economy.

Now to give you a bit more detail on trade trends for the past year:

Imports increased 13.7% to nine million tonnes and exports increased 8.2% to 15.4 million tonnes
for the year ended June. Ship visits increased 5.8% to 1,747.

Log exports are still performing strongly, increasing 14.3% in volume to 6.3 million tonnes. Sawn
timber exports also increased 10.3% in volume. Forestry products are still fetching record prices
internationally.

Dairy product exports increased 4% overall to 2.3 million tonnes. Imports of stockfeed
supplements for the dairy industry increased 18.2%, while fertiliser imports increased 16.5%,
showing a strong underlying agricultural sector.

Other primary produce sectors also performed strongly, including frozen meat and apple exports,
increasing 11.3% and 20.9% respectively.

2



In the construction sector, cement imports increased 18.9%, while steel exports increased 25%.

Oil product imports increased 9.3%, reflecting the positive regional economy, and other bulk liquid
imports increased 39.9% in volumes.

Cars and other vehicles continue to be a growth area for us, albeit off a small base.

The kiwifruit sector is also performing strongly, although not necessarily seen in our figures this
year, as the season profile is changing with an increase in the gold kiwifruit harvest. There is a
rapidly increasing trend to containerisation, with a 27% increase in kiwifruit being shipped in
refrigerated containers, rather than as palletised cargo shipped in conventional reefer vessels.

This has put pressure on the availability of power points at the container terminal. We have
increased the number of reefer connection points to 2,634. These are supplemented in the peak
season with 12 generators, each supplying power to 35 containers.

We believe we have the largest reefer capacity in Australasia and we are installing a further 200
plugs to reduce the diesel generator requirement for next season.

We remain New Zealand’s largest container port and have been able to maintain our market-
leading productivity rates at the terminal, with a ship rate of 87.4 moves per hour on average, well
above the reported national average of 75.0 moves per hour and nearly 60% ahead of the
Australian rate of 55.5 moves per hour.

Port of Tauranga has 208 permanent staff, and our Total Recordable Injury Frequency Rate
improved to 5.5 per million hours worked, which is one of lowest rates in our industry. We incurred
one Lost Time Injury during the year and I still consider that is one too many. We insist that safety
remains our number one priority. We value human life above all else and expect that all of our
port colleagues will go home to loved ones at the end of their shifts in the same condition that
they entered the port gate. I am also pleased to report that the Total Recordable Injury Frequency
Rate for our contractors reduced by 69% for the year, to 9.3 incidents per million hours worked.

We have launched a wellbeing programme for our employees that is quickly gaining popularity
amongst staff.

As David mentioned, we want to be as successful in our environmental performance as we have
been in our health and safety outcomes.

We have just received our certification under the Certified Emissions Measurement and
Reduction Scheme - CEMARS for short. This gives us the platform to accurately measure our
carbon emissions and set future targets for reducing our carbon emissions.

Our biggest source of carbon emissions is our diesel consumption.

We are transitioning our straddle carrier fleet to diesel electric models, and our cranes generate
electricity on lowering container. This can be fed to other cranes nearby or back into the container
storage yards. Future expansion in the terminal will be with rail mounted gantries and we will we
specifying these as electric rather than diesel powered.

We are also replacing our vehicle fleet with electric or hybrid models where possible, such as this
all -electric Hyundai Ioniq car added to the pool a few months ago.

3


We’re hopeful that suitable vehicles become more widely available when it comes to renewing
our operational vehicles. Unfortunately electric tugs are not available yet.

In addition to reducing emissions and improving energy efficiency, we have increased our
vigilance in maintaining air and water quality.

We employed our first Environmental Manager nine months ago, and we are already seeing the
impact on the compliance and monitoring of the multiple companies operating on the wharves.

Stormwater management is a current priority. We have increased sweeping of the log yards and
installed stormwater screening chambers to ensure dust and debris is prevented from entering
the harbour.

Our long-running resource consent application for stormwater discharges at the Mount
Maunganui wharves is currently being heard by an independent commissioner and we are
hopeful of resolution within the year.

We are supporting forestry industry efforts to reduce the amount of fumigation required by de-
barking logs prior to arrival at the wharves. This also helps with the sweeping operations, as there
is less bark shed onto the berths or storage areas through log handling. We were very pleased
to hear the news that Kaingaroa Timberlands, one of our largest log exporters, is building a large
scale de-barking plant at its rail exchange at Murupara. It should be operational by the middle of
next year and will greatly reduce the amount of fumigation required at the wharf.

Fumigation at Port of Tauranga is carried out by Genera, according to the various codes of
practice prescribed by authorities such as the Environmental Protection Agency and the Bay of
Plenty Regional Council.

Port of Tauranga also has our own strict protocols around exclusion zones and notifications.

The Environmental Protection Authority has set a 2020 deadline for 100% recapture of methyl
bromide used in fumigation and Genera is so far meeting the milestones towards this goal.

Looking to the future, we are now working out what we need to do to accommodate the next stage
of cargo growth.

We will continue to increase container terminal capacity by relocating and reorganising buildings
and activities where it is efficient to do so.

We are progressing plans to extend the container terminal berth south of the existing wharf and
have ordered a ninth container crane for delivery in 2020.

We have also engaged the services of global experts, the TBA Group headquartered in the
Netherlands, to review our future capacity planning options for the container terminal.

This is an artists’ impression of our future development which will provide plenty of room to grow
with a capacity of nearly three million TEUs, without the need for any expensive and unwelcome
reclamation works.

4


I remain immensely proud of our Port People, who provide the Company with our greatest source
of competitive advantage. Our people work around the clock, in all weather, and thrive on the
challenges presented to them. They embrace our culture of continually striving to do things better
and demonstrating an enduring “can-do” attitude to doing business with our customers.

Special mention must be made of our Mechanical & Electrical team, who lost their workplace in
the fire that destroyed the workshop at the container terminal in August.

The cause of the fire was found to be the charging of electric drill lithium batteries.

It was obviously a devastating experience for those who worked there, as well as the wider team.
I have been very impressed by individuals’ resilience and the support they have offered each
other in dealing with the aftermath and very quickly getting on with the job at hand.

We have established a temporary workshop just outside the terminal gates and are working with
our insurers on replacing the parts and equipment lost in the fire.

I’d now like to talk about the trends we are seeing so far in the 2019 financial year.

We are in the fortunate position of having a diverse range of cargoes and income streams to
provide some protection from volatility in commodity cycles.

There are some significant production facilities in the pipeline in the eastern Bay of Plenty, as
well as some potential new factories in the Tauranga area.

We are working with importers and exporters on how they can best utilise Tauranga’s transport
links to the intermodal freight hubs available in the Waikato and Auckland, as well as the new
business park at Rangiuru, to create highly efficient supply chains.

Recently there has been a thorough independent report by Middlebank Consulting Group on the
cost effectiveness of using Tauranga as a logistics hub. The report was commissioned by the
local Regional Economic Development Agency, Priority One.

The report assessed furniture, electronics and apparel being imported from Asia. It found that
Tauranga was cheaper by about 5% over Auckland as a distribution hub, primarily as a result of
the infrastructure and efficiency at the port and its transport connections to other regions.

When it came to vehicles, Tauranga was a slightly more cost-effective gateway for vehicles
destined for locations south of Auckland.

This report confirms what importers and exporters in this region have known for a long time. Our
cargo handling expertise, rail and road transport connections and international shipping options
give companies a competitive edge.

I note that GDP figures remain positive, with the June quarter showing better than expected
growth of 1%. Port of Tauranga’s first quarter’s figures have; cargo volumes up 8% on the prior
corresponding period, containers up 1%, tranships up 11%, logs up 15%, and Earnings up 5%.

At this point, we expect cargo and earnings growth to continue. Based on the first quarter’s
performance, notwithstanding any significant change to market conditions, we expect full year
earnings in the range of $96 million and $101 million. We are focusing our efforts ensuring that
we have infrastructure and facilities in place to cater for the increase in cargo volumes we expect
over the next five years.

5


It just remains for me to thank our customers and partners. We will continue to strive for success
as New Zealand’s Port for the Future and delivering benefits to all our stakeholders, both here in
the Bay of Plenty and well beyond, with 41% of New Zealand’s exports passing across our quays.
Tens of thousands of New Zealanders rely on us for direct and indirect employment with Port of
Tauranga impacting 43% of the Region’s GDP.

Nga mihi nui kia koutou katoa. Thank you Ladies and Gentlemen. I will now hand back to David.

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ANNUAL
 
MEETING
17 October 2018

DAVID
 
PILKINGTON
Chair

HIGHLIGHTS•
Cargo
 
volumes
 
up
 
10.2%
•
Containers
 
up
 
8.9%
•
Revenue
 
up
 
10.9%
•
Group
 
Net
 
Profit
 
After
 
Tax
 
up
 
13%
•
Transhipment
 
up
 
23.3%
•
Asset
 
revaluation
 
increased
 
by
 
$226
 
million
2018

TOTAL
 
TRADE
 
UP
 
10.2%
0
5,000,000
10,000,00015,000,00020,000,00025,000,00030,000,000
2015
2016
2017
2018
Tonnes
Bulk
Containerised

GROUP
 
NET
 
PROFIT
 
AFTER
 
TAX
 
UP
 
13%
$77,314
$83,441
$94,273
$0
$20,000$40,000$60,000$80,000
$100,000
2016
2017
2018
$000s

TRANSHIPMENT•
Fast
 
connections
 
to
 
North
 
Asia,
 
North
 
America
 
and
 
South
 
America
•
Transhipment
 
from
 
other
 
New
 
Zealand
 
ports
 
increased
 
54.7%
•
A
 
quarter
 
of
 
all
 
total
 
TEUs
 
handled
 
at
 
Tauranga

Ovation
 
of
 
the
 
Seas
Ovation
 
of
 
the
 
Seas

SUBSIDIARIES
 
AND
 
ASSOCIATES
Quality Marshalling
Title
 
of
 
role
Coda Group
PrimePort Timaru

SUBSIDIARIES
 
AND
 
ASSOCIATES
Timaru Container
Terminal
Title
 
of
 
role
Northport

ORDINARY
 
DIVIDENDS
 
UP
 
13.4%
10.6
11.2
12.7
02468
101214
2016*
2017
2018
Ordinary
Special
Cents per share
*Adjusted for share split

Queen
 
Mary
 
2

CFO
 
of
 
the
 
YEAR
Steve
 
Gray
Deloitte
 
Top
 
200
 
Business
 
Awards
 
2017

THANK
 
YOU

THANK
 
YOU

THANK
 
YOU
MARK
 
CAIRNS
Chief Executive

Queen
 
Mary
 
2

0
20406080
100120
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CRUISE
 
VESSEL
 
VISITS

IMPORTS
 
UP
 
13.7%
 
EXPORTS
 
UP
 
8.2%
 
9 million tonnes
15.4 million tonnes
7,000
8,000
9,000
0
5,000
10,000
2016
2017
2018
13,100
14,200
15,400
0
5,000
10,00015,00020,000
2016
2017
2018

LOG
 
EXPORTS
 
UP
 
14.3%
4,572
5,490
6,276
0
1,0002,0003,0004,0005,0006,0007,000
2016
2017
2018
000 tonnes

DAIRY
 
EXPORTS
 
UP
 
4.0%
2,119
2,223
2,312
0
500
1,0001,5002,0002,500
2016
2017
2018
000 tonnes

CARGO
 
TRENDS

CARGO
 
TRENDS

Cars

KIWIFRUIT
 
EXPORTS
996
982
925
0
200400600800
1,0001,200
2016
2017
2018
000 m
3

DAVID
 
PILKINGTON
Chair

NZ’S
 
LARGEST
 
CONTAINER
 
PORT

14.73
5.75
5.62
5.53
02468
10121416
2014/15
2015/16
2016/17
2017/18
Per million hours worked
TOTAL
 
RECORDABLE
 
INJURY
 
FREQUENCY
 
RATE

DAVID
 
PILKINGTON
Chair

DAVID
 
PILKINGTON
Chair

ENVIRONMENTAL
 
INITIATIVES

FUTURE
 
PLANS
•
Increasing
 
container
 
terminal
 
storage
 
capacity
•
Southern
 
berth
 
expansion
•
Ninth
 
crane
 
ordered
 
for
 
delivery
 
2020

Full
 
build
‐
out
 
(2.8
‐
3m
 
TEUs)

PORT
 
PEOPLE

MOST
 
EFFECTIVE
 
LOGISTICS
 
HUB
•
Savings
 
of
 
around
 
5%
 
for
 
cargo
 
categories
 
assessed
 
in
 
independent
 
survey
•
Cargo
 
handling
 
expertise,
 
road
 
and
 
rail
 
transport
 
connections
 
and
 
international
 
services
 
give
 
importers
 
and
 
exporters
 
a
 
competitive
 
edge

FIRST
 
QUARTER
 
TRADING
2018
 
/
 
2019
1Q18
1Q19
Variance
Trade
 
(Tonnes)
6,111,990 6,617,709
+8.3%
Logs
 
(Tonnes)
1,608,237 1,844,357
+14.7%
Dairy
 
(Tonnes)
445,065
413,641
(7.1%)
Containers
 
(TEUs)
293,400
295,480
+0.7%
Transhipped
 
Containers
 
(TEUs)
76,239
84,931
+11.4%
Group
 
Surplus
 
After
 
Tax
$22.183M $23.206M
+4.6%

OUTLOOK
•
Cargo
 
growth
•
Increasingly
 
efficient
 
supply
 
chains
•
Tauranga
 
most
 
cost
 
effective
 
option
 
for
 
importers
 
and
 
exporters
•
New
 
cargoes
 
in
 
pipeline

THANK
 
YOU