half-year report · ally will resume her wellington job after the holidays and hopes to use her...

Half-Year Report FY2020

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HALF-YEAR REPORT

TAINUI GROUP HOLDINGS

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Report from the Chairman and Chief Executive Officer

Sir Henry van der Heyden CHAIRMAN

Chris Joblin CHIEF EXECUTIVE OFFICER

There is new momentum building for Tainui Group Holdings (TGH). Our 2020 financial year is seeing outcomes that have been a while in coming because they have required patience and focus, robust negotiation and collaboration.

Highlights include the start of construction of our new hotel at Auckland International Airport, the announcement of a Ruakura rail service agreement with Port of Tauranga, rapid progress on the extension to Novotel Tainui Hamilton Hotel, and a financial performance that is ahead of budget.

Added to this is our strategy to protect and build returns from our Fixed Income portfolio. This is primarily focused on commercial properties, especially those in the Crown tenancy space. Discussions with one Crown agency are very well advanced.

Other Fixed Income opportunities are also in the works and the challenge for us all will be to ensure that TGH is well-positioned to capitalise on those with suitable funding capability.

The common factor in our progress so far this financial year is partnership, which we often talk about as a key part of how we do business. Partnership for us is about aligning interests and values, responding to need, tapping into resources, and accessing jointly-held skills and business intelligence to develop smart ways of doing business for mutual gain.

It’s a good time to be building momentum and partnerships. Infrastructure projects valued at $1b are underway in Hamilton and the Waikato that will change the economic profile of our region. These are over and above a number of roading and housing developments, the Hamilton-Auckland passenger rail service, location moves by major corporate companies to our province, and our own Ruakura precinct project. There is a lot happening within our rohe.

Of course, we acknowledge that the most important partnership we have is with our iwi, starting with our governing bodies, marae, fellow tribal entities, and our tribal members. We see ourselves as one part of a tribal engine that relies on the sum of its parts to be successful and, more importantly, build a strong future for Waikato-Tainui.

Mahia te mahi hei painga moo te iwi.

HE PUURONGO NAA TE HEAMANA ME TE TUMU WHAKARAE

He tau whaangai te tau.He tau pai te tau.He tau whakatupu te tau.Kei ngaa nunui, kei ngaa roroa, nei raa te mihi mahana i teenei wahanga o te tau.


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Sir Henry van der Heyden (left) and Chris Joblin on-site at the Novotel Tainui Hamilton Hotel extension.


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PROPERTY PRIMARY DIRECT INVESTMENTS

FIXED INTEREST EQUITIES

WHAKARAPOPOTO WHAI PUUTEA

Financial Summary

ASSET PORTFOLIO

Our income comes from a range of asset sectors including Property, Fixed Income (leases), Primary Industry (farms, forests), Direct Investments (Go Bus and Waikato Milking Systems), and Equities.

Over the last five years TGH has been actively diversifying its investment portfolio to spread risk against any sector experiencing a downturn.

68+5+20+7+D 58+6+7+19+10+D$827M $1,006M

TOTAL ASSETS FY2014 TOTAL ASSETS FY2020 (forecast)

PROPERTY ASSET CLASS BREAKDOWN FY2020 (forecast)

Our investment in Property reflects our history as a company that was established with whenua from the Raupatu settlement, which included commercial, residential and rural properties. It was a fortunate start for TGH and much of our growth is a result of commercialising that whenua. The Base is an example of this.

44+26+20+7+3+D$585M

RETAIL

RUAKURA

HOTELS

COMMERCIAL

RESIDENTIAL

68%

7%

20%

5%

58%

10%

19%

7%

6%

44%

26%

20%

7%

3%


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FINANCIAL PERFORMANCE FY2020

The half-year has ended in line with our budget and we are on target to exceed year-end forecasts for Net Operating Profit ($23.7m) and Net Profit ($43.3m) respectively.

The strong performance has been underpinned by The Base, our hotels, and equities which have recorded higher valuations.

Areas of our business facing challenges include our farming operations as a result of Fonterra not paying its dividend. This has also had a flow-on effect to Waikato Milking Systems which relies on sales to farmers. Go Bus continues to demonstrate an improvement in performance albeit in a tough public transportation sector.

MANAGING FUTURE GROWTH

Growth will increase operating profits, and this will enable TGH to increase dividends back to our iwi.

Some of this growth comes about naturally from running our businesses well and increased valuations on some of the existing assets. However, for TGH to really grow, it must invest in new opportunities, and this can only be achieved with more capital.

Options to raise capital include increasing bank borrowings (debt), selling assets, partnering with others, and receiving direct contributions (cash) from the company shareholder.

Under the current Statement of Investment Policy and Objectives (SIPO) TGH can borrow up to 20% of its Total Asset Value (which is very conservative by commercial standards where debt-to-equity ratios of 35-40% are common among property companies). TGH is currently utilising 16%, leaving just 4% to fund future developments.

Of the four options, increasing our debt cap and acquiring partners are potentially our best possibilities for raising capital.

NET OPERATING PROFIT (forecast)

$23.7M

NET PROFIT (forecast)

$43.3M

RIGHT: Higher valuations for properties such as The Base have contributed to the strong financial performance of TGH


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HE HOOTEERA HOU

New hotel on the way

A stunning karakia event in July 2019 set a strong cultural foundation to bring to life our new luxury hotel.

Te Arikinui Pullman Auckland Airport Hotel, which we are developing in partnership with Auckland Airport, will be the fourth in our stable of hotels and is part of the airport’s multi-billion dollar ‘airport of the future’ expansion.

Construction commenced on 1 August 2019 with completion scheduled for 2022, and design plans and renders reveal a hotel that will be worthy of the title it carries and its 5-Star premium status.

The build presents a series of unique challenges for the builder, Dominion Constructors, which include its star-shape, its location within an operational airport, height restrictions, and having an existing hotel (Novotel Auckland Airport Hotel) operating alongside the construction site.

Foundations and steelwork to level one are expected to be completed by March 2020.

TOP: Kiingi Tuheitia breaks the groundBOTTOM: Loyal nannies supporting the karakiaFAR RIGHT: Artist’s impression of the new hotel


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PORT OF TAURANGA PARTNERS ON RUAKURA

Partnering with Port of Tauranga on a rail services agreement is a key step towards fulfilling the vision we have for Ruakura.

The agreement confirms that Port of Tauranga views Ruakura as a key component of its port and container movement operations within the golden triangle of Auckland, Hamilton and Tauranga.

The 30-year agreement gives Port of Tauranga access rights to Ruakura with priority rail slots. Port of Tauranga is currently operating up to 86 train trips per week between Auckland and Tauranga, carrying up to 9,000 shipping containers.

Chief Executive, Mark Cairns, says Ruakura offers significant cargo handling capacity and scope for his organisation to meet its future needs.

KiwiRail has also welcomed the agreement, describing it as an example of effective collaboration to design and deliver rail infrastructure that will better connect Aotearoa.

We welcome Port of Tauranga to the TGH whaanau and look forward to deepening a partnership that benefits both organisations.

LEFT: Mark Cairns, Chief Executive of Port of Tauranga with TGH CEO Chris Joblin (right)


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While all commercial construction projects present a series of challenges around design and buildability, working together to identify issues and provide solution options has worked well for project manager Greenstone Group, Babbage Architecture and builder Form NZ.

And by the time the extension opens next year the hotel will offer guests the newest and finest accommodation in the city.

Major milestones to date include installation of screw piles and foundations, recast columns, walls and floors, and completion of the roof. Fitout on all four floors, including installation of window joinery and glass, is now underway.

In January 2020, when the white building wrap is removed, we will be able to view for the first time the unique tuna design on the exterior of the extension wing.

EXTENSION NEARS COMPLETION

A ‘project-first’ mindset by the construction team has contributed to a trouble-free build on the four-level, 40-room extension to Novotel Tainui Hamilton Hotel.

Construction is expected to be completed in the first quarter of 2020.


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SUPPORTING RANGATAHI INTO MAHI

Getting proactive about mahi has proven to be a successful strategy for Victoria University student Ally Green (Waipapa Marae).

With support from her Dad, Ally approached TGH looking for help to find job opportunities in Wellington where she is studying a conjoint degree in Commerce and Design Innovation.

That led to an interview with Grand Mercure Hotel, which is owned by Accor who manages all three of our current hotels. Her job as a Food and Beverage Attendant is allowing her to save towards the cost of accommodation for next year when she moves out of Halls of Residence.

It’s also led to a holiday job in Auckland. “I talked to my boss and he offered me an opportunity to transfer to the Grand Mercure in Auckland where I live. It’s really great.”

Ally will resume her Wellington job after the holidays and hopes to use her hotel work experience to find mahi when she heads off on her post-graduation OE.

BOARD UPDATE

In August 2019 we said farewell to long-serving director Matthew Cockram and welcomed two new appointments to the Board table.

Matthew, who is a property development and major projects specialist, joined the Board in 2011. His time on the Board saw significant growth, including Equity more than doubling to $734m and $123m in dividends paid to Waikato-Tainui.

Replacing Matthew is Dean Bracewell (Ngaati Maniapoto), who brings transport and logistics expertise having been Managing Director at Freightways Group for almost 20 years.

Mark Petersen has also been appointed to the Board in an Advisor capacity. Mark has a background in property and port governance. His role will transition to Director in 2020 when another long-serving Director is due to retire.

Both Dean and Mark offer experience that is especially valuable as we continue to create Ruakura and enhance property developments.


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Te Ohu Amorangi is about helping to develop future directors who could go on to contribute to iwi development through governance. Lee stood out because of his desire to be a governor and make a difference for his iwi,” says Sir Henry.

DEVELOPING FUTURE DIRECTORS

Te Ohu Amorangi is our new governance development programme and Lee Taharangi Gray is the inaugural appointee.

Lee, who affiliates to Waikato, Ngaati Maniapoto, Ngaati Apakura, Ngaati Raukawa, Ngaai Te Rangi, and Ngaati Kahungunu, was selected from 47 high calibre applicants.

Te Ohu Amorangi is inspired by the Future Directors Programme which offers opportunities to those aspiring to a future in governance but don’t yet have governance experience.

The programme was introduced to TGH by Sir Henry van der Heyden who was behind its initiation into Auckland Airport during his time as Chairman where he championed diversity, including supporting more Maaori on boards.

TGH has adapted the Future Directors Programme to run for two years, not one. During that time Lee will have the same access to Board information and decision-making as a director would. However, as a non-director he is not able to vote.

The two-year timeframe is designed to give appointees plenty of time to “learn, develop, contribute and have the opportunity to add value to the business,” Sir Henry says.

CLOCKWISE FROM TOP LEFT: Dean Bracewell and Mark Petersen (right), Lee Taharangi Gray, Ally Green


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www.tgh.co.nz

half-year report · ally will resume her wellington job after the holidays and hopes to use her...

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