Pare Hauraki Asset Holdings Limited Business Plan

Transcription

1 Pare Hauraki Asset Holdings Limited Business Plan

2 Table of Contents Page 1 Introduction 3 2 Market Profile & Competitive Analysis 6 3 Values 10 4 Vision 12 5 SWOT Analysis 14 6 Strategic Goals & Objectives 20 7 Organisational Structure and Management 28 8 Financial Forecasts 31 Appendix 1 Considerations within the fisheries value chain 34 2 Consolidated Pro-forma Forecast Financial Statements 37 Page 2

3 Introduction Section 1 Page 3

4 This Business Plan articulates the views of the PHAHL Directors as to the start-up requirements for the Company to manage the iwi of Hauraki s fisheries and aquaculture assets Overview Pare Hauraki Asset Holdings Limited (PHAHL or the Company) was established in September 2009 and is a wholly-owned subsidiary of the Hauraki Maori Trust Board (HMTB), in its capacity as Trustee of the Pare Hauraki Fishing Trust (PHFT). The Company is an Asset Holding Company (AHC), as defined in the Maori Fisheries Act 2004 ( the Act ), and is governed by the Companies Act 1993 and its constitution. PHAHL was established pursuant to the Act to receive and manage fisheries settlement assets as the PHFT was unable to directly receive these settlement assets and was required by the Act to establish an AHC. Fisheries Settlement Assets include Aotearoa Fisheries Limited income shares and cash and settlement quota which is in the process of being transferred to PHAHL. The Company is in its start up phase and needs to build its credibility and capability within the fisheries and aquaculture industries to succeed in a competitive commercial environment. Through the commercial operation of PHAHL, the iwi of Hauraki have the potential to become a national leader in the aquaculture space. In order to achieve this, the iwi of Hauraki need to bring both the fisheries and aquaculture assets together under either the ownership or management of PHAHL and leverage the combined scale and strength of the assets. The dilution of the combined asset base could place significant risks around the future value and prospects of the iwi of Hauraki s asset base. Purpose This Business Plan builds on the High Level Business Plan presented to the PHFT Trustees on 20 October 2010 by the PHAHL Directors and outlines specific strategies to achieve the Company s goals. This Business Plan covers the two years ending 30 June 2013 and will be updated each year to respond to the changing circumstances facing the fisheries and aquaculture industries and the business requirements of the Company. The Directors are currently considering options for the use of the assets and how value can be added in terms of their future utilisation. There is also the need to recognise the value of building the skill and capability of the PHAHL Board and consider resources required to support the operations of the business. A range of issues have been considered in determining the key next steps for the Company. This Business Plan sets out the key actions required during the 2012 financial year and includes a SWOT analysis and key action plans to achieve success. The iwi of Hauraki, through its investment in the Hauraki Fishing Group already has a substantial investment in aquaculture and has lodged an application for more aquaculture waterspace in the region. The Company needs certainty as to its medium to long term tenure so that sound long term business decisions can be made without the risk of assets being withdrawn. Page 4

5 Pare Hauraki Asset Holdings Limited is a wholly owned subsidiary of the Pare Hauraki Fishing Trust Pare Hauraki Fishing Trust Structure Pare Hauraki Fishing Trust HMTB as Trustee Receive and manage Fisheries settlement assets Members of the iwi of Hauraki Pare Hauraki Fishing Trust (Mandated Iwi Organisation) Distributions for Charitable purpose 100% shareholding Pare Hauraki Asset Holdings Ltd (Asset Holding Company) Receive and manage Fisheries settlement assets The PHFT was established by the HMTB, through a ratification process. The HMTB is the Trustee of the PHFT. On 23 March 2009, the PHFT was recognised by Te Ohu Kaimoana as the Mandated Iwi Organisation representing the iwi of Hauraki for the purposes of the Act. The role of the PHFT is to exercise a strategic governance role in relation to the assets of PHAHL and manage and distribute the benefits in accordance with the Trust s charitable objects. Pare Hauraki Asset Holdings Limited In September 2009, the HMTB resolved that PHAHL be the AHC for the PHFT. PHAHL is a wholly-owned subsidiary of the HMTB, in its capacity as Trustee of the PHFT. The function of PHAHL is to hold, optimise return on assets, manage and grow the assets received under the fisheries settlement on behalf of the PHFT as the sole shareholder. Page 5

6 Market Profile & Competitive Analysis Section 2 Page 6

7 Aquaculture is New Zealand s fastest growing seafood sector and has strong Government support Market Profile and Competitive Analysis Worlds fastest growing primary sector The per capita supply from aquaculture products has grown at an average annual growth rate of 6.9% from 1970 to Globally, the Food & Agricultural Organisation (FAO) predicts seafood consumption will increase 35% over the next 10 years and aquaculture will increase from 42% to 58% of global seafood production by There exists concerns about the ability to increase production due to the imposition of quota restrictions to ensure the long term viability of some species. There is a continued need for aquaculture growth to meet the increasing levels of predicted seafood consumption. Internationally there is increasing public concerns about seafood quality and industry practices. New Zealand is recognised as operating one of the strictest quality assurance programmes for shellfish in the world and has one of the world s best locations for growing a diverse range of shellfish, finfish, seaweed and other aquatic and marine organisms. New Zealand s fastest growing seafood sector Aquaculture makes up approximately 20% of New Zealand s total fisheries production (by value) and 15% of New Zealand s total seafood exports (by value). As a producer of premium seafood, aquaculture is set to become the nation s next major primary industry. 1 Aquaculture export earnings to September 2010 was $252.4 million and green lipped mussels made up $158.8 million of this total. New Zealand industry has been stymied by regulatory problems for a decade, but the Government is backing a plan to triple sales to more than $1 billion by Underlying this is the development of new, high value species and value add opportunities such as pharmaceuticals and neutriceuticals from aquaculture bi-products. Coordinated Industry with strong Government Support Aquaculture New Zealand was formed in 2006 to act as a single voice for the New Zealand aquaculture sector and to implement the industry strategy. This strategy outlines the industry s vision and goals articulated in a 10 point plan to achieve the vision of being a $1 billion industry by Aquaculture New Zealand s 10 Point Plan includes the following: 1. Establish a new national sector organisation; 2. Strengthen the partnership with government; 3. Strengthen other stakeholder partnerships; 4. Secure and promote investment in aquaculture; 5. Improve public understanding and support for aquaculture; 6. Promote Maori success in aquaculture; 7. Develop the market for New Zealand aquaculture products; 8. Maximise opportunities for innovation; 9. Promote environmental sustainability and integrity of aquaculture; and 10. Invest in training, education and workforce promotion. Page 7 1 Source: Aquaculture New Zealand, (2011). Retrieved from

8 There are a number of industry initiatives underway that will go some way to ensuring the profitability and sustainability of the New Zealand aquaculture industry The Government fully supports Aquaculture New Zealand s goal to attain revenue of $1 billion by 2025 and released a Aquaculture Reform Bill late last year comprising a package of initiatives to: - Reduce costs, delays and uncertainty of the regulatory process; - Promote investment in aquaculture; and - Balance aquaculture with other marine interests. Production Sanford, Sealord and Wakatu Incorporation have entered into a collaboration called SPATnz. The aim of this project over the next seven years is to commercially breed genetically selected mussel spat that would grow into standard high quality export shellfish and decrease the industries reliance on beach caught mussel spat from Northland and other spat catching activities. The total cost of this project is expected to be $50 million with the SPATnz participants matching the $23.6 million pledged from the Government Primary Growth Partnership. Export markets There is a single export desk into China for greenshell mussels with Greenshell New Zealand Ltd, Sanford, Sealord and Aotearoa Seafoods Ltd entering into a new joint venture to export New Zealand greenshell mussels to China under the Pure New Zealand Brand. The objective is to develop new markets and share in business development and marketing costs. The Pure New Zealand Greenshell Mussels initiative is now operational with the product in the market and significant customer commitment to the brand. Forward orders are ahead of forecast. Emergence of an industry leader Over the last few years Sanford has acquired the Marlborough Greenshell mussels operations from Sealord and recently made a $85 million acquisition of the Pacifica Seafoods Greenshell mussel business. Sanford is now the dominant player in the New Zealand mussel industry with an estimated 45% of market share. Greenshell Mussels (estimated NZ industry share) Processing Increasing collaboration amongst industry leaders has led Greenshell New Zealand Ltd, Sanford and Sealord to join together to build the North Island Mussel Processing Plant in Tauranga. The plant currently processes 18,000 tonnes with capacity increasing to 30,000-35,000 tonnes in the near future. It will process approximately 30% of New Zealand s mussel production. Hauraki 10% OPC 5% Sealord 10% Talleys 10% Others 10% Aotearoa Seafoods Ltd 10% Sanford 45% Source: PHAHL Directors estimate. Greenshell New Zealand Ltd and the iwi of the Hauraki interests make up the Hauraki Group or 10% of the estimated industry share. The OPC percentage is not correct as currently a significant proportion of the iwi of Hauraki mussels are processed by OPC. Page 8

9 The international mussel outlook is expected to improve with the export mussel price rebounding from the global recession lows and expansion of markets into Asia Attractive Mussel Outlook The price of Greenshell mussels peaked in late 2008 at NZ$8.90/kg, but have returned closer to the average price over the past few years at approximately NZ$5.44/kg (average NZ$5.45/kg). See diagram opposite. Mussel prices are highly seasonal as demonstrated in the diagram opposite, although mussel export volumes have been relatively constant over the past few years. The expectation is that international mussel prices will positively increase in the future. PHAHL is uniquely placed by having access to areas of new waterspace within Tikapa Moana and Te Tai Tamahine and access to funds to take advantage of the current industry opportunities by considering strategic acquisitions and potential joint ventures to enhance its position in the fisheries value chain. Export volume (000s) 12,000 10,000 8,000 6,000 4,000 2,000 0,000 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec Export price (NZ$/kg) Quarterly exportvolume Average export price Quarterly exportprice Source: Ministry of Fisheries Quarterly Report Fisheries and Aquaculture Production and Trade, December 2010 Data provided by Statistics New Zealand and New Zealand Seafood Industry Council Page 9

10 Values Section 3 Page 10

11 The core values of Pare Hauraki Asset Holdings Limited and acknowledgment of the values of the iwi of Hauraki Core values of Pare Hauraki Asset Holdings Limited Core values of the iwi of Hauraki Engage with and support the iwi of Hauraki; Conduct business in accordance with commercial best practice; Make sound commercial decisions which are in the best interests of the iwi of Hauraki; and Invest in durable partnerships with iwi and other businesses. Core values Rangatiratanga Kotahitanga Manaakitanga Whanaungatanga Kaitiakitanga Tikanga Te Taiao Whenua Titiro Whakamua Wairuatanga Enhancing the identity, confidence and influence of Hauraki whanau, hapu and iwi There are things that are best done together for the benefit of all Looking after our people from mokopuna to kaumatua Knowing who we are and what our relationships are to each other Protecting and preserving our taonga tuku iho Making decisions with integrity and wisdom Our wellness depends on the wellness of Te Taiao The whenua binds us all together Foresight and courage to act in the best interests of future generations Respecting the spiritual essence in all of us Page 11

12 Vision Section 4 Page 12

13 The Vision of PHAHL is To build a significant, sustainable fisheries and aquaculture business in New Zealand through strategic partnerships including other iwi and third parties. Directors Vision The Directors of Pare Hauraki Asset Holdings Limited recognise the need to build and sustain a sound commercial base which will enable the iwi of Hauraki to collectively achieve their economic, social, cultural and environmental aspirations. The Directors vision for Pare Hauraki Asset Holdings Limited is: - exploring commercial opportunities with other iwi and strategic partners. The initial focus of the Company will be on the Fisheries and Aquaculture industries but as the Company becomes more established it may seek to diversify its asset base. To build a significant and, sustainable fisheries / aquaculture business in New Zealand and forge strategic partnerships with other iwi and third parties. Key considerations underlying the above vision include: - building intergenerational wealth and prosperity for the iwi of Hauraki; - providing economic leadership, strength, and unification of common and disparate interests for the economic and social wellbeing of the iwi of Hauraki; - Encouraging the iwi of Hauraki stakeholders to preserve value through co-operation and support of larger structures that will deliver commercial opportunities, appropriate dividends and minimise risk; and Page 13

14 SWOT Analysis Section 5 Page 14

15 SWOT Analysis: Asset Management Strengths Weaknesses Opportunities Threats Plans by the iwi of Hauraki to diversify its overall asset portfolio into other areas, which would allow PHAHL to focus on aquaculture development. Shareholder dynamics Diversification into other parts of the fisheries value chain, other marine farming areas and other species like finfish etc. Diversify location of aquaculture operations through waterspace swaps. Ability to obtain access to the iwi of Hauraki Fisheries and Aquaculture assets. Geographical concentration of aquaculture operations i.e. all in the Coromandel region. (Disease risk e.g. Biosecurity failure algal biotoxin and algal blooms). Inability to obtain access to the iwi of Hauraki Fisheries and Aquaculture assets. Annual income from fishing quota and AFL income shares. Financial returns from ACE trading are dependant on market conditions at the time of negotiations. No control over the financial performance of AFL. Utilise fishing quota and ACE to pursue joint venture opportunities with other organisations to obtain benefits of scale, minimise risk and access to other parts of the fisheries value chain. No certainty of asset tenure for PHAHL Directors to plan or commit these assets in the long term. Access to capital Limited cashflow for a start up company. Yet to undertake due diligence on the Hauraki Fishing Group. No feasibility studies have been completed to fully operationalise the existing marine farms. Growth through acquisition and organic expansion of Hauraki Fishing Group and Tikapa Moana Ltd. Waikato-Tainui s claim to some of the proceeds of the iwi of Hauraki entitlement from the Maori Commercial Aquaculture settlement. Uncertainty over outcome and impact on settlement cash. Page 15

16 SWOT Analysis: Asset Management continued PHAHL s assets comprise the following: - Fishing quota; - Aotearoa Fisheries Limited Income shares; - Maori Commercial Aquaculture Settlement Cash; and The Settlement cash provides the ability for the Company to consider strategic acquisitions and partnerships with entities who have access to developed waterspace, processing facilities and international markets. For further details of PHAHL s prospective asset base refer to Section 8 Financial Forecasts of this report. - The iwi of Hauraki s entitlement to 20% of any new waterspace. The quota, income shares and cash generate annual revenue. The quota generates an Annual Catch Entitlement (ACE) which is then sold. Aotearoa Fisheries Limited has a requirement under the Maori Fisheries Act 2004 to pay out at least 40% of net profit after tax as a dividend to iwi shareholders. Aotearoa Fisheries Limited revealed a 2010 profit of $18.9 million and has paid the first dividend in six years in cash to its iwi shareholders. The iwi of Hauraki received $150,000. A similar profit level is forecast for the next financial year. The annual income derived from the above asset classes produces revenue that can be reinvested in initiatives that deliver benefits to the beneficiaries of the PHFT. Page 16

17 SWOT Analysis: People Strengths Weaknesses Opportunities Threats Directors have sound commercial expertise and specialist knowledge of the aquaculture and seafood industry. The Board of Directors should include a representative who has an accounting and/or financial system background as the Company becomes fully operational. - Significant level of competition for high quality people as the economy recovers. Do not have a General Manager or operational staff. Hiring of a General Manager to drive the achievement of PHAHL Business Plan objectives. In the interim PHAHL can utilise the services of HMTB to provide banking, financial and other reporting services. - Page 17

18 SWOT Analysis: Operational and Legislative Considerations Strengths Weaknesses Opportunities Threats 20% entitlement to new marine farming waterspace within Tikapa Moana and Te Tai Tamahine No control over when and where new space will be allocated To submit applications for extra waterspace over and above the 20% entitlement. Failure to meet the business plan targets and objectives. The Company is in start up phase and has yet to build operational expertise. PHAHL Directors and shareholders to collaborate to influence local and central government. - Aquaculture Legislation Overview Before the 1990 s, marine farming was a reasonably small industry in New Zealand, with small farms dotted around the coast, mostly in the Marlborough Sounds, Northland and around the Coromandel Peninsula. Over the next 10 years, marine farming took off and demand for waterspace increased substantially. The clean and nutrient rich waters of New Zealand were rightly recognised as a great place to grow quality seafood, quickly. By 2000, it had become clear New Zealand legislation for planning and approving marine farms could not cope with the increased demand Moratorium The Government decided to cease consideration of new marine farm applications until it had worked out a better way of dealing with aquaculture development. It did this by imposing a moratorium on new permit applications from 28 November The moratorium ended on 31 December 2004 when the current aquaculture reforms were implemented. Maori Commercial Aquaculture Claims Settlement Act 2004 iwi with access to aquaculture space to develop their marine farming interests. The settlement requires the government to provide iwi with 20% of all new aquaculture waterspace. The commercial aquaculture settlement only relates to commercial marine farming in coastal waters out to 12 nautical miles. The settlement does not relate to freshwater aquaculture, land-based marine (saltwater) farms, or aquaculture beyond Council s coastal jurisdiction (12 nautical miles). Pre-commencement space Any marine farming space covered by permits, leases, or licenses first issued between 21 September 1992 and 1 January 2005 is referred to as 'pre- commencement space'. This includes any space that is first approved under the old legislation after 1 January Authorisations issued in this way are deemed to be 'pre-commencement space' (even though they will have been issued after 1 January 2005). Page 18

19 SWOT Analysis: Operations and Legislative Considerations continued As at December 2009 there was a total area of 15, hectares of marine farming space that was created between 21 September 1992 and 1 January Iwi entitlement or 20% of the 15, hectares equates to 3, hectares of the pre-commencement space 1. The government entered into a settlement with the iwi of Hauraki, Ngai Tahu and the iwi of Te Tau Ihu regarding the pre-commencement space for a full and final cash settlement. The iwi of Hauraki are currently entitled to receive $19 million of the $97 million total iwi entitlement. There is a limited number of pre-commencement marine farming applications that have yet to be processed or approved that will increase the amount of the iwi of Hauraki s entitlement. New space New space is any marine farming space that becomes available under the current aquaculture regime that came into effect on 1 January This includes space covered by any marine farm permit consents that did not get notified by regional councils before the moratorium on 28 November Before any new space could be granted Councils first needed to establish Aquaculture Marine Area (AMAs). Establishing an AMA is both a costly and lengthy process and only one new AMA (in the Firth of Thames) has been created. Aquaculture legislation Amendment Bill (No 3) The government recognised that while the post-moratorium 2004 legislative amendments provided a robust process for assessing and managing the environmental effects of aquaculture (including the effects on existing quota holders), they were not successful in encouraging Councils and the aquaculture industry to take a strategic approach in planning for and investing in aquaculture. Without new aquaculture space being created there is no opportunity for the Maori commercial aquaculture settlement to be delivered. The Bill aims to retain all rights associated with the 20% of new space. The Ministry of Fisheries and Aquaculture is inviting iwi to discuss how the Crown can better deliver its obligations under the Maori Commercial Aquaculture Act, for new space created by the proposed regime in the Bill. Regional engagement hui took place between 6-17 December Feedback from these hui will be considered by the Select Committee, which is expected to report back on the Bill in April Wilsons Bay Marine Farming Zone Area B Area B provides for 520 hectares of shellfish farming. From this available space Environment Waikato has identified thirteen blocks of eight hectares each, totalling 104 hectares equalling 20% of new space that will be allocated to Te Ohu Kai Moana Trustee Limited for the benefit of the iwi of Hauraki. 1 Source: Aquaculture New Zealand, (2011). Retrieved from Page 19

20 Strategic Goals & Objectives Section 6 Page 20

21 A clear set of strategic priorities, goals and objectives have been formulated to enable Pare Hauraki Asset Holdings Limited to achieve its vision for the iwi of Hauraki Strategic priorities and goals In order for the Directors of Pare Hauraki Asset Holdings Limited to fulfil the vision, a set of strategic priorities and goals has been formulated. These provide a clear understanding of how the fisheries and aquaculture assets need to be managed commercially. Such strategic priorities and goals will enable the Directors of PHAHL to establish and obtain a clear mandate from the iwi of Hauraki for the management of its commercial activities. Key strategic priorities and goals for PHAHL are to: - develop a sustainable capital base for the future of the iwi of Hauraki; - maximise financial returns from the iwi of Hauraki s fisheries and aquaculture assets; - provide business and employment opportunities for the people of the Hauraki nation; - build commercial partnerships with other iwi; and Strategic priorities and goals continued Reducing the ability of PHAHL to utilise the full scale of the iwi of Hauraki s existing and prospective asset base, increases the risk of the iwi of Hauraki achieving outcomes below its full potential in an industry which is fragmented and dominated be a few key organisations. Key to the successful achievement of the Company s strategic goals will be the attainment of underlying objectives. These objectives are outlined in further detail in this section of the business plan. Critical to the achievement of the strategic priorities and goals of PHAHL, is the need to develop a robust investment policy approved by the shareholders. PHAHL will require the ongoing support of its shareholders by supporting an appropriate capital structure that enables the Company to grow its asset base. The interaction between strategy and operations is important to understand and a diagram of this is shown over the page. - provide pathways for education and skills enhancement in Hauraki owned and operated businesses. Key to the achievement of the above, is the need to recognise the collective strength and scale of the iwi of Hauraki s fisheries and aquaculture assets. Therefore, where practical, all the fisheries and aquaculture assets need to be managed by PHAHL. Page 21

22 Pare Hauraki Fishing Trust and Pare Hauraki Asset Holdings Limited The interconnection between strategy and the operation of the Company Strategic Plan Where do we want to be and how will we get there? Our Stakeholder Expectations Members of the Iwi of Hauraki STRATEGY Other Policies Our Mission What is our core business? Distributions for charitable purposes Investment Policy Accountability - Active or passive investors? - Level of risk - Dividend policy - Expected returns - Growth aspirations - Due diligence requirements Business Plan What are we going to do? How will we measure our performance? Pare Hauraki Fishing Trust Dividends Trustees OPERATIONS Board of Directors Selected for commercial accumen Independent chairman 100% owned Statement of Corporate Intent Sets the boundaries, performance measures and reporting requirements Pare Hauraki Asset Holdings Ltd Potential Shared Services - Accounting - Admin - HR Business Activities Page 22

23 Implementation of effective governance practices requires a Statement of Corporate Intent and Statement of Investment Policy Strategic Objectives To implement effective governance practices for the Company as soon as possible. There needs to be an awareness of and acceptance of the different roles that the PHFT Trustees and PHAHL Directors play in governing and managing the iwi of Hauraki s fisheries and aquaculture assets. The PHAHL Directors have ultimate responsibility to the shareholders of the iwi of Hauraki in respect of the Fisheries and Aquaculture assets. Therefore, it is important to achieve a balance between accountability to the beneficiaries, via their elected representatives on the PHFT, and being able to make timely and effective business decisions. The primary mechanism that will be established to set the boundaries in this regard is the Statement of Corporate Intent ( SOCI ). A SOCI agreed between the Trustees and PHAHL Directors will provide the framework within which the Company will operate and how performance will be measured. In addition to the SOCI, the PHFT s Statement of Investment Policy will provide the PHAHL Directors with guidelines in which investment decisions will be made by the PHAHL Directors. Actions Develop and agree a Statement of Corporate Intent between the Company and the Pare Hauraki Fishing Trust as soon as possible. Define clear lines of responsibility between the PHFT Trustees and the PHAHL Directors in accordance with the Statement of Corporate Intent. Develop and agree a Statement of Investment Policy between PHAHL and the Pare Hauraki Fishing Trust as soon as possible. Responsibility Trustees / PHAHL Directors Trustees / PHAHL Directors Trustees Page 23

24 In order to maximise financial returns from the fisheries assets, the PHAHL Directors need to establish a robust ACE management plan and access the opportunities within the Fisheries value chain Strategic Objectives Although the principle objective of the Company is to be a successful business, this document does not preclude the Company from assisting its shareholder carry out its charitable goals however such assistance will be initiated by the shareholder and managed transparently. To maximise financial returns from the Fisheries Assets Optimising growth and generating stable revenue from fishing quota is a priority. In order to achieve this it will be important to invest in fish stocks that match commercial expectations in terms of growth and revenue. There is a need to conduct an investigation into the optimal allocation and potential acquisition of fishing quota, including the merits of focusing on certain species. ACE Management Ensuring optimal growth and stable revenue requires the careful management of ACE generated from the quota holdings. The current management for the sale and/or utilisation of ACE will continue in accordance with current lease arrangements. In the meantime, a longer-term plan for the future management of ACE will be developed and reported to PHFT Trustees by 30 June Leverage ability to grow the business Actions Prepare an ACE management plan (including April Cray, HMS s and SBW ACE) by 30 September 2011 Enter into joint venture arrangements to effectively utilise existing Fishing Quota [Ongoing] Perform due diligence/feasibility on allocation/acquisition of fishing quota and various scenarios to achieve optimal financial returns [Ongoing] Responsibility PHAHL Directors PHAHL Directors PHAHL Directors PHAHL Directors appreciate the importance of extracting optimum benefit from the fisheries value chain. The Directors will consider entering into joint venture arrangements with existing participants in the fishing industry to: - Best utilise existing fishing quota ; - Leverage resource holdings; - To access other opportunities within the fisheries value chain. Refer to Appendix 1 for an outline of key factors to be taken into account when considering opportunities within the fisheries value chain. Page 24

25 There is a need to appoint a General Manager to deal with the operational needs of the Company and consider future service level arrangements Strategic Objectives To determine resource and support service requirements for the Company for the next two years by 31 December PHAHL has 5 Directors who have considerable fisheries and aquaculture industry knowledge and commercial expertise. PHAHL needs to operate within appropriate corporate governance systems and controls based on commercial best practice. At present, PHAHL utilises the services of the Hauraki Maori Trust Board to provide administration, banking, management, financial reporting and other support services as required. The Directors intend to hire a General Manager (GM) to set up and oversee the operational activities of the Company. This will be considered at a later date, subject to workload and future projects. If required the GM will also be responsible for developing any additional systems, policies and procedures to support the business needs of the Company as it becomes more autonomous. There are various options available to the Company at this time to develop and establish its own support service arrangements including: - Negotiate a service level agreement with the HMTB or other service provider to provide administration, banking, management and financial report services to PHAHL; - The third option is to establish the Company s own support service model (i.e. stand alone operation) reporting directly to the General Manager and providing services under a service level agreement with the Pare Hauraki Fishing Trust and the HMTB if necessary. In the short term the current arrangement with HMTB is appropriate with a view to working towards options two and three in the longer term. Actions Appoint a General Manager responsible for operations, subject to workload and future projects. Review resource requirements and support service needs by 31 December Specify service level agreements under the existing structure and assess against future needs by 31 December Develop robust systems, policies and procedures to support the operations of the business. [ongoing] Responsibility PHAHL Directors PHAHL Directors PHAHL Directors PHAHL General Manager - The second option is to have a combination of in-house and outsource services as required; and Page 25

26 Organisational Structure and Management Section 7 Page 26

27 The restructure can be achieved by transferring the assets held by the HFG to PHAHL comprising of coastal permits, debt and shares in subsidiaries Existing structures Proposed structure Members of the iwi of Hauraki Members of the iwi of Hauraki Members of the iwi of Hauraki Pare Hauraki Fishing Trust Sale of HFG assets including Coastal Permit assets Hauraki Fishing Group Pare Hauraki Fishing Trust 100% 100% Pare Hauraki Asset Holdings Limited Sale of interests in subsidiaries 66% 50% Tai Moana Marine Farms Limited 5% Sugarloaf Port Co Limited Thames Mussels Limited Tai Moana Marine Farms Limited 5% Pare Hauraki Asset Holdings Limited 66% 50% Thames Mussels Limited Page 27 Sugarloaf Port Co Limited

28 The proposed ownership structure consolidates all of the iwi of Hauraki s Fishing and Aquaculture assets under the governance of PHFT and commercial expertise of PHAHL Structural Considerations The objectives of any restructure should be to minimise the number of entities required, having regard to commercial and legal matters, tax efficiencies and the business objectives of PHFT going forward. The restructure can be achieved by transferring the assets held by the HFG to PHAHL including coastal permits, investments, shareholder advances to subsidiaries and shares in subsidiaries. Alternatively, HFG could mandate PHAHL to manage the assets under a management agreement. The HMTB has obtained preliminary legal advice that, in general, there is nothing to prevent PHAHL from holding other assets in addition to the fisheries and aquaculture settlement assets. The PHAHL Directors should seek specialist advice if at any time in the future they may consider becoming involved, either directly or through a joint venture in a fishing enterprise. A fishing enterprise is not defined under the MFA therefore specialist legal advice is warranted to understand this in a broader context as it impacts upon PHAHL. Page 28

29 The merits of support service arrangements vary with the operational needs, size and complexity of the Company Proposed Interim PHAHL Organisational Chart PHAHL Directors Grahame Christian (Chairman) Harry Mikaere Peter Vitasovich Jill Taylor Paul Majurey General Manager Implement Strategy Embed systems and oversee operations Hauraki Maori Trust Board Administration, Management, Financial Accounting and other support services Proposed Interim Organisational Management Initially consideration will need to be given to the duration of PHAHL Director appointments. PHAHL Directors will need to hire a General Manager (GM) to implement and drive the achievement of the Company s strategy and objectives. The GM should have or be able to acquire fisheries and aquaculture operations expertise as the Company grows and expands. There is also a need for a GM with knowledge and ability in implementing best practice administrative, management and financial systems. The two broad options are to hire an interim GM on a fixed contract or hire a full time GM. The appointment of a GM will be considered at a later date, subject to workload and future projects. PHAHL currently utilises the Hauraki Maori Trust Board to provide administration, banking, management, financial reporting and other support services. This arrangement should continue in the interim until the Company s operations grow to sufficient size and complexity to require further resourcing. PHAHL Directors will also need to consider and address the steps required to integrate the current commercial activities and reporting requirements of the Hauraki Fishing Group within its proposed operational structure. Page 29

30 A shared services model option is likely to be phased in based on the needs of the Company and the growth it achieves Proposed Shared Services - Organisational Chart PHAHL Directors Setting the strategic direction Responsibility for Company performance General Manager Implement strategy Monitor systems and oversee operations Shared Services Establishment Shared services enable organisations to gain economies of scale and access to skills. Cost reduction and high quality service delivery can be achieved from economies of scale, access to specialised skill-sets and subject matter expertise. Shared services allow an organisation to leverage the capabilities of resources across the entire group whilst achieving and sustaining performance goals. A summary of the key benefits of implementing a shared services model is as follows: - Consistency of standards of delivery; - Economies of scale in administration; - Synergies of collaboration; - Pooling of scarce or specialist skills; Shared Services Administration Management, Financial Accounting Human Resources Other support services - Access to wider range or depth of expertise; - Increased staff development and/or career opportunity; and - Retention of skilled staff as more variety and challenges are offered. Page 30

31 Financial Forecasts Section 8 Page 31

32 High-level pro-forma financial forecasts have been prepared for PHAHL by consolidating the current asset base of PHAHL, HFG and the expected settlement assets PHAHL - Pro-forma forecast statement of financial performance High level Group consolidated pro-forma financial forecasts have been prepared for the years ending 30 June 2011 to 30 June The PHAHL consolidated pro-forma financial forecasts have been prepared by consolidating the current asset bases of PHAHL and HFG and recognising settlement assets assumed to be received over the years ending 30 June 2012 and The financial forecasts are based on actual financial information for the 11 months to February 2011 for PHAHL and for the nine months to February 2011 for HFG. These results have been updated for expected full year results to 30 June 2011 based on discussions with the HMTB s CEO. A number of assumptions have been made in preparing the PHAHL consolidated pro-forma financial forecasts and these are discussed in further detail below. Pro-forma statement of financial performance The specific assumptions adopted in preparing the pro-forma statement of financial performance are as follows: General - The Group s balance date is 30 June. - Annual inflation has been estimated at 2.5%. Income - Annual quota sales are expected to be $1.46m in 2011, offset by a payment to Te Ohu Kaimoana for the use of the quota which has yet to be transferred. This income grows by estimated inflation in the following years. - Lease income derived from Tai Moana Marine Farms Limited has been estimated at $116k and grows by estimated inflation only. Year ended 30 June $ in 000s Forecast 2011 Forecast 2012 Forecast 2013 Income Quota sales 1,460 1,497 1,534 Lease income Total income 1,576 1,615 1,655 Expenses Accounting fees Audit Consultants Depreciation Directors fees Levies Salaries Other expenses Total expenses Operating profit 1,243 1,087 1,115 Other income Interest received Sundry income Dividends Settlement - Cash ,000 Settlement - Quota 9, Settlement - Shares 6, Settlement - Waterspace ,400 Share of profit (loss) from Tai Moana (206) Share of profit (loss) from Thames Mussels , ,411 Profit before tax 17,588 1,553 26,526 Income tax Profit after tax 17,364 1,282 26,154 Source: PHAHL and HFG management accounts and discussions with HMTB CEO Page 32

33 The high level forecasts are based on an underlying assumption that the value and timing of the treaty settlement assets will crystallise on 31 December 2012 Page 33 Expenses - Directors fees are expected to be $60k in 2011, increasing to $120k in 2012 to include two new directors who have recently been appointed. - A General Manager is assumed to be hired in 2012 on an annual salary of $150k. As a result, consulting fees are reduced from 2012 onwards. - Levies assumed at $137k, based on $11,356 per month for Ministry of Fisheries and $1,151 per month for Seafic. Levies increase by estimated inflation in 2012 and Depreciation calculated based on an average depreciation rate of 25%. - All other expenses increase at estimated inflation only. Other income - Interest received is calculated based on the cash balance held at an interest rate of 5%. - PHAHL receives a constant dividend of $150k from AFL. - PHAHL receives treaty settlement assets on 31 December 2012, including: consideration the Waikato-Tainui dispute. $100k/ha. - PHAHL s share of profit has been included as 66.67% of the expected profit from Tai Moana Marine Farms Limited based on the forecasts provided by the HMTB. - It is assumed that Thames Mussels Limited will break even. Income tax - PHAHL s tax rate of 17.5% is based on Maori Authority status recently obtained. - The Treaty Settlements are assumed to be non taxable. PHAHL - Pro-forma forecast statement of financial performance Year ended 30 June $ in 000s Forecast 2011 Forecast 2012 Forecast 2013 Income Quota sales 1,460 1,497 1,534 Lease income Total income 1,576 1,615 1,655 Expenses Accounting fees Audit Consultants Depreciation Directors fees Levies Salaries Other expenses Total expenses Operating profit 1,243 1,087 1,115 Other income Interest received Sundry income Dividends Settlement - Cash ,000 Settlement - Quota 9, Settlement - Shares 6, Settlement - Waterspace ,400 Share of profit (loss) from Tai Moana (206) Share of profit (loss) from Thames Mussels , ,411 Profit before tax 17,588 1,553 26,526 Income tax Profit after tax 17,364 1,282 26,154 Source: PHAHL and HFG management accounts and discussions with HMTB CEO

34 The high-level forecasts indicate that once settlement assets have been received, PHAHL will have a significant combined asset base in which to pursue further commercial activities Pro-forma statement of financial position The specific assumptions adopted in preparing the pro-forma statement of financial position are as follows: - Cash received from settlement and from the business operations is accumulated and held as cash. - Accounts receivable and payable have been calculated based on receivable and payable days assumptions of 45 days and 30 days respectively. - Taxation and GST payable have been estimated based on the expected position as at 30 June each year. - An allowance for annual capital expenditure of $5k. - A further advance of $50k on the shareholder advances to Thames Mussels Limited is required before 30 June 2011 and an additional advance of $130k is required during the year ended 30 June The substantial increase in the net assets in the 2013 forecast is due to the settlement assets received, including: - Cash of $14.0m; and - Waterspace of $10.4m. The remaining increase in net assets reflects profits for the year. Other matters The underlying accounting treatment for Treaty Settlement assets will depend on final settlement documentation. For the purposes of this forecast Treaty Settlement income is recognised as a non-taxable capital receipt. The forecasts exclude any potential investments or transactions that may be considered by the PHAHL directors and PHFT Trustees as the value, nature and timing of such events are unknown at present. PHAHL - Pro-forma forecast statement of financial position As at 30 June $ in 000s Forecast 2011 Forecast 2012 Forecast 2013 Current assets Cash and cash equivalents 3,296 4,217 20,682 Accounts receivable Other ,471 4,417 20,887 Current liabilities Accounts payable GST payable Taxation payable ,067 Working capital 2,921 4,069 19,820 Non current assets Fixed assets Investments - Quota 9,535 9,535 9,535 *1 Investments - Shares 6,611 6,611 6,611 *2 Investments - Coastal permits 15,290 15,290 15,290 *3 Intangible - Waterspace ,400 *4 Shareholder advances 3,296 3,426 3,426 34,735 34,869 45,272 Net assets 37,656 38,938 65,092 Source: PHAHL and HFG management accounts and discussions with HMTB CEO Valuation basis: 1 Per PHAHL accounts and discussions with HMTB CEO (estimated market value) 2 Shares in AFL (market value), Tai Moana Marine Farms Limited and Thames Mussels Limited (cost) 3 Recorded at valuation per accounts 4 Based on 104ha of waterspace received at $100k/ha Page 34

35 Considerations within the fisheries value chain Appendix 1 Page 35

36 Key considerations for investment opportunities within the fisheries value chain Fisheries value chain Matters for consideration Are there any restrictions on the ability to leverage the Company s balance sheet? Mussel Growers And Fisheries Which part(s) of the value chain are of critical importance? What is the level of expected investment in each part? What alternatives are there to gain integration in lieu of cash investments? Harvesting What would be the minimum amount of developed waterspace to warrant having a harvest crew? Harvesting/Processing What level of investment would be required to purchase the necessary equipment, hire employees? Any lead in time for production of equipment? Local Markets Export Markets Production This would require due diligence of operations, forecast of costs to fully develop waterspace (current and proposed) and examination of key contracts. Controlling equity acquisitions of organisations with developed/undeveloped waterspace: - Is it a good location? - Further calls of equity to develop water pace - Key contacts Distressed sales of waterspace licences or aquaculture companies Page 36

37 Key considerations for investment opportunities within the fisheries value chain Processing Only three processing plants servicing Coromandel marine farms: NIMPL Tauranga OPC Whitianga Westpac West Auckland Is there the ability to partner with NIMPL, OPC or Westpac to expand and upgrade the current processing facilities and access this part of the value chain? Time frame 3 5 years? What do we do in the short term with our mussel production? What are the options to be integrated in processing? - Equity position in Greenshell New Zealand Ltd? - Formal agreement with Greenshell New Zealand Ltd? Local Markets Which sites in the Coromandel provide the certainty of all year supply for product to be sold in New Zealand supermarkets? Will PHAHL have access to this waterspace? What are the expectations of return from local market sales or should there be a primary focus on exports and secondary focus for local? High end restaurants? Who can PHAHL partner with? Export Markets What are the overseas markets available to PHAHL for its products? Who else can PHAHL partner with to decrease marketing and distribution costs to sell product overseas for the highest return? Page 37

38 Consolidated Pro-forma Forecast Financial Statements Appendix 2 Page 38

39 Consolidated statement of financial performance PHAHL - Pro-forma forecast statement of financial performance Year ended 30 June 2011 $ in 000s H F G P H A H L C o nso lidated Income Quota sales 0 1,460 1,460 Lease income Total income 116 1,460 1,576 Expenses Accounting fees Audit Consultants Depreciation Directors fees Levies Salaries Other expenses Total expenses Operating profit 44 1,200 1,243 Other income Interest received Sundry income Dividends Settlement - Cash Settlement - Quota 0 9,463 9,463 Settlement - Shares 0 6,198 6,198 Settlement - Waterspace Share of profit (loss) from Tai Moana (206) 0 (206) Share of profit (loss) from Thames Mussels (157) 16,501 16,345 Profit before tax (113) 17,701 17,588 Income tax (20) Profit after tax (93) 17,458 17,364 Source: PHAHL and HFG management accounts and discussions with HMTB CEO Page 39

40 Consolidated statement of financial position PHAHL - Pro-forma forecast statement of financial position As at 30 June 2011 $ in 000s H F G P H A H L Other adjustments C o nso lidated Current assets Cash and cash equivalents 1,224 2, ,296 Accounts receivable Other ,398 2, ,471 Current liabilities Accounts payable GST payable Taxation payable Working capital 1,374 1, ,921 Non current assets Fixed assets Investments - Quota 73 9, ,535 *1 Investments - Shares 413 6, ,611 *2 Investments - Coastal permits 15, ,290 *3 Intangible - Waterspace *4 Shareholder advances 3, ,296 19,025 15, ,735 Net assets 20,399 17, ,656 Source: PHAHL and HFG management accounts and discussions with HMTB CEO Valuation basis: 1 Per PHAHL accounts and discussions with HMTB CEO (estimated market value) 2 Shares in AFL (market value), Tai Moana Marine Farms Limited and Thames Mussels Limited (cost) 3 Recorded at valuation per accounts 4 Based on 104ha of waterspace received at $100k/ha Page 40