Chair Report - Andy Knight

Tēnā koutou katoa, me pēnei te kōrero haere ngā mihi, haere ngā mate, haere whakamua tō tātou iwi o Taranaki.

Taranaki Iwi Holdings LP (‘Holdings’) is the commercial arm of Te Kāhui o Taranaki Trust (‘Te Kāhui’). We are led by a separate board and take responsibility for delivering Te Kāhui the financial resources it needs to support the wider goals of Tararanki Iwi.

Since our formation in FY16, our primary focus is to manage the commercial pūtea of Te Kāhui.

We seek to balance the provision of reliable annual income to Te Kāhui with reinvestment for the long-term growth of financial and non-financial assets.

We do this by holding a blend of assets that deliver different sorts of risks and returns.

This diversification has helped us in the past year. We saw volatility in financial markets and asset values globally, but a comeback came when least expected. Meanwhile, our direct domestic assets came under some pressure through weaker than expected rebound in commodities demand.

While some of our assets did not meet expectations, others performed well. This resulted in positive operating and total returns and we were able to deliver a record distribution of $2.7m to Te Kāhui.

We are well on our way towards our long-term target portfolio and see this past year as a validation of our work to date. We will continue to implement our strategy and look for good quality long-term assets with commercially strong partners in the years ahead.

Our structure and reporting

The pūtea is run through two entities. Taranaki Iwi Holdings Limited Partnership (‘TIHLP’ or ‘Holdings’) is the main investment arm. But Settlement Fisheries assets are subject to special regulation and hence sit in Taranaki Iwi Fisheries Limited (‘TIFL’). Both entities are governed by the same board, separate to Te Kāhui, and run together as a commercial portfolio

Unless specially stated otherwise:

• Analysis is on a consolidated Commercial Group basis (TIHLP and TIFL combined)

• Equity is the market value of total Commercial Group equity & quasi equity

• Market value adjustment for TIFL quota assets which are held at cost

• Long term related party and marae loans are considered quasi equity

• Profit and returns are before tax and interest on quasi equity.

FY23 Highlights

• Operating profit of $4.0m, up $0.6m on FY22. This is a return of 3.3% on opening equity

• Total return including changes in the value of assets of 4.2%

• Pressure on property values

• Overall good performance in financial assets but with a sombre first half of the year and a positive second half

• A tough year for our dairy investment but good performance out of our other agri assets

• Ongoing recovery in our Australasian infrastructure investment

• Over the last five years we have returned an average annual rate of 7.9%, which is above our long-term targets

• Our total pūtea was worth $128m at year end, up on $120m at the end of FY22

• We made a distribution of $2.70m to Te Kāhui through the year; this was up $450k on last year.

*Please refer to page 45 of the Annual Report for the 'Financial Performance' figures.

Our Vision

We are guided by Te Kāhui’s vision and values:

• Me Tōngai Harakeke

• Kia rongomou, Kia manawanui, Kia aroha ki te tangata, Kia tika, kia pono

Our purpose is to be an outstanding investment company for Taranaki Iwi and a respected economic leader in the Taranaki region. We apply the Te Kāhui o Taranaki whenu to our commercial activity:

Te Kāhui Whenu - Taranakitanga

Te Kāhui Strategic Goals:

To Strengthen our Taranaki iwi cultural identity and bring us together as a whānau.

TIHLP Goals:

• Enhanced identity and pride through visible iwi commercial success

• Taranaki Iwi narrative included within commercial ventures where feasible

• Rebuild Taranaki Iwi’s economic role in its rohe

• Operate in a manner that reflects Taranaki Iwi values

Te Kāhui Whenu - Taiao

Te Kāhui Strategic Goals:

To protect the wellbeing of our taiao, our maunga, awa, moana and whenua

TIHLP Goals:

• Leading environmental practices

• Leading health & safety practices

• Industry sector leadership

Te Kāhui Whenu - Whanake mai ai

Te Kāhui Strategic Goals:

To Support our whānau, marae pā, hapū and uri to reach their potential

TIHLP Goals:

• Marae / Hapū and iwi members have greater connection to the commercial investments

• Growth that more than maintains the real value (inflation and population) of pūtea

• Supporting Te Kāhui group on collaborative initiatives that deliver to whānau and hapū

Te Kāhui Whenu - Taketake Tangata

Te Kāhui Strategic Goals:

To ensure and enable the voice of influence and advocacy for Taranaki iwi and our marae pā, hapū and uri

TIHLP Goals:

• Successful co-investment with other aligned Iwi and Māori entities

• Contribution to the growth of and providing opportunity to Taranaki Iwi, Māori and Taranaki economies

• Leading industry sector risk-adjusted returns

Te Kāhui Whenu - Kawe Whakahaere

Te Kāhui Strategic Goals:

Providing the shelter and environment to protect and grow the capacity and capability to implement our iwi aspirations

TIHLP Goals:

• Best practice governance practice and commercial decision making

• Strong progress towards target asset allocation and direct investment plan

• Out-perform return and distribution targets

• Resilient in maintaining distributions through downturns

• Value add and cost-efficient management

• Partnering with aligned and best in class industry operators to build long-term capacity

What we do

We have two main roles.

1. We need to deliver reliable annual income to our owner, Te Kāhui so it can fund its activities.

2. We also need to reinvest to grow the pūtea sustainably so that it can meet the long term needs of the growing iwi population.

Balancing these two objectives is the focus of our investment strategy.

We approach this by thinking first about risk and second about the style of investment.

We classify risk as the reliability of an asset’s cash or operating income.

Certain assets like cash in the bank or high-quality investment property (e.g. leased to the Crown) will almost always deliver the income expected. Other assets will deliver higher income but less reliably, still other assets will probably not deliver cash income but will grow in value – this is things like private equity or development property. We seek an appropriate balance with broadly half the portfolio in the first category to underpin the annual distribution.

Then we think about how to invest.

There are two main options: investing directly or investing via the financial markets.

We have certain advantages such as our ownership by mana whenua, our long-term investment horizon, our people and relationships and our scale.

We believe these advantages can be turned into better than average returns for risk by investing directly, in less liquid assets. This is more complicated and requires discipline, but worthwhile.

We seek best-in-class assets, clean and clear mandates and governance and good partners. You can see this in action in our collectives of Tai-Hekenga, Hāpai and Pūainuku. In each case we have delivered returns above that we’d likely achieve in a similar risk financial product.

Financial products have their place in our portfolio though. They deliver cheap, easy and liquid access to all sorts of global assets in which we enjoy no advantage.

Translating all of this into investment goals we want to build a portfolio of reasonable scale, high-quality direct assets that we hold for the long term. We will use financial assets more heavily while this is being implemented but continue to use them to provide efficient diversification within portfolio settings.

Our Current Portfolio

By year end we had a total commercial pūtea (including TIFL quota at market value) of $128m.

This is invested in line with long-term risk targets and, within this, into a range of different vehicles and assets.

The following graph represents significant development from six years ago, immediately post-settlement, when our portfolio was wholly cash.

We cover major activity across the portfolio, on the following pages.

*Please refer to page 48 of the Annual Report for the graph on 'Total Commercial Pūtea'.

New Investment Activity in FY23

Through the year:

• We met various capital calls to our series of Hāpai vehicles, seeing us increase overall investment here by $3.1m. We now have $14.1m in Hāpai Commercial, $5.0m in Hāpai Housing and $4.2m in Hāpai Development

• In our diversified agribusiness we completed our commitment to Pūai Tangaroa. This vehicle acquired a 26-tonne tranche of kōura quota and settlement was in March. In total we have about $2.0m invested in this business

• We met ongoing minor calls for a variety of private equity funds that collectively account for 10% of our portfolio

• We funded some of this through redemptions in managed funds and hold a little under $30m worth across a range of risks, down from $32m at year start

• We progressed significant local impact investment projects, notably in housing.

Local Investment and Housing

We currently have around $19m invested in the rohe (including settlement quota), or just under 15% of the total portfolio. Without settlement quota it is around 10%.

Our main local impact assets are our stake in the Novotel Ngāmotu Taranaki hotel; the properties we own and lease back to the Crown or Te Kāhui and the properties we are developing for affordable housing in partnership Ka Uruora.

We have bought and refurbished six houses over the past couple of years. Four of these have been sold into affordable ownership (shared equity) and two more will be soon.

We have 9 further houses currently under development across two sites, due for completion in the coming year. One house is to be sold into shared ownership and the others will be offered as affordable rentals to iwi whānau. This was made possible thanks to the support of Ka Uruora.

We are also well advanced on planning for our largest housing project yet at the former Ōkato school.

This is a challenging site but we believe we can deliver 18 houses and potentially six units here in the coming years, and provide these affordably into the iwi community alongside our partner, Ka Uruora.

At time of writing we are about to submit consent. We hope to commence works over the coming summer period. This will be a major investment and activity focus for us over the coming couple of years.

Affordable Housing in partnership with Ka Uruora

• Houses sold (shared equity) - 4

• Houses soon to be sold - 2

• Houses under development - 9

Performance of Our Existing Assets

The Hāpai whānau of property investments

‘Hāpai’ is a whānau of linked iwi-controlled vehicles developed to focus on three distinct types of investable property: commercial, residential and development.

While these are common investment classes in New Zealand, access channels are limited or expensive.

Hāpai has been especially built to be a direct property investor for iwi at efficient scale.

• Hāpai Commercial Property LP owns six high quality investment properties for long-term tenants across the motu, with two more under development. We have a total investment of $14.1m at end FY23, and this has returned us income of 4.9% and a total return of -0.2% in FY23. This operating performance is in line with expectations, the total performance came under pressure from softening yields as expected with rising interest rates. We expect this to be volatile year to year but positive over the medium to long term. Over the last three years we have seen annual average performance of 25%.

• Hāpai Housing develops and operates purposebuilt residential properties including conventional rental as well as retirement living. Hāpai Housing has two projects underway, both in Tāmaki Makaurau. The first of these projects, Moroki, expected to go live with whānau moving in later in 2023 post financial year end. Moroki will deliver 50 homes of which 20 are affordable, five units have been earmarked for our uri living in Auckland. There are some other major projects in the works. Housing produced a 12% return this year including a 4% cash distribution.

• Hāpai Development is the final member of the whānau. It develops commercial and industrial property, taking on more speculative risk than Hāpai Commercial. We have committed $5m of which we had $3.3m invested at year end. The first project is an industrial facility, under development in Christchurch. This was due to sell in FY23 but has since been delayed. As a result, operating profit was lower but the value gain came through other gains and losses giving us a total return for the year of 6.6%.

Holdings was one of Hāpai’s foundation investors and appoints a director to the single board that oversees all three vehicles: this is part of the Hāpai philosophy – creating efficient but flexible structures and access. The other investors are all iwi and include many of our wider Taranaki whānau.

There are now 20 Māori investors or partners across the Hāpai whānau and it is a great example of collective iwi success.

Hāpai whānau of Property Investments:

• Hāpai Commercial $14.1m

• Hāpai Housing $5.0m

• Hāpai Development $4.2m

Pūainuku agribusiness investment

Agribusiness is an area of strategic long-term global advantage to New Zealand, but as with property investment, there have been limited appropriate access options for non-operators.

Pūainuku was hence developed as the solution and it also has three arms:

• Pūainuku Pastures owns a 13% stake in Dairy Holdings Limited (‘DHL’), New Zealand’s largest dairy farmer. We made an investment of $4.2m in FY21. Operating returns came under pressure in FY23 from rising costs and a retreating milk price, as well as lower than expected production as new farms were integrated. In the two years of our investment we have enjoyed a total return of 15.5%. This is partly due to initial value uplift from purchasing well, but we expect this to track towards more orthodox returns levels over time.

• Pūainuku Vines was formed in early FY22 to focus on hops and viticulture. It completed an investment in c 66ha of high-quality vineyard land near Blenheim. This is on long-term lease to Giesen’s winemakers, with options to buy into the business in the future if so desired. We have committed $3m to the vehicle. Vines delivered an operating return of 5.5% and a total return of 20%. As with Pastures, we do not consider such high returns to be sustainable as they reflect uplifts in property value that are unlikely to continue while interest rates are rising.

• Pūai Tangaroa was formed in mid-2021 to invest in kōura quota. We have a holding worth $2.0m and this returned a modest 3.2% in FY23 from operating profits, including share of value add from our operating partner, Port Nicholson Fisheries, and some value uplift.

We had expected to make an investment in horticulture during the year. This was not completed but remains an area of focus for Pūainuku.

Novotel Ngāmotu Taranaki

The Novotel Ngāmotu Taranaki was acquired by Holdings in a consortium with Te Atiawa and PKW in January 2019.

It endured a tough time with various iterations of Covid and response. FY23 saw the business begin to normalise and it delivered a cash surplus of $930k, about double last year’s. It did not, however, pay a dividend this year as funds were retained for a major HVAC upgrade programme.

Returns at this hotel have averaged 2.5% since acquisition, but this has covered an incredibly disturbed period for travel and we would expect growth in this return if we can achieve a good few years of normal travel to and within New Zealand.

In the meantime, a rebranding operation has also been undertaken for the hotel and its hospitality offerings, while the hotel has elected to become a living wage accredited employer. We are also working on pathways to bring uri into the hotel trade.

Tai-Hekenga

Tai-Hekenga is a consortium of Taranaki Whānui linked iwi that has collectively purchased a large portfolio of Crown leaseback land in Wellington including schools, justice properties and specialist properties used by the Department of Internal Affairs.

The assets are land only. The improvements, and hence the bulk of the seismic risk, remains with the Crown.

This gives an unusual but highly secure income stream with strong asset backing in the unlikely event of sovereign default or other vacancy.

We have enjoyed several years of very strong value uplift. This year there was downwards pressure, but we ultimately booked a net gain as we acquired the final property, Thorndon School at an historic valuation and took that uplift.

Our operating return for the year was 4.2% and total return of 1.6%. Our average annual total return since first investing has been above 25% but as with commercial property, we expect this to flatten somewhat over the long run.

Te Pūia Tāpapa and private equity

Holdings is an investor in Te Pūia Tāpapa (‘TPT’). TPT is a grouping of 28 iwi and Māori investors seeking to partner with existing NZ institutional investors on large-scale private investments.

Holdings is an investor in Te Pūia Tāpapa (‘TPT’). TPT is a grouping of 28 iwi and Māori investors seeking to partner with existing NZ institutional investors on large-scale private investments.

The goal is to get broad exposure to the NZ economy through this vehicle by leveraging experienced partners and their deal channels. Holdings has committed $10m out of a total of TPT’s $115.5m.

The goal is to get broad exposure to the NZ economy through this vehicle by leveraging experienced partners and their deal channels. Holdings has committed $10m out of a total of TPT’s $115.5m.

TPT now has four investments, all minority stakes:

• TR Group, a major truck, trailer and bus rental business established in 1992

• Non-bank lender Avanti

• A hospitals business called Evolution Healthcare

• A laboratory services business called Asia Pacific Healthcare Group, which has been a major participant in the Covid response.

FY23 was a quiet year for TPT with no further capital calls or investment activity. TPT continues to work through its pipeline waiting for the right opportunity to present. Private capital is a long-term game. TPT has delivered modest returns over its lifetime, although this includes some quiet early years so would expect to track upwards.

We also have investments in a range of private equity funds, diversified by manager, year and scale of target investments. These funds are best looked at over cycles and have collectively returned us 8% per annum since 2017.

Infrastructure

Holdings is an investor in Australasian infrastructure via the Australasian Diversified Infrastructure Trust, now managed by Dexus.

This is a long-established fund with significant scale assets in Australia and New Zealand. Locally the fund is a major owner of PowerCo, the local Taranaki and wider North Island lines company but its major asset is Melbourne Airport.

DDIT’s performance was a victim of Covid and border policies and its recovery last year was hampered by downwards pressure on the value of income type assets from rising interest and discount rates. It delivered a return of over 10% last year and this year 6.1%. Its longterm return for us is 5.5%, and while this is below our long-term target it is understandable and we expect this to continue normalising over the coming few years. FY23 saw the resumption of dividends, but at a lower level than previously.

Managed funds

Holdings had around $32m invested in a range of liquid, managed funds at the start of the year and around $29m at the end.

When it comes to financial markets, FY23 was the proverbial year of two halves. The first half of the financial year, from July to December 2022, continued that calendar year’s bloodbath as markets digested rising rates and the implications for investment and spending.

The second half, despite turbulence, not least stemming from the US regional banking sector (and collapses) was almost resoundingly positive. It is worth noting that this was against the expectations of almost all commentators.

We know and expect markets to be volatile. We don’t try to time them. We hold the level of risk that suits our portfolio and take the ups and downs. We are fine with this. But it is better to end more up than down after last year.

Overall the portfolio returned 6.7% and over time the whole managed funds portfolio has returned around 6%. This is a blend of returns from conservative and more growth-oriented funds, with both bundles broadly performing in line with expectations over the medium term.

The gains this year in managed funds helped to compensate for downwards movements in, for instance, the value at Hāpai Commercial.

Taranaki Iwi Fisheries Limited

TIFL runs a streamlined operation with all quota leased out, with income also coming from ownership of shares in Moana NZ (formerly Aotearoa Fisheries Limited). There are no direct fishing operations and management including treasury management is provided on contract by TIHLP.

TIFL’s main quota lease arrangements were renewed during FY19 via a new, revised pan-iwi standard ‘Ihu to Mai’ Agreement. This gives TIFL simple, passive access to the value chain.

In FY23 TIFL delivered a pre-tax net profit of $196k compared to $355k last year.

Marae Co-Investment

TIHLP has run a programme to allow affiliated marae the opportunity to invest in Holdings and enjoy either an equity or debt style return depending on marae preferences.

At year end five marae and whānau linked investors had outstanding loans to Holdings, totalling $2.4m.

We thank them for their faith in us and for supporting this initiative and hope that this collective approach will help them to achieve their own financial goals.

We believe this programme is a tangible way of sharing such commercial success as we are able to achieve.

Our Medium-Term Performance

While our total return was below last year’s and below our long-term goal of around 7% p.a., we remain on track over the longer term. Over the last five years we have had an average annual return of 7.9% and since inception 7.2%. Noting returns were slightly lower in earlier years when the portfolio was still in its infancy.

As for our annual distributions to Te Kāhui, these have steadily each year since inception without fail. These distributions have doubled from $1.35m in 2017 to $2.70m in 2023.

*Please refer to page 54 of the Annual Report for the 'Reserving Summary - Taranaki Iwi Commercial Group' figures.

Reserving

We track ‘real capital’ to ensure uri can see that Te Kāhui’s asset base is keeping up with inflation and population growth. This allows us to show true surplusretained earnings, which in turn becomes a good indicator of inter-generational equity. These calculations are detailed below.

Another year of high inflation has eaten further into our reserves, at year end reserves totalled $3.9m. This movement is not ideal but it is also not unexpected.

Returns and portfolio growth are not linear year to year. We know that strong years can be followed by weak ones. The reserving policy is meant to show discipline over the longer term. It is difficult in periods of high inflation however, as our hurdle rate tends to rise before flowing into our revenue via e.g. higher rents.

The Year Ahead

The outlook is not great in New Zealand. It is brighter abroad but sadly not with our major trading partner, China.

At home, policy makers and central bankers continue to fend off inflation but the domestically generated component has remained stubbornly high. The RBNZ has indicated it has finished with rates rises, but markets remain sceptical. Meanwhile there is also some concern about the government accounts, and its ability to provide counter-cyclical stimulus.

But China maybe casts the darkest shadow. It has failed to re-ignite post its opening up from Covid and seems to be being hampered by high local and personal debt and a series of politically motivated microeconomic decisions that are making China a less attractive place to invest and do business. You can see this flow through to New Zealand in terms of projected milk prices, to which we have direct exposure, as well as the prices of other commodities, which will be felt throughout the economy.

I said last year: “We do not expect a sharp uptick in FY23 but it will come in time.” This remains our position and in FY24 we have modest expectations from our more growth-oriented local assets such as in agribusiness. But we are confident that our base of income assets will continue to provide. We will continue to consider our tactical balance and also the balance between domestic and international assets.

We will be focussing locally on housing project delivery but also continuing to allocate capital to our existing bundle of investments as well as continuing to support Te Kāhui with its local property aspirations and operations.

We are on the right path and will hold steady.

We have committed to a distribution of $2.8m to Te Kāhui this year, up $100k on FY23.

Conclusion

I wish to thank the Holdings directors for their contributions through the year, Tania, Whare, Mark and Mārama for their support, the Te Kāhui trustees for their faith in us and all iwi members.

Thank you for this opportunity to undertake the exciting work of rebuilding Taranaki Iwi’s commercial assets.

He pua whakakōkō, he kōrari whakahorapa.

Andy Knight - Chair Taranaki Iwi Holdings LP, Taranaki Iwi Fisheries Ltd.

Commercial Board of Directors

Andy Knight (Chair)

Hinerangi Raumati-Tu’ua

Jacqui King

Daniel Harrison (Associate Director)