Scales Corporation Limited (SCL) Earnings Call Transcript & Summary

If I could have everyone's attention, please. Great to see you all here. I'm particularly pleased to be here. It's always a bit of a drama, as you know, traveling between Australia and New Zealand, but it is happening. So as I said, I'm really pleased to be here. And while Zoom and other online vehicles are a great fall back, there's nothing like, as I said, last year, being here personally and particularly seeing you all on a personal basis and certainly more than single dimensional basis, which is what you see on Zoom. So pleased to be here. It's my pleasure to welcome you to the 110th Annual Meeting of the company and the eighth since we became a listed company. Last year, we held our first-ever hybrid annual meeting, and we are doing so again this year. Whether you are here in person or joining us online, I'd like to thank you and welcome you all. As you may recall from last year, shareholders, proxies and guests attending the meeting virtually will be able to hear and see a live webcast. In addition, shareholders and proxies have the ability to ask questions and vote on resolutions, and I'll provide further details on those matters shortly. Now just some housekeeping matters for those of you who have joined us here in person. First, I'd like to remind you as a matter of courtesy to turn your mobile phones to silent. Also, in the unlikely event of an emergency, and we need to leave, please do so through the marked exits and venue staff will be available to help us there. I'm pleased to confirm that we have a quorum and, therefore, declare the 2022 Annual Shareholders Meeting of Scales Corporation Limited open. The items of business for this meeting and the resolutions to be considered by shareholders are contained in the Notice of Meeting, which was sent to shareholders on the 6th of May. Our order of proceedings is as shown. First, I'll briefly comment on the highlights of the last 12 months, followed by a review by Andy Borland, our Managing Director. Then we'll attend to the resolutions where we'll cover each resolution in turn and invite questions specific to those items. I'll shortly open the online voting and explain the voting process. Following that, I'll explain the process for asking questions. Once the meeting is complete, we hope that those of you present will join us for refreshments. It will also be an opportunity to meet the directors and our senior managers and raise any questions you may have on an informal basis. With regard to the online voting process, if you're eligible to vote, you will be able to cast your vote under the vote tab as shown on the screen. Once the voting has opened, the resolutions will allow votes to be submitted. To vote, simply select your voting direction from the options shown. You can vote for all resolutions at once or by each resolution separately. Your vote has been cast when the tick appears. Now to change your vote, simply select "change your vote". You have the ability to change your vote up until the time I declare voting closed. You may submit questions on each resolution being put to shareholders using the question process. For those of you who have joined us in person, those shareholders who are entitled to vote and proxies who have discretion as to how they vote, should have received a voting or proxy form when they registered upon arrival at the meeting. If you completed a postal vote, you don't need to complete another voting or proxy form. If you haven't received a voting or proxy form at the time of voting, please go to the Computershare desk in the foyer, where their representatives will be able to assist you. After voting, you should place your voting or proxy form in one of the ballot boxes, which will be passed around the room. I'll invite you to vote after all the resolutions have been introduced to the meeting. I now declare voting open on all items of business. For those of you attending via Computershare online meetings platform, the resolutions will now be open in the vote tab. Please submit your votes at any time. I will give you a warning before I move to close voting, so you will have plenty of time to vote, and you will also get warning when voting will close. Now I'd like to quickly summarize the process for asking questions. Online questions can be submitted at any time. If you have a question to submit during the meeting, please select the Q&A tab on the right half of your screen anytime as currently shown. Type your question into the field and press send. Your question will be immediately submitted. Should you require assistance of any sort, you can type your query and one of the Computershare team will assist using the chat function. Alternatively, you can call Computershare on 0800-650-034. Please note that while you can submit questions from now on, I won't address them until the relevant time in the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on the one topic, amalgamated together. Finally, due to time constraints, and importantly, to ensure all shareholders have a chance to ask a question, I ask that you limit yourself to asking 2 questions. We may run out of time to answer all of your questions. But if this happens, we will answer them in due course via e-mail. For those of you present, we'll offer you the opportunity to ask questions on or speak to each resolution being put to shareholders at the appropriate time. As I indicated, there will also be an opportunity to ask questions of individual directors and management informally after the meeting. Now what I'd like to do now is introduce my fellow directors who are in attendance either in person or online. They are Andy Borland. You all know Andy is our Managing Director; Nick Harris. Nick is our Chair of Scales Health and Safety and Sustainability Committee and an Independent Director; Mark Hutton. Mark is Chair of Scales Nomination and Rem Committee. He's also Chair of our Finance and Treasury Committee and also an Independent Director; Alan Isaac. Alan is the Chair of our Audit and Risk Committee and also an Independent Director. Now joining us online is Nadine Tunley. Nadine is a member of the Health and Safety and Sustainability Committee and an Independent Director. And I'll just add that Nadine certainly intended to be here, but unfortunately, she has been struck down with -- well, we all know COVID. Joining us also online is Qi Xin. He is a director representing China Resources. I'd like to also note that members of Scales management and staff are in attendance here and online, as well as our external auditors, Deloitte, and our lawyers, Anthony Harper. In addition, Kelly Brown, our future Director, is here in the audience. Now just an overview. 2021 was another challenging year for many businesses, including Scales, and we don't need reminding of that. As we all too well know, COVID-19 affected areas such as labor availability, markets, supply chains and logistics. Our life was, as we all know, turned somewhat upside down. However, as in 2020, all of Scales businesses operated throughout the lockdowns and the various alert level changes. And we ensured that the health, well-being and safety was the top priority for our staff. I'll speak more about the efforts of our exceptional team shortly. Notwithstanding those difficulties, an extraordinary effort was made by everyone in the Apple team to pick, pack and export the harvest. Food Ingredients continued its remarkable growth path, exceeding its long-term EBITDA target of $25 million, a target that was only set at the end of 2018. And the strategic benefit provided by Scales Logistics was evidenced in relation to the ongoing supply chain difficulties ensuring both Scales businesses and our external customers were able to successfully export their produce. As a result and with the benefit of diversification, our results exceeded our revised guidance, issued following our interim results last year with dividends being paid as planned. 2021 put a strain on everyone, both personally and professionally, and it shouldn't be understated. And we are extremely grateful for the tremendous efforts of all of our staff in supporting our customers, suppliers, local communities and each other throughout the year. Across the business, our people faced the challenges that were presented to them with strength and ingenuity. Their ability to adapt was tested every day as we strive to update safe work practices in line with changing situations. Our staffs courage was vital to ensure that our essential products and services continue to reach customers. We are extremely proud of their enterprising spirit, resourcefulness and extraordinary effort. As in previous years, we also observed the importance of our critical RSE workers within our team. Compared to 2020, the RSE workforce was approximately 14% lower over the key harvest period, which placed significant pressure on our local permanent team. We're also aware of the mental and emotional toll that the last 2 years have brought and considered a number of strategies to help. One of the tools that we implemented is a partnership with Groov previously called Mentemia, a mental health and well-being platform that provides practical tips and tools to help our employees take control of their daily mental well-being. Andy will touch on this again later in the address. Despite the trying times, teams have pulled together and the positive results driven and supportive culture of Scales has shown through. I'd like to take this opportunity to extend our thanks on behalf of the Board to the full team of Scales for their contribution and commitment, which has once again been invaluable. I also want to point out at this point to particularly command the executive team of Andy, Andrew van Workum, John Sainsbury, Kent Ritchie and Steve Kennelly, for the strength and, I emphasize, this leadership that they have shown over the past 2.5 years. That leadership has delivered in spades for Scales shareholders. I can assure you of that. In terms of governance, we are pleased to have commenced the process around our Board succession, assisted and guided by specialist governance advisers, Boardworks. As part of that process, Mark Hutton and I indicated at last year's AGM that we will not seek reelection at the current -- end of our current term, which is scheduled to end in 2 years' time and we'll continue to update you on our succession plans as they progress. We're also delighted to welcome Qi Xin as our China Resources representative to the Board during 2021, in addition to Kelly Brown, our fifth future Director. Kelly's tenure ends today, and I'd like to thank her for her contribution over the past 12 months. Kelly treated the role seriously. And I hope that she feels she has benefited from the experience. In addition, Geoff Smith was appointed as our Chief Operations and Sustainability Officer at the end of January this year. Geoff brings a wide range of operational supply chain, strategy and investment experience from across the agribusiness sector. We believe these appointments serve to strengthen our already robust leadership and senior management group. I'd now like to hand you over to Andy, who will give you a broader update on last year and provide you up-to-date on sustainability and business operations for each of our trading businesses. Following Andy's presentation, we'll move to the formal business of the meeting. As always, we welcome feedback on any matters raised during today's presentation or other general matters in relation to the group. Over to you, Andy.

Thanks, Tim and good afternoon, ladies and gentlemen. The current slide summarizes the topics that I'll cover in my presentation today, which includes: A review of 2021, an update on sustainability, a summary of our individual business performance and commentary on the current year. First, a quick recap of some financial and operational highlights of the 2021 financial year. This slide shows some of our financial and volumetric measurements for 2021, a few of which I'll go through in more detail later. Despite the difficulties presented, we set a record revenue target performance, together with a substantial 29% increase in pet food ingredient volumes sold. This next slide illustrates a summary of our earnings over the last 5 years, including the record revenue. The group also generated very pleasing increases in both underlying EBITDA and underlying NPAT attributable to shareholders. Moving on to some more detail in respect of our 2021 results. Together with the 9% increase in revenue, we achieved a 15% increase in underlying EBITDA, 20% increase in underlying NPAT, which was another record result and an 8% increase in underlying NPAT attributable to shareholders. Accordingly, earnings per share were up 27% on the prior year. This was an overall outstanding result, which we believe was aided by our strategy of diversification, together with the exceptional performance of all the teams. The next slide summarizes some of the divisional highlights for 2021. In Horticulture, a lower volume of fruit and cost pressures were balanced by strong end market pricing. Mr Apple also commenced the automation of its Whakatu packhouse and the installation of tray de-nesting machine. As Tim has already mentioned, Food Ingredients experienced an outstanding year with significant increases in volumes sold, revenue and profitability. We believe the division's diverse geographical locations prove beneficial for this result. And logistics performed strongly in what were extremely trying conditions for the logistics industry as a whole. The expertise provided by the division was invaluable to both internal and external customers. This slide shows the movements in divisional earnings over the last 5 years. Most noticeable is the significant growth trajectory of the Food Ingredients division, more on this later. Moving on to our balance sheet, which continues to show a strong financial position. The movement on capital employed mainly reflects capital expenditure, primarily at Mr Apple and revaluation of land and buildings in line with accounting standard requirements. Some of our CapEx projects are pictured on this slide. Other movements include an increase in working capital in line with our increase in revenue and a revaluation of foreign exchange derivatives, again in line with accounting requirements. Our net cash position at 31 December decreased by around $15.5 million compared to December 2020 due primarily to the investment in the Mr Apple's new Whakatu coolstore. Notwithstanding this movement, we continue to be in a strong position to invest in growth opportunity as they occur. An increase in other liabilities was due to increase in deferred tax liabilities. The next section I'd like to cover is sustainability. It's been a very busy year from an environmental point of view and some of our environmental projects, both big and small, are listed on this slide. One of our bigger undertakings last year was the commissioning of the new Whakatu coolstore. We're proud to note that not only does the coolstore provide operating and financial efficiencies but also provides environmental efficiencies such as a reduction in the movement of freight. Other projects included a soil health project to help us understand our impact on the ecosystem, an in-house carbon footprint assessment undertaken for Meateor New Zealand and the receipt of a report from AUT on the potential carbon sequestration of apple trees. All of these are covered in more detail in the sustainability section of our annual report, which I encourage you to read. Whilst we don't treat our staff as just numbers, this current slide provides a few statistics about our workforce, a number of which we are proud of. We endeavor to provide an environment where staff can develop and grow. We were delighted that one of our team members have celebrated their 45th year working with us. That level of knowledge and expertise is difficult to replace. We also seek to provide an equal opportunities workplace and hope that the success of our female senior leadership team and staff members helps to inspire others. As Tim mentioned earlier, all our businesses continue to operate during lockdowns and level changes in 2021. Using our pandemic preparedness policies, we were also able to adapt our COVID-19 response as necessary including new contact tracing technology. I'd also like to stress how important health and safety is to our group from a physical, mental and emotional viewpoint. A few of our health and safety initiatives are noted on this slide, including our partnership with Groov, a business established by Sir John Kirwan and technology entrepreneur Adam Clark to help people with their mental health. It provides an evidence-based self-care product for workplaces, including practical tips and tools to help users take control of their daily mental well-being. We're eager to embed mental health and well-being into the daily working lives of our staff and look forward to seeing the impact of that has. Moving on to an update of our divisional businesses, starting with Horticulture. Whilst we encountered an overall decrease in apple volumes in 2021, there was a pleasing 6% growth in premium varieties, including significant growth in sales of Dazzle and Posy. Over the 10-year period, this represents a compound annual growth for premium varieties of 14%, which aligns with our orchard redevelopment strategy. The decrease in traditional volumes was mainly a result of inclement weather and a decrease in the number of traditional variety orchards due to the orchard redevelopment. As mentioned earlier, we achieved an overall increase in pricing. This was due to a combination of reduced end market volumes, better fruit size for certain varieties and strong demand for varieties such as Dazzle, resulting in prices that were above prior year levels for most varieties. Total export volumes decreased by just under 5 million TCEs with external grower volumes reflecting a challenging season for Nelson growers. During last year, we commenced our multiyear investment and automation plan to increase productivity and sustain margins with the installation of tray de-nesting machines at the Whakatu packhouse. This complements the commissioning of the Whakatu coolstore in February, which has already provided financial and operating efficiencies. We believe that, when finished, the automation project will result in Whakatu packhouse being one of the world's most automated apple packhouses and will significantly enhance labor productivity. Mr Apple continued to plan and redevelop its orchard with 35 hectares converted into primarily Dazzle and NZ Prince, varieties during winter 2021. This, together with our intensive planting techniques are expected to help increase prices and yields as the orchards reach commercial scale. We believe the outcomes from these projects will help us to sustain our margins. Pleasingly, we experienced strong growth in our Asia and Middle East markets last year with some -- with them accounting for around 72% of sales and that of China comprising around 20% -- and of that, China comprising 20%, sorry. However, I'd like to note that sales to Russia this year have been suspended for obvious reasons. We've continued to invest in our branding and marketing strategies with a particular focus on customers in these key markets in addition to consolidating Dazzle's early strong and growing presence there. We undertook market research with consumers in China, Vietnam and Thailand to provide a baseline of brand awareness, affinity and conversion. And whilst the Mr Apple brand is seen as meaningful, the market research identified there was opportunities to differentiate it and make it more relevant. So new simplified branding has been developed for Mr Apple with a couple of examples shown on this slide. This continues to link to the Mr Apple 5-point promise and is being incorporated in packaging and other marketing and advertising material. Moving on to Food Ingredients and its outstanding performance for the year. As mentioned earlier, the division generated significant increases in volumes, revenue and profitability in 2021, reflecting both the ongoing demand for global pet food and the benefit of its geographical and protein diversification strategy. Shelby, in particular, couldn't continue to grow strongly. This was assisted by increased volumes being available through the commissioning of a new plate freezing, capacity in the toll processing facility at Dodge City, Kansas. Underlying EBITDA of 35% -- $35 million, a 52% increase on last year significantly exceeded the Food Ingredients long-run EBITDA target of $25 million, which was only set 3 years previously. Profruit volumes were down only slightly on last year's record volumes due to a lower availability of product and yield. Again, strong domestic markets helped negate some of the difficulties in export. The Petfood industry continues to grow with reported increase in global Petfood products over 8% in 2021, led by a 17% increase in the Asia Pacific region. North American markets rose at the second highest rate of almost 13%. There's also reported increase in global Petfood sales, including an increase of almost 10% in the U.S.A. in 2020, and there was a projected 5% increase for 2021. As in recent years, the strength of the industry is being attributed to an increase in pet ownership due to COVID-19 and a focus on pet's health and well-being. While supply chains continue to be impacted by strong global shipping demand as well as port and logistics constraints, the impact on Meateor New Zealand and Shelby was lessened due to their respective domestic community -- customer bases. So the global strategy for the Petfood Ingredients division is to be a key provider of petfood ingredients to a wide range of international brands. Whilst previous travel restrictions limit our ability to pursue opportunities, industry growth has reinforced our strategy of investigating both internal and external opportunities. We're pursuing opportunities that will expand their geographical presence and protein offering, and we're also seeking to expand our product range with added value and functional pet foods. In addition, due to our confidence in the market and particularly in the U.S.A., our division CEO, John Sainsbury, is in the process of relocating to the U.S.A. on a permanent basis to further drive this growth. John has previously lived and worked in the states. And that along with his leadership abilities, means he's able to hit the ground running and is already reviewing a significant number of potential projects. Last, but certainly not least, is the logistics division. The challenges faced by the supply chain and logistics industry are well documented in the press and are unfortunately showing no sign of abating. As a result, the expertise and experience of the Scales Logistics team proved and continue to prove strategically important for other Scales divisions as well as external customers. An exceptional effort by the team provided a strong result with a 5% increase in revenue and a 17% increase in underlying EBITDA compared to 2020. This was despite a decrease in volumes freighted due to lower apple volumes and reduced sailings. Pressures are unfortunately expected to continue. And the availability of containers and ships, labor shortages, increased costs and high demand. So moving to the outlook for the current year. Our diversified agribusiness strategy continues to provide some mitigation to the global difficulties being experienced. Food Ingredients continues to trade strongly and its earnings are now forecast to at least match those of last year. Apple prices are strong compared to last year, and we have had a positive start to sales in Asia and near markets. Due to a few reasons, which we'll go into the next slide, Mr Apple's crop volume was down around 9% this year. As a result, we are pleased to reconfirm our initial market earnings guidance for 2022 at this present time. I'd now like to give an update on trading for each of the divisions. As mentioned, within the Horticulture division, total [ pack ] volumes of around 4.3 million TCEs were lower than both originally forecast in 2021. However, decrease in crop volume is not unique to Mr Apple. In May, pet food New Zealand revised its crop estimate down by 15% for the Hawke's Bay region and 12% for the national crop. By comparison, Mr Apple's total pack volumes were approximately 10% lower than its previous crop estimate for this year and 9% down on last year. The decrease in our pack compared to last year was due to a number of factors. This included a portion of orchard that was either not in production or producing at lower levels due to recent redevelopment into higher-value proprietary varieties. In addition, approximately 23 hectares of leased orchard principally planned in additional varieties was not renewed. Weather also played its part, as we've indicated on this slide. The effect of these factors are summarized in the volume bridge chart at the bottom right of the slide. Notwithstanding the lower apple pack, it was another amazing effort by the team to harvest the crop. Packing is ongoing with the initial export pack out rate in line with previous years. And as I previously mentioned, early pricing indications are positive with prices in the near markets up on 2021. This has helped negate the increase in overall costs, especially with a substantial increase in sea freight expenses. There has also been a positive start with Posy and Dazzle being well received across all markets. Mr Apple expects to progress the Whakatu packhouse automation project once this year's harvest is complete, and we expect this will continue into next year. Within our Food Ingredients, our pet food business are continuing to perform strongly. In addition to organic growth, John Sainsbury is continuing to explore opportunities in the U.S.A. and elsewhere with value-adding options also being actively pursued. In Australia, our exports have outperformed expectation. And as of 31 December '23, we note that we'll no longer have an exclusive ongoing relationship with our existing supplier. In terms of Scales Logistics, difficult global supply chain conditions are ongoing with restricted shipping capacity, labor shortage and increased costs. However, we're confident that logistics will continue to provide significant strategic support to its customers, including Mr Apple and Meateor. In respect of overall group trading, we are anticipating higher net interest income for the year. In addition, no material M&A costs have been incurred to date. So that concludes my presentation. We'll answer questions following the resolutions. But in the meantime, I'll pass back to Tim to cover the formal part of today's meeting.

Thanks, Andy. We'll now move to the business of the meeting. All items of business are ordinary resolutions and are required to be passed by a simple majority of votes. The resolutions that we'll be voting on today are as follows: resolution 1, authorization for the directors to fix the auditor's remuneration for the coming year; resolution 2, reelection of Alan Isaac as a Non-Executive Independent Director; resolution 3, reelection of Nadine Tunley, as a Non-Executive Independent Director; resolution 4, reelection of Andrew Borland as a Director; resolution 5, election of Qi Xin as a Non-Executive Director; resolution 6, authorization that the maximum total pool of directors' remuneration payable by Scales to directors be increased. Current best practice for shareholder voting is by way of poll. Accordingly, I require that a poll be held for each of the resolutions. I and my fellow directors hold the following undirected proxies: with respect to resolution 1, authorization for the directors to fix the auditor's remuneration for the coming year, 202,129 shares; with respect to resolution 2, reelection of Alan Isaac as Non-Executive Independent Director, 208,192 shares; with respect to resolution 3, reelection of Nadine Tunley, as Non-Executive Independent Director, 218,157 shares; with respect to resolution 4, reelection of Andrew Borland as a Director, 206,662 shares; with respect to resolution 5, the election of Qi Xin as Non-Executive Director, 218,157; with respect to Resolution 6, authorization that the maximum total pool of directors' remuneration payable by Scales to directors be increased, 180,049 shares. Your Board supports these resolutions, and we intend to vote all these shares in favor of these resolutions. I'll now move on to each of the resolutions. Resolution 1 relates to the remuneration of auditors. This proposed ordinary resolution is to authorize the directors to fix the auditor's remuneration for the coming year. In accordance with the Companies Act, Deloitte has automatically been reappointed as Scales auditor. As is usual with audit fees, due to the complexity and changing nature of the company's affairs, it is not possible to fix the remuneration at the beginning of the year. I now move as an ordinary resolution that the Board is authorized to fix the auditor's remuneration for the coming year. Are there any questions on this resolution? Thank you. We'll move to the next resolution. Resolutions 2 through 4 relate to the reelection of directors. The NZX Listing Rules state that the directors must not hold office without reelection past the third annual meeting following the director's appointment or 3 years, whichever is longer. Accordingly, Alan Isaac, Nadine Tunley and Andy Borland, are required to retire at this meeting. Resolution 2 relates to the reelection Alan Isaac. Alan was first appointed to the Board in 2014, and a brief biography for him was included in the Notice of Meeting. Alan, being eligible, offers himself for reelection and the Board unanimously supports his reelection and recommends that shareholders vote in favor of resolution 2. I now invite Alan to briefly address the meeting on his proposed reelection. Thanks, Al.

Thanks, Tim. Good afternoon, everyone, wherever you are today. I welcome the opportunity to speak briefly to you. By profession, I'm a chartered accountant, but I've had significant commercial experience with a number of leadership roles, both in New Zealand and internationally. I mentioned the commercial experience because, in my opinion, experience is being underrated today in the interest of greater focus on diversity in many aspects of our life. I retired from KPMG in 2006 after leading the firm in New Zealand for 10 years and have been a professional company director since then. In my governance roles, I've had a number of Audit and Risk Committee Chair roles, as I've done at Scales since it listed. In addition to my other current listed company roles, Oceana Healthcare and Skellerup, I have in recent times, been on the Board of other -- the unlisted companies, Opus, Wakefield Hospital and Flyway. In part to respond to an observation made by the New Zealand Shareholders Association, my other roles include Chair of New Zealand Community Trust, Chair of the Basin Reserve Trust and Deputy Chair of the Wellington Free Ambulance. For 2 years up until the end of July last year, I was the President of the New Zealand Institute of Directors, which, apart from other interests facilitated me keeping up to date with many current and emerging governance issues. Again, in response to an observation made by New Zealand Shareholders Association, the Board has strong focus on the skills required on the board to effectively govern Scales and has a succession plan, which is being referred to today by Tim. In this regard, I confirm as the Notice of Meeting says that if reelected, this will be my last term as a Director of Scales. I believe we have a great Board with a high level of trust and respect in each other and I look forward to your support so that I can continue to add value to Scales, which is a strong balance sheet and is, in my opinion, well placed to achieve profitable growth. Thank you.

Thank you, Alan. I now move, as an ordinary resolution, having retired by rotation that Alan Isaac be reelected as a Non-Executive Independent Director. Are there any questions on this resolution? Thank you. We'll now move to the next resolution. Resolution 3 relates to the reelection of Nadine Tunley. Nadine was first appointed to the Board in 2019. And a brief biography was also included in the Notice of Meeting. Nadine, being eligible, offers herself for reelection, and the Board unanimously supports her reelection and recommends that shareholders vote in favor of resolution 3. Now to avoid some of the online glitches that we already had in the practice run for this, I will actually read Nadine's address to shareholders. This is from Nadine. Apologies that I cannot be with you all in person today, a reflection of our past 2 years of COVID. I would like to take the opportunity to thank the shareholders for supporting my ongoing involvement as an Independent Director of Scales Corporation. I've been on the Board just over 3 years now, and thoroughly enjoy the role. 12 months ago, I accepted the role of Chief Executive for Horticulture New Zealand. After 4 years as CEO of Oha Honey Limited, Manuka Honey company in the [indiscernible]. These 2 roles, along with my directorships at plant and food research and, until late last year, the Strong Wool Action Group Limited, has given me greater insights and understanding of our broader New Zealand food and fiber sector and how and where that intersects into our international markets. It has also allowed me to understand firsthand in many cases, the ongoing and constant challenges of our Scales CEOs having had to face over the last few years with regard to COVID. I enjoy working with and supporting the Scales health and safety well-being team, especially over the last 2 years amidst this challenging COVID environment. The teams across the entire group have worked incredibly hard. And has been that incredible team effort that met our businesses could carry on operating when many others were unable to do at times. As a Director of Scales, I'm always proud to say that the team's commitment and dedication to continuous improvement for the group is directly reflected in our ongoing success. I look forward to supporting that drive and commitment over a next term. Thank you. I now move as an ordinary resolution, having retired by rotation, that Nadine Tunley, be reelected as a Non-Executive Independent Director. Are there any questions on this resolution? Sorry, yes?

Not so much a question on this specific resolution, but a question on the diversity [indiscernible]

Yes. No, no, it's a very appropriate question and something in terms of, obviously, the need for diversity, and diversity is much -- it's not necessarily physical, but it's obviously as thought and viewpoint. And we certainly recognize the need for a focus in that regard. And as we mentioned, that opportunity to actually reinforce, let's say, diversity or certainly increase diversity on the Board is part of the renewal process that I referred to. So as we indicated last year, Mark and I will be stepping down at the end of our term or towards the end of our term. Alan has made a commitment in terms of his reelection statement. That will certainly provide the Board with that opportunity to address the diversity issue, and it's one which I can assure you is front of mind.

[indiscernible]

Well, until we obviously -- look, I understand it. And I don't want to say I'm wishy-washy, but what I'm really saying, it is a key focus for the new -- the Board selection process. And we're into that selection process at the moment. And as I said, it's very much front of mind. So you can expect -- well, you will expect to see more diversity on the new board over the coming terms. Once we have obviously in a position to give you names and we've made those appointments, you'll obviously see that. Yes?

[indiscernible]

Yes. And -- but part of being the best person for the job, it also means what is the best board that you can have, and that board obviously needs diversity. So that -- obviously, that's key. We -- the best people and diversity is obviously one of those criteria. As I said, you've got to measure -- the Board's performance is not measured by individuals, it's measured by the whole.

Okay. I'll move on. Resolution 4 relates to the reelection of Andrew, or as we know him better, Andy Borland. Andy became Managing Director and was first appointed to the Board in 2011. And a brief biography for him was included in the Notice of Meeting. Andy being eligible, offers himself for reelection, and the Board unanimously supports his reelection and recommends that shareholders vote in favor of resolution 4. I now invite Andy to briefly address the meeting on his proposed reelection.

Thank you, Tim. And look, I'd like to thank the Board, my bosses for continuing to support me. I thank you as shareholders for voting for me, if you do. I think this is my 15th Scales Annual General Meeting. I'm very proud and privileged to be -- have been in this role for that time. I -- just, I give thanks also to my team. I've had a very strong loyal team across the various businesses that -- in Scales. And I feel working with them has been an absolute highlight of my 15 years at Scales. And I'd also like to point to my various -- I've had a lot of agribusiness experience starting back in the days of being a banker and the rural bank in Westpac. I feel like I've got a broad knowledge across the New Zealand and global agribusiness scene. This has been improved recently over my last 5.5 years being on the Rabobank Board. On that board, I see a lot of trends and changing things that -- changing dynamics that are across the agribusiness scene and that has helped my broad knowledge, and I bring -- help bring that back to Scales to -- and enhance and grow our diverse agribusiness -- business that we've got in Scales. So I think, again, I reiterate my thanks for the support I've had and humbly look for your ongoing support and votes.

Thanks, Andy, and he reminded me that we are his boss. I now move as an ordinary resolution, having been retired by rotation, that Andy Borland be reelected as Executive Director. Are there any questions on the resolution? Thank you. We'll move to the next resolution. Resolution 5 relates to the election of directors appointed since the last annual meeting. The NZX Listing Rules state, directors appointed by the Board must not hold office without reelection past the next annual meeting following the director's appointment. Resolution 5, therefore, relates to the election of Qi Xin. Qi Xin was appointed to the Board in December 2021, and a brief biography for him was included in the Notice of Meeting. Xin being available offers himself for reelection -- or for election, and the Board unanimously supports his election and recommends that shareholders vote in favor of resolution 5. Now again, to avoid the glitches with the online connection, I'll read Xin's address to shareholders. I was appointed last December as the Non-Executive Director representing China Resources on the Scales Board. My current role with China Resources is the Senior Director of Investment Management. I've been with China Resources for 9 years and have held Director and CFO roles within the group. I have an MBA from the University of North Carolina at Chapel Hill, and I am a CFA. I think I bring a different perspective to the Board from the aspects of strategy, investment and understanding importantly of the Chinese market. I would welcome a term on the Scales board and thank everyone for your support. I now move, as an ordinary resolution, having retired by rotation, that Qi Xin be elected as a director. Are there any questions on this resolution? Thank you. We'll now move to the next resolution. These are the ones that shareholders like. Resolution 6 relates to a proposal to increase the maximum total pool of directors' remuneration available to your Board of Directors by $50,000 per annum from a total fee pool of $600,000 to $650,000 per annum, effective from the close of this annual meeting. Shareholder approval is required under NZX Listing Rule 2.11.1. An appropriate fee structure is important to ensure that your company can continue to attract and retain the right director skills and experience to govern your business and that those directors are being fairly remunerated for the work they do. The proposed increase in the directors' fee pool provides the Board with a pool considered appropriate to remunerate a Board of 6 Non-Executive Directors, including for associated committee work. I now move as an ordinary resolution that the maximum total pool of directors' remuneration payable by Scales to directors in their capacity as directors be increased by $50,000 per annum from $600,000 to $650,000 per annum. In accordance with the NZX Listing Rules, the directors and their associated persons are restricted from voting on this resolution. Is there any discussion on this resolution? Sorry, yes?

[indiscernible]

We took into account -- obviously, we look at comparable companies in relation to remuneration of directors. We also took into account the fact that for -- to aid the transition process, it won't necessarily be new director comes on, existing director drops off. There might be a carry -- a transition period. So effectively, that's where we were. And from the work that we did, even in terms of increases in director fees, we were still around the medium. We certainly were not at the top. And I said, personally, from my perspective, we needed an amount of money available so that we could actually attract good people, the best people to be your directors. And effectively, we wanted to be in the market.

[indiscernible]

No.

[indiscernible]

I might ask Mark -- 2019 -- yes, Mark's our Chair of our Rem Committee. Thank you. I know it's a favorite one for shareholders. Yes, sorry?

How many directors [indiscernible]

6. And as I said, we're looking at -- obviously, part of the renewal process that may increase, as I said, it's part of the transition. So for example, rather than me dropping off from the day, the new person arrives, I might stay on for a period of time to assist that transition.

So thank you for that. We'll now move to finalize the voting and we'll answer general questions. Now once all the votes have been cast, they will be counted by the company's share registrar, Computershare, and scrutinized by the company's auditor. The results of today's meeting will be released to the NZX on the completion of verification of voting. If you have not already done so, please cast your votes now and give your voting forms to Computershare, while we take questions. I think the boxes are going around at the moment. So please, if you're still to vote, please put the votes in the boxes.

So if there are any questions on the financial results, the business update or any matters that you'd like to raise -- please do so through the Computershare online meetings platform. A reminder of the process is shown on screen. For those of you present, I'll open the floor now to any questions. And I just wanted to remind you, if we do run out of time, which we shouldn't, hopefully we shouldn't, we will respond to any additional questions in writing following the meeting. Now as I think I said before, we do have a lot of -- a number of the senior management here in the room. So it is an opportunity either now or at the end of the meeting to have those people answer any specific questions you like, but the floor is yours. Yes, sir?

I don't have any questions, but I'd like to make a couple of observations. Firstly, like you, I'm so grateful to have the opportunity to be here to attend this meeting rather than being at home trying to follow what's going on. But secondly, the last 2 years have been a very, very difficult period for the business community of New Zealand as well as the ordinary citizens of New Zealand and a number of businesses are really finding it extremely difficult. Other export companies also finding so. Right now, the kiwi fruit industry are crying out for people to pick their fruit. Their coolstores around the country, full of processed fish but cannot get shipping to export their products. But in our case, it's all done. We have organized over the last 2 years. We've organized staff. We've got a big pool of temporary people who come in and working for us to achieve those results. And we're getting our products offshore. So hopefully, others here share my views, but I live in Wellington, and I came here today because I personally wanted to congratulate the Board on an outstanding 2 years of operation, also the management team and the support shown by the band of employees. Thank you.

Look, thank you for that. You quite rightly referred to the management team. I mean, these guys will stick on me saying this, but I've been around on agribusiness for -- I think my buyer says 40 years, it's getting close to the 50 now, so I don't want to update that though, so 40 years. And I've worked in a lot of businesses. I've worked in 2 listed companies. I was a senior exec in one, and I've worked for Zespri as CEO. I have not seen a culture of personal accountability so strong in any organization. And if you talk to people like, well, the one I know based on more from the fruit industry than, let's say, the food ingredients business. So I'll pick out Andrew van Workum who's here today. Andrew lives and breathes this business and he takes it personally. And if you don't take things personally, I don't think you're doing the job you should be doing. He takes it personally. We've got John Sainsbury, who -- it's a complex -- it can be a relatively complicated business when you're managing or responsible for business on several continents. And they're led by a guy who -- when I first heard about Andy, when I think I was approached to be involved on the Mr Apple Board, which is 10 years ago or more, they said, I was a former banker, I nearly said no straight away. But then I met him because he's got great EQ. And so look, I'm not...

Sorry, no disrespect. But we have our current banker here tonight.

Yes, sorry. Well, I always go off script guys, as you've seen. But look, I think the thing is that I'm not being self-congratulatory because I'm not in that square. It's -- I suggest the many -- obviously, we've got some great board members. But the resilience of the management team, Kent Ritchie, who's been involved in the logistics business, like I say, the shipping business all his life, having some -- I don't know how many of you know the shipping business, well I used to work as a shipping [ clarke ] at one stage, I wasn't very successful of that career, so I moved on pretty quickly or I was moved on pretty quickly. But having people like Kent who actually -- the business runs with -- based on experience and favors. And having someone like Kent in the business who can call on favors, who understands what he's being told is whether it's true or not true, I guess, as I said, what I'm saying, we're fortunate to have a team and a great team. And that's why we've been -- we're always pretty careful. I'm all for change. And going back to the Board, again, I'm all -- we do need to change. And some of us have been there, we've been there for the time that we need to be there, and it's time to change. But we are very careful about how we implement change. And back to the point, I think with the gentleman at the back, getting the right people is so critical because for me, you lose the people -- businesses are all about people. You can have the best ideas in the world. But if you ain't got the right people to make it happen, the idea is worth nothing. So we're very careful about getting the right people and it goes to our growth strategy. There are many opportunities out there. There aren't a whole lot of good people who can make those opportunities happen. So I'm going on again. But to me, it's a real passion of mine. And I think as shareholders, you do need to hold us to account if you think the people that are running the business aren't the right people. Anyway, long-winded. Thank you anyway for the comments. They deserve it, yes. Yes?

[ Ritchie ] has obviously been very successful and has been a great contributor to Scales success. For my own information and perhaps information of other shareholders, how much of the raw material for that division is derived from New Zealand producers?

Thank you. Andy, I'll get you to answer that.

Yes. Well, of approximately the 150,000 tonnes we talk -- we noted that we traded, it would be just a little under 10,000 from New Zealand. And it has been as high as 15,000 or 16,000 in prior years. But the reduction of the [ lamb ] numbers because lamb is one of our big products that we export. So it's probably -- the reduction has been about a decrease in the lamb volumes farmed more than us losing market share or anything like that. But the other point about that I'd make about that in New Zealand is that, that product is a bit like what we do with their Profruit. 10 years ago, 80% of Profruit's juice was exported. And now it's probably flipped the other way, it's more 80% domestic. And that's happening with that 10,000 tonnes of pet food product as being sold more to New Zealand manufacturers as they ramp up their production.

Thanks, Andy. Sir?

Again, on the -- your Petfood. You branded your own apples and that sort of thing. So I'm just wondering, why don't you brand your own pet food?

Yes. Look, it's a good question. We feel that our customers are those branded businesses. Purina, MAS, Marcus, they all have those big branded production. Even in New Zealand, we sell to K9 Natural and Ziwi. And really, it's been a desire to not compete with our customer base. So there's a whole lot of skill set required to build a brand and what Mr Apple is building up with their teams and that customer direct-to-consumer. So we're, if you like, business-to-business model. And we're finding that a good space to be. People say, like, it's a commodity. But I feel like you change a commodity through the value add we create for it. We change its shape. We take the meat from the bones, so -- and we put it frozen. We add a lot of logistics to that pet food to get it in the location for the brand manufacturer to use it. I mean you get a 20-minute time slot to get into the Nestle Denver plant and you don't miss it. Because if you miss that with your truckload of ingredients, you're back in the queue to get it or they could cancel it. So our sort of strategy is sourced from global and get it to the plants that the people want it for on time and on spec. And I feel like that's a skill set that the branded companies don't have. So we're sort of doing things that they don't have, but we certainly -- one of the main principles is not to compete with our customers.

A comment. Last year, I asked about the use of wallaby meat because of the processing. For the people here today, I'd like to comment that John Sainsbury has followed up twice on my request and he has pointed out that he -- there are difficulties and -- but they are -- have looked at wallaby processing with a firm who are doing feral deer in New Zealand. There's lots of extra costs, and there's lots of embargoes or difficulties with compliance. But I just thought that people here would like to know what a positive response, thank you. And thank you to John.

Look, thanks for that. I've asked the same question of John about the kangaroos in my place at home, but excess ones, I mean, I don't want to remove them all, obviously. Any other questions? Yes, sir.

[indiscernible]

Yes. Look, it's an interesting question. I think we play within the game as we see it. And at the moment, certainly the relationship with China or between our customers in China and Scales is very positive and very strong. As we all know, we -- our major single shareholder is China Resources. So we can -- from that perspective, we're comfortable, and we continue to build on that, and Andy is part of an investment we've made in terms of representation in China itself. So like any market, and this includes markets in Europe or in anywhere in Asia as well, I mean how much fruit or how much of the food ingredient -- or pet food ingredients we would supply to any particular market, we always review it in terms of not having too much dependence on one market because we have other risks, as you well know, phytosanitary risks, those sorts of things where markets can close on you for reasons totally outside your control, similar to the political risk that you're talking about here. So we monitor that. But other than that, we just have to deal with the day-to-day that we can control, and that's what we do. Well, if there's no more questions, I'll close the -- that session off. But again, back to one gentleman who said, we're here. I was keen to get here by -- I was going to say fair means or fail. Oh sorry. Sorry, Steve.

There's a couple of questions online. Can we hear some. So the first one is what impact has the COVID lockdowns in China had on our sales there this year?

Well, look, what I might do is ask Mr. van Workum to actually respond to that. So Andrew?

Yes. Look, it's a good question. It's the last couple of years have been hugely challenging. But we've managed to maintain our sales in China. It's a very, very good market for the Mr Apple business and our brand is very strong and we represent in the order of 50% of the New Zealand fruit that goes to that market. So -- and we have a lot of long-term relationships, particularly retail and online, developing that part of the business. So it's very important. It's been challenging, but we've found a way to make it work.

Thanks, Andrew. Steve?

Second part is in a time of logistical challenges, has Scales has been able to get all desired product to market?

Does Mr. Ritchie want to answer that question?

Thank you.

It's not a free lunch, Kent.

No, thank you, Tim. Well, yes, it's been a huge challenge to get all the fruit and food ingredients away, sliding schedules have caused disruption. Ports of Auckland hasn't been exactly an easy path, but I can assure you that both Mr Apple and Meateor product is on the water, and we have all the capacity we need to ensure that we get both away.

Thanks, Kent. Steve?

And lastly, can you provide some background clarification of your hurdle rate for new investments? Is there a risk that this prevents you from seeing the woods for the trees?

Over to you, Mr. Managing Director.

Well, yes, it's obviously a very unique time for returns on capital. We've seen this very, very low interest rate environment. And now lately, the increase is off a very low base. But we've -- we're still feeling that there's opportunities in the lane we're choosing to -- [ this women ], if you like, on that front. We have lowered the ROCE hurdle to 12.5%. And we feel like there's opportunities in that space for us to invest the capital that we've got available.

I think as we've said before, I mean, we take it -- well considered and as of a somewhat conservative approach to that part or any new investments. It's taking us a while, but we're confident we will achieve something in that space in the near term.

And that's all the online questions, Tim.

Thanks, sir. Okay. Well, look, thank you. And again, I just want to say it's a real pleasure for me personally to be here, a real frustration on occasions that I haven't been able to get here. I mean, I'm talking throughout the year. I'm just been pleased to be able to make the AGM in particular. We are here. So for those of you who've got us another some questions of either of the Board, or senior management, please take the opportunity now to do that. So we'll go and have a cup of tea and call anyone you feel you want to call. And we actually appreciate the contact with you, frankly, particularly given the frustration of the last couple of years. So again, thank you for coming. So look, what we'll do now is, I'll close the voting system in a couple of minutes. So is there anyone here still has to get their vote in? I mean, if that's the case, please let me know and we'll get that finalized. So please make sure you have got it in. Steve, can I now, from your perspective, close voting? Voting is now closed. The results of all votes will be released to the NZX later today. So as there's no further business, I would like to thank you all for taking the time to connect with us today, be it online or in person. So I now declare the meeting closed. And look forward to having a chat over afternoon tea. Thank you very much.

When times were tougher, we used to give apples in lieu of dividends. And for you, lucky people, we bought apples. So we now have a tasting out the front there, and there will also be bags there for you to take apples. But guess what, we're going to try and keep paying the dividend as well. Thank you. Yes, 4 varieties up there, and you can just pick your favorite, but please help yourself.