South Port NZ Ltd – 2022 Annual Meeting Presentations

SOUTH PORT NZ LTD

2022 ANNUAL MEETING


Chair’s Address – Rex Chapman

This year’s reported after tax profit of 12.8M requires some explanation in order to make a proper
comparison with last year’s result.

This year’s profit includes two one off adjustments. Firstly, we recorded an after-tax interest rate
derivative gain of $980,000 which was a result of recent rate increases against our fixed rate interest
rate swaps.

Once these one-off items are removed, the normalised after-tax profit for the 2022 year was $11.16M
which represents a 6.8% increase on the previous year’s result of $10.45M.

This is a very pleasing result having regard to the challenges faced this year which included:

- The ongoing disruption in the world-wide container supply chain which resulted in a 24%
reduction in container vessel calls to the Port and a reduction in total vessel calls.

- As a result, container volumes were down 18.5% at 44,000 TEU compared to 54,000
TEU the year before.

- Log and timber volumes collectively were down 13.9% at 667,000 tonnes.

Despite the reduction in vessel calls greater volumes were handled which translates to a better
environmental outcome.

The next slide shows the breakdown of cargo between containers at 12% and bulk and break bulk
at 88%. This statistic emphasises the continued importance of bulk cargoes to our financial
performance. This year bulk cargo volumes were up 6.1%. The main contributor to this increase was
a 148,000 tonne increase in stock food volumes. Climate and the milk price influence the volume of
stock food imported and used in the region, and the milk price in particular this year would have
supported the increase in volumes.

The Company has a comprehensive asset management plan that was developed in 2016 for a 20-
year period. We have previously advised shareholders that the forecast expenditure under that plan
was expected to reach a peak during the 2021 financial year then decreasing to a more steady state.
This has eventuated and is illustrated by the slide which shows 2022 expenditure decreasing by
35% to $2.8M compared with $4.3M in 2021 at the peak.

Despite this rising maintenance expenditure in the previous five years, the Company has been able
to maintain an impressive record of total shareholder return. By total shareholder return I am
referring to the cumulative return in terms of dividends paid and share price increase over time. The
next slide shows that our 10 year cumulative total shareholder return has been an impressive 250%.

The current dividend policy is to consider both the Company’s free cashflows and reported profits
when determining the level of annual dividend. The full year dividend this year has been maintained
at 27 cents per share.

This represents a dividend pay-out of 55% of net profit after tax and equates to 73% of free cashflow.
It is relevant to note again that although the payment ratio to net profit is lower than previous years,
this reflects the one off non cash adjustments to this year’s profit that I mentioned earlier.

As shareholders will be aware, the Company has been embarking on a channel deepening project
in order to increase the operating parameters for ships accessing the Port. We have named this
project Kia Whakaū.

This work not only includes the deepening of the channel but also the deepening of the swinging
basin, which is the area to the north of the Island Harbour used by vessels accessing the berths,
and also deepening the berths themselves.

The Kia Whakaū project included the purchase of our new tug Rakiwai, which arrived and was
commissioned this year at a cost of $10M.

On 31 August this year the Company was granted resource consent for the channel deepening
project, which authorised the drilling, blasting and removal of rock in the entrance channel to achieve
a depth of 9.7m chart datum, 10.7m in the Island Harbour berth pockets, and 9.45m in the swinging
basin.

What this means for South Port is that our operating draft would increase by a full 1m, which will
improve the safety margin for ship movements and provide greater capacity for vessels to take on
additional cargo.

The significance of this project for the future of the Company should not be underestimated. This
will be the first occasion that the channel entrance has been deepened since the early 1980’s, more
than 40 years ago, and the successful outcome of this project achieving an increase in our draft
aligns with the Company’s purpose, which is to facilitate the best logistic solutions for the region.

The work undertaken to deepen the channel in the early 1980’s involved a drilling and blasting
campaign in an attempt to deepen the channel to 9.2m. Unfortunately, due to the dredging
equipment in use at that time there was insufficient capacity to remove all of the fractured rock, and
therefore some of that material was left in the channel leaving us with an operating draft for the last
40 years of 8.5m.

The resource consent that has now been granted authorises drilling and blasting to be undertaken
to achieve an increased depth of 9.7m chart datum.

The Company still retained an historical consent to remove fractured rock from the previous drilling
and blasting campaign in the 80’s.

In August the Company contracted Heron Construction Company Ltd to remove this fractured or
fragmented rock.

Until this work started, the extent of the fractured material was unknown and it was expected that
the removal of the fractured rock would allow the Company to determine what drilling and blasting
may need to be undertaken in the channel to achieve the target depth.

As was reported to the market on 7 October, the removal of this fractured rock has been more
successful than we anticipated with the result that we expect to achieve 9.7m in the harbour entrance
channel without the need for further drilling and blasting.

We are now going to contract a suction dredge to deepen the swinging basin and berth pockets,
which is authorised under the resource consent and this is expected to be completed in July 2023.

Once completed we will have the benefit of the increased 9.7m draft, which will allow for larger cargo
volumes on the vessels currently calling and the possibility of some increase in vessel size.

Achieving this targeted 1m increase in operating draft, without having to drill and blast in the channel
will reduce Kia Whakaū project costs by approximately $10M – a very significant saving. This will
enhance the business case, which has underpinned the project and will provide better than
anticipated future financial returns. We will be in a position to quantify the impact to our profit once
the project has been completed next year.

We are now optimistic that NZAS will continue to operate past the current closure date of December
2024. The key to this will be the successful outcome of the commercial negotiations for electricity
supply and satisfying regulators and stakeholders about improving environmental outcomes and site
remediation.

Securing the future of the Smelter, while at the same time continuing to explore the growth
opportunities that have been identified such as green hydrogen and aquaculture would be a very
positive outcome for the Southland economy, and potentially South Port.

One such growth opportunity is the potential development of large-scale renewable hydrogen
production in Southland promoted by Meridian Energy Ltd and Contact Energy Ltd. A formal process
has reduced the prospective counterparties for this venture down to two being Fortescue Future
Industries, a subsidiary of Fortescue Metals Group Ltd, and Woodside Energy Ltd. A decision on
which of these two parties will be selected is expected before the end of the year. Until further detail
is known about any proposed development, it is difficult to assess what impact this will have on
South Port but the Company has been maintaining contact with Meridian and Contact to ensure that
the Port is positioned to assist and take advantage of any opportunities that might arise.

The Murihiku Aquaculture Group independently chaired by former South Port Director, Rick Christie,
is working with industry participants Ngāi Tahu Seafoods Ltd and Sanford Ltd to facilitate the
development of this aquaculture opportunity for Southland.

A reticulating aquaculture system (RAS) hatchery for growing Chinook salmon smolt, also known as
King Salmon, initially planned for construction at Ocean Beach in Bluff has now been relocated to a
Makarewa site because of site suitability.

Ngāi Tahu Seafood’s resource consent application has been accepted for processing under the
Covid-19 Recovery (Fast Track Consenting) Act 2020. If consented, this project would see the
operation of a salmon farm within a 2,500 ha site approximately 2 – 6 km off the north eastern coast
of Stewart Island.

Sanford’s have also lodged a consent to establish an open ocean farm at the south end of Foveaux
Strait. This consent application is currently on hold while further stakeholder engagement is being
undertaken.

These applications are a vote of confidence in the southern region for large scale open water salmon
farming and will present servicing opportunities for South Port.

Last month Mercury Energy announced that earthworks had commenced at Mercury’s 240MW wind
farm at Kaiwera, near Gore. This $115M project will initially see 10 turbines built producing 43MW,
enough electricity to power an estimated 20,000 homes or 66,000 electric vehicles.

The components for these wind farms which will stand 145m in height from base to turbine tip, is
expected to be brought in through the Port during the next financial year, which should provide a
material increase in next year’s cargo volume.

This announcement by Mercury is confirmation of the wind energy potential in Southland. The
development of the renewable energy potential in the south is expected to increase once the long
term future of the Smelter is confirmed.

The Company is working towards developing an environmental strategy and pathway to becoming
carbon neutral.

There are several connected contributors to this strategy.

Firstly, the Company already has an overarching strategy of ensuring that the physical environment
is respected and that continuous improvement is delivered in environmental outcomes including the
reduction in our carbon footprint.

Secondly, as a listed company we are required to develop a framework for climate related financial
disclosures. These disclosures will meet the requirements under the new Aotearoa New Zealand
Climate Standards, which will be introduced later this year. South Port will be implementing the
disclosure framework for the 2024 reporting cycle in line with external reporting board guidelines.

For the past four years we have been recording and reporting annually our greenhouse gas
emissions by source broken down into scope one, two and three emissions.

Carbon intensity is the most useful performance indicator in assessing carbon efficiency. Over the
past four years relatively stable cargo volumes handled have seen carbon emissions, fuel and
energy use trending downwards, which is pleasing.

Outlook

There are always uncertainties in any outlook and this year is no exception. Although global supply
chains are starting to normalise with previous congestion and high freight rates easing, there is still
uncertainty in global markets. Record high inflation rates globally resulting in central bank’s
increasing interest rates is raising risk of recession in many economies.

However, we as a Company have reason to be optimistic about our prospects at least in the medium
term. We expect to have a new operating draft by the middle of next year. There are near term
opportunities with the handling of wind farm equipment and longer term opportunities in hydrogen
and aquaculture.

Our ongoing investment in our Port infrastructure and plant will continue to ensure that we are able
to take advantage of these opportunities as they arise.

In the first quarter of FY2023, our total trade is tracking in line with FY 2022 which is encouraging
and in line with expectations.

Logs and containers are still being impacted by market conditions, however, all other bulk cargoes
are the same or slightly ahead of FY 2022.

The log market faces ongoing uncertainty because of lockdowns in China affecting residential
construction rates in-market. We expect the decrease in demand for logs shipped from New Zealand
to last until the end of this calendar year.

However, returns at the wharf-gate level in New Zealand have lifted due to shipping costs easing
and the recent weakness of the NZ dollar versus the US dollar. Logs are traded in US dollar terms.
The cost of shipping logs has fallen further than has the cost of containerised freight.

The ANZ Bank has commented that this has been particularly helpful as freight now accounts for a
significant part of the cost of logs landed in China.

During recent months, there has been a sharp reduction in spot freight rates on major sea-lanes and
in charter costs. In the New Zealand context, freight rates are likely to reduce at a slower pace and
a return to reliable schedules for ship calls in the port industry remains uncertain.

In a volatile phase in world shipping, South Port has consistent and stable services by Mediterranean
Shipping Company one of the largest lines in the world.

Both Australia and New Zealand are seeing interest from new shipping lines. South Port is watching
these new developments with interest, while being aware that such ventures will need to attract long-
term customers to ensure future viability.

The cruise industry has made a welcome return with several vessels on the coast. Although only a
very small number of vessels are expected to call at Bluff, we do provide pilotage services to those
that visit Fiordland.

At this stage we are expecting our full year earnings to be consistent with last year and on that basis
will be aiming to maintain the current level of dividend. Updated profile guidance will be provided
with the release of our interim result in February.

On behalf of the Board, I would like to acknowledge the contribution of Nigel and his Leadership
Team during the past year. It has been a very busy year, which has included the excellent progress
that we have made with our channel deepening project, which is likely to be completed on time at a
much lower total cost than expected. This is an outstanding outcome and is a credit to the whole of
the Leadership Team. Our Infrastructure Manager Frank O’Boyle and his team have played a central
role in the successful execution of this project and I want to especially acknowledge their work.

We are currently going through a period of planned board renewal. This year Jeremy McClean retires
and John Schol has been nominated to succeed Jeremy.

As I noted at last year’s annual meeting the current refreshment of the Board will continue with my
retirement at next year’s annual meeting.

Jeremy was elected to the Board in 2011. Jeremy has been a valuable contributor to the Company’s
success over the period of his tenure having been a member of the Audit & Risk Committee and
then Chair of that committee for the last six years.

Jeremy’s background as an accountant and valued business advisor to the farming sector, together
with his sound business judgement and values are attributes that have been appreciated by all of
us. We will miss his contribution and his company around the board table, and we wish him well.

Thank you.

---

SOUTH PORT NZ LTD

2022 ANNUAL MEETING


Chief Executive’s Address – Nigel Gear

Thanks Rex, Tēnā koutou katoa,

This morning following on from the Chair, I will focus on Safety, Health and Wellbeing including our
response to Covid-19. What’s happening in the infrastructure space, rounding it out with our people
and our community.

Our values underpin everything we do at the Port. They are a key part of our strategic framework,
our daily communications and our decision-making processes.

The most important of these values is safety first. Ports by nature are hazardous environments.
We deal with large machinery on a daily basis, cranes, forklifts, trucks, loaders, diggers and
vessels. Of note we recorded 260,336 inward traffic movements through the gate over the last FY,
which is a significant amount of traffic.

It important therefore, that we have good systems to manage traffic flows, pedestrians and that we
continue to invest in systems and plant to promote better safety around the Port.

Critical risks are an important focus for the port industry.

A Port Health and Safety Leadership Group has been established, which includes the ports,
stevedoring companies, port industry association, unions and the regulators – Maritime New
Zealand and WorkSafe. This group has been specifically formed to focus on reducing harm in the
workplace and focusing on critical risks. The two major pieces of work currently being undertaken
are related to person versus plant and Fatigue.

Ports put a lot of effort into this space, however with two fatalities recorded over the last 12 months
it’s important that we work collectively for the betterment of all people working in the industry.

There was a significant amount of work undertaken in relation to Covid-19 over the previous
financial year. Vaccination policies, departmental risk assessments, on site vaccinations and
booster shots made available, rapid antigen surveillance testing and works teams created to
reduce transmission on site. It was very pleasing that when community transmission was in full
swing there was little impact on the South Port operations due to the measures undertaken.
I would like to make special mention of the staff during this time. It was not always an easy
process to be involved in, however the team got on with the job and I would like to thank them for
their patience and efforts.

The Port has a number of infrastructure projects currently underway or recently that we have
completed.

Shed No. 6 located adjacent to the container terminal was recently demolished to make way for
additional container storage and a repair area. This additional space is much needed as there
have been a number of times where there has been insufficient room to store export containers,
especially during the peak season. It has also seen a marked improvement for the container repair
function at the Port. This development has allowed the Port to separate the container repairs from
all of the other remaining container terminal functions reducing the risk profiles of both activities.

The paving of the South Rail log storage area was recently completed and opened for use. The
completion of this 14,000 m2 area will help to improve the safety of the log marshalling operation,
increase utilisation, provide better environmental outcomes and protect market eligibility of the
logs. Our thanks go out to the log exporters that supported this long-term development at the Port.

Since 2019 we have been on a journey to repair the access bridge installing Impressed Current
Cathodic Protection (or ICCP) to each of the 14 bays. It is pleasing to say that we only have one
bay left to complete, which will be done in the 2023 financial year. As mentioned previously the life
span of the ICCP equipment being installed on the bridge is expected to last for 25 to 30 years.

The upgrade of the town wharf fuel berth, accessway, pipeline corridor and discharge platform was
completed this calendar year. This development has been constructed to IL3 seismic rating and
has a life expectancy of a minimum of 50 years.

This project was on the books for a number of years, however the end result has been very
pleasing for both the Port and the infrastructure team winning both regional and national
construction awards.

The Port has made a conscious effort to work more closely with the community in recent years.
One of the ways we communicate with the community is through a newsletter called Mai I Te
Wāpu or from the wharf. This newsletter is prepared biannually and is delivered around Bluff by
staff members, the content basically discussing what is currently happening at the Port. The
leadership team also meets with both the community Board and Awarua Rūnaka during the year to
discuss similar topics around the Port and plans moving forward that the community should be
aware of.

A recent survey was carried out to gauge whether our engagement in the community is effective
and where we can make improvements. There was an excellent response to this survey and we
were very pleased with the feedback, taking on the recommendations on how we can improve.

Our relationship with the Rūnaka is very important to the Port. We have consulted with the Rūnaka
on a number of areas in the past, whether it be for resource consents, assisting with the naming of
both the Port (Te Pūkorokoro o Murihiku), the new tug (Rakiwai) and also the gifting of our logo. A
long-awaited gifting ceremony was held this year at the Te Rau Aroha Marae which was
thoroughly enjoyed by all that attended.

The Port continues to provide scholarships, sponsor sporting organisations / community groups
and provide gifts / donations for worthy local causes.

When the opportunity is available to the Port and we have the capacity, staff work on community
projects, with one day being set aside every year for each employee to carry out this work.

To finish off, I would like to once again make a brief comment about our people. As you are all
aware it has been an interesting few years operating on the border with a global pandemic.
Through all of the challenges thrown our way the staff have continued to operate to a high
standard, complete a number of projects and I very proud of the effort they have put in.

Thank you.

---

Shareholders’
Annual General
Meeting
1 November 2022

•Financial and Operating Highlights
•Infrastructure Spend
•Dividends
•Kia Whakaū
•Existing Coastal Permit
•NZAS & Opportunities
•Environmental Sustainability
•Outlook
•Board Composition and Staff
CONTENTS –CHAIR DELIVERY

SURPLUS AFTER TAX

NORMALISED SURPLUS AFTER TAX

•Container supply chain disruption
•24.0% reduction in vessel calls
•18.5% reduction in container volumes
•Forestry market challenges
•13.9% reduction in timber and logs
•Despite challenges record tonnage through port
RESULTS PLEASING DESPITE CHALLENGES

OPERATIONAL HIGHLIGHTS –CARGO IN TONNES
12%88%

INFRASTRUCTURE SPEND

10 YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN

DIVIDENDS

“act of strengthening, developing, or refining an object or
people: or, in this case, arguably both & the act of landing
something from the sea”
KIA WHAKAŪ

•2 Major Projects
•Deepening of Channel, Swinging Basin & Berth Pockets
•Tug Purchase
KIA WHAKAŪ

NEW TUG –RAKIWAI

•Resource consent granted 31-August-22
•Dredge and remove seabed materials to 9.7m chart datum (CD) in the harbour entrance
channel, 10.7m CD in the Island Harbour berth basins, and 9.45m CD in the swinging
basin.
•Will increase the current operating draft by 1m would assist with:
•improving safety margins for ship movements and
•provide greater capacity for vessels to take on additional cargo
•A major project for the Port and aligns with the Company’s purpose to facilitate the best
logistic solutions for the region.
DEEPENING OF CHANNEL, SWINGING BASIN & BERTH POCKETS

EXISTING COASTAL PERMIT –Pre Dredging

EXISTING COASTAL PERMIT –Post Dredging 9.5m CD

DREDGE OPERATING IN CHANNEL

REX & JEREMY ON BARGE

NEW ZEALAND ALUMINIUM SMELTER

OPPORTUNITIES –GREEN HYDROGEN

•Ngāi Tahu –Project Hananui
•fast track consent (awaiting lodgement)
•open ocean marine farming (salmon) within a 2,500-hectare area of the coastal marine
area, approximately 2 to 6 kilometers off the north-eastern coast of Stewart
Island/Rakiura
•Sanford –Project South
•Consent lodged with Environment Southland (undergoing consultation)
•Open ocean site, 28km from Bluff and 10km from the nearest Island at the south east
end of Foveaux Strait
OPPORTUNITIES –OPEN OCEAN AQUACULTURE

OPPORTUNITIES –WIND FARMS

ENVIRONMENTAL SUSTAINABILITY

ENVIRONMENTAL SUSTAINABILITY

ENVIRONMENTAL –CARBON INTENSITY BREAKDOWN

•Safety, Health and Wellbeing
•Covid-19 Response
•Infrastructure Developments
•Our Community
•Our People
CONTENTS –CEO DELIVERY

VALUES

SAFETY, HEALTH AND WELLBEING

SAFETY, HEALTH AND WELLBEING

SAFETY, HEALTH AND WELLBEING

COVID-19 RESPONSE

INFRASTRUCTURE DEVELOPMENTS –Shed 6 Demolition

INFRASTRUCTURE DEVELOPMENTS –South Rail

INFRASTRUCTURE DEVELOPMENTS –Access Bridge

INFRASTRUCTURE DEVELOPMENTS –Town Wharf

OUR COMMUNITY

OUR COMMUNITY –AWARUA RŪNAKA

OUR COMMUNITY

OUR COMMUNITY & OUR PEOPLE

OUR PEOPLE

•Uncertainty in global markets expected to continue
•Project Kia Whakaū –suction dredging expected in early 2023
•Our purpose
•Opportunities
•Wind Farm equipment
•Hydrogen
•Aquaculture
•Invest in Infrastructure and plant
OUTLOOK

First Quarter Results
•Trade volumes are tracking in line with FY2022
•Logsimpactedbyweakermarketconditions
•Containersstill facing some congestion and schedule reliability issues
•All other cargoes remain consistent or slightly ahead of FY2022
Earnings
•Expected to be consistent with FY2022
•Aim to maintain current level of dividend
OUTLOOK

BOARD COMPOSITION AND STAFF

JEREMY McCLEAN

QUESTIONS?