Scales Corporation Limited (SCL) Earnings Call Transcript & Summary

Thank you, ladies and gentlemen. I know for your attendance here on a rather cool evening in Christchurch. But thank you very much for coming today. Good afternoon. My name is Mike Petersen. I'm the Chair of Scales, and it's my pleasure to welcome you all to this -- the 111th Annual Meeting of the company, the ninth since we became a listed company and my first as Chair. Once again, we're holding a hybrid annual meeting and whether you're here in person or 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 all be able to hear and see a live webcast. In addition, shareholders and proxies have the ability to ask questions and vote on resolutions. I'll provide further details on these matters shortly. Some housekeeping matters for those of you who have joined us in person and lovely to see you here. First, I'd like to remind you, as a matter of courtesy to please turn off your mobile phones or turn them onto silent. Also if there's an emergency and we need to leave, please do so through the marked exits. Staff will be available to help us in the event we need to do so. I'm pleased to confirm we have a quorum, and therefore, declare the 2023 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 3rd of May. Our order of proceedings is as shown on the current slide, I'll briefly comment on the highlights of the last 12 months, followed by a review by Scales Managing Director, Andy Borland. We'll then attend to the resolutions where we will cover each resolution in turn and invite questions specific to those items. I'll shortly open the online voting system and explain the voting process. And 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. There will also be an opportunity to meet the directors and senior management of the company 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'll be able to cast your vote under the vote tab as shown on screen. Once the voting is 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. To change your vote, simply select Change Your Vote, and 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. And for those of you that 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 front desk 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 and 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 the Computershare online meetings platform, the resolutions will now be opened in the vote tab so please submit your votes at any time. I'll give you a warning before I move to close voting. I'd now 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. So that sounds a bit tricky, doesn't it. But for the younger people in the room, that will be easier, the 0800 number may also be a bit noisy for guests present. 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 your questions may be moderated or if we receive multiple questions on 1 topic, they may be amalgamated together. Finally, due to time constraints and 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 your questions. But if this happens, we'll answer them in due course via e-mail. For those of you present, we'll offer an 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 informally after the meeting. I'm delighted to host my first Scales Annual Shareholders Meeting as Chair following my appointment in April this year. I'm excited to have joined Scales and look forward to contributing to the ongoing success of the company alongside the very capable Board and management team. I'd now like to introduce my fellow directors who are in attendance on the stage here, either in person, and we have one online. So we have firstly, Andy Borland, Managing Director; Miranda Burdon, an Independent Director of the Board; Nick Harris, an Independent Director; Mark Hutton, Chair of the Scales and Nominations and Remuneration Committee he is also Chair of the Scales Finance and Treasury Committee and also an Independent Director; Alan Isaac, Chair of Scales Audit and Risk Management Committee and also an Independent Director; Nadine Tunley, Chair of the Health and Safety and Sustainability Committee and an Independent Director; and we have Qi Xin, the Director who is attending online. We haven't been able to get Xin to connect directly into the meeting, but he is watching us all from his place in Hong Kong. I'd also like to note that members of Scales management and staff are in attendance as well as our external auditors, Deloitte; and our lawyer is Anthony Harper. Before we go further, I'd like to recognize the leadership and support of Tim Goodacre. Tim was involved with Scales for 11 years, having been appointed as a Director of Mr Apple in 2012. He joined Scale's Board in 2014 and was appointed as only the ninth Chair of scales in 2017. Tim brought a wealth of knowledge and experience to the group with a particular focus on Scale's unique culture, its marketing and its branding. I really appreciated the time and handover that I've had with Tim, and he may be watching from a far online. But we certainly acknowledge his efforts and wish him all the very best for what he does in the future. I'd also like to thank Mark Hutton who retires from the Board at the end of this meeting. Mark was elected to the Board in 2011. He was an active member in a number -- of a number of the Board subcommittees and brought value and insight and contribution from his private equity background. I know that many people within Scales Corporation have hugely valued the wisdom and knowledge that Mark has brought to the business. And Mark, we thank you very much for that. And again, all the best to you for your next endeavors. On behalf of the Board, thank you, Tom and Mark, for your considerable contributions and support. Moving on to the group's 2022 performance. We are pleased to report a strong result in 2022 driven by record results in both Global Proteins and Logistics. Whilst Horticulture was unfortunately adversely affected by a number of factors, the overall group financial performance was towards the top end of the 2022 profit guidance. Dividends of $0.19 per share were delivered as declared for the 2022 financial year, representing 98% of the underlying net profit attributable to shareholders. We believe our global investment strategy will continue to ensure that Scales meets its future business earnings ambitions and look forward to the ongoing growth and development of the group. Since commencing my role as Chair, I've noted the priority that is given to the welfare, health and safety of Scales' team members. This was exemplified by the steps taken by the Hawke's Bay-based businesses and the unfortunate aftermath of Cyclone Gabrielle and Andy will touch on this further in his address. It's also important to remember that 2022 was not without its difficulties as Scales, like many other businesses, battled adverse weather events and the ongoing impacts of COVID-19. I also feel it's essential to reiterate the importance of our RSE workers, who travel from overseas away from their family and communities, and whose skill and commitment are vital to the operations of our business. Accordingly, the Board would like to extend a heartfelt thank you to all of our team members. Their responsiveness, innovation, collaboration and support, helped deliver the financial and operating results of the group. This is one of the legacies that Tim left in his role as Chair around culture and certainly the values of the people that work within this business. Health and safety continues to be a top priority for the group and is the first item on our Board agendas. There was also a strong focus on both physical and mental well-being in 2022 with facilitated workshops and one-on-one counseling. Pleasingly, there was a significant 39% reduction in Mr Apple's lost time injury rate from 2021 with it being at its lowest since 2018. The group also built, partnered with or reengaged a number of employee engagement activities to support the wide range of staff members in our employment, and we look forward to building on these in future periods. We're also pleased to have progressed Scale's Board succession process over the last year with the appointment of myself and Miranda Burdon. Miranda was welcome to the Board in August last year, whilst I joined in April this year. You'll have the opportunity to hear directly from Miranda and myself later in the meeting, but we are hopeful that we will bring valuable experience, strong international knowledge, diverse qualifications and our diversity of thought around the Board table. I'd now like to hand over to Andy, who will update you further on last year's results and activities as well as providing a trading update and outlook for the group. Following Andy's presentation, we'll move to the formal part of the meeting. As always, we welcome feedback on any of the matters raised during today's presentation by other general matters in relation to the group. Thanks very much, Andy.

Thanks, Mike, 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 2022 year, a sustainability update, individual business updates, a trading update and outlook. I'd like to start with the update on the effects of Cyclone Gabrielle before I quickly recap some of the financial and operational highlights of 2022. First and most importantly, following the cyclone, we are extremely pleased that all our team members were safe and well. It was an extremely challenging period for many people in a large number experience significant loss or disruption. The Hawke's Bay community, its people and its culture are an integral part of Scales. And accordingly, we're committed to making a $250,000 donations to the recovery. We've also provided tailored assistance to those staff members who are particularly affected and we'll continue to support them as appropriate. As we previously advised, 3 of our orchards Brookfields, Kinross and Pakowhai were extensively damaged with the Pilos Orchard sustaining moderate damage. Luckily, our other orchards didn't sustain any material damage. As a result, our current indications are that the 2023 crop will be down around 25% on our initial forecast and around 12% to 15% down on last year. We also estimate that our total tree loss is around 5% of the total planted orchard area. But due to expiring leases, less than 50% of this will need to be replaced. Whilst the effects of the cyclone were extremely unfortunate, this does provide Mr Apple the opportunity to further increase its focus on the production and supply of premium apples to the Asia and Middle East markets and to align -- realign our orchards to these varieties and volumes. We'll continue to update you through the year as appropriate. Moving on to the summary of last year. The slide shows some of our financial and volumetric measurements for 2022, a few of which I'll go into in more detail later. One figure of note was our revenue of $619.2 million, a record level for the group. This next slide illustrates our earnings over the last 5 years and shows strong growth in both underlying EBITDA and revenue. Moving on to some more detail in respect of our 2022 results. Reported NPAT attributable to shareholders was $19.4 million, with underlying NPAT attributable to shareholders of $27.6 million. This result was towards the top end of our earnings guidance range. Underlying EBITDA increased 6% compared to 2021 and revenue was up 20%. These results were primarily due to growth in the Global Proteins division, both organically and by acquisition. This next slide summarizes some of the divisional highlights for 2022. Global Proteins produced an outstanding performance with record results for both revenue and profitability. This was due to the strong market conditions and new product development, which led to improve volumes, mix and margin, together with contribution from Fayman following our investment in the Australian businesses. Horticulture generated a solid result in a year that was -- where there was significant market disruption. There was a pleasing increase in the weighted average price of premium varieties as well as an increase in the proportion of premium volumes sold. Logistics also produced an exceptional result with excellent increases in revenue and earnings delivering record earnings despite a testing market environment. The strategic value of the division was once again demonstrated with the team ensuring product was delivered worldwide to all its customers. This slide shows the momentum -- the movements in divisional earnings over the last 5 years and highlights the exceptional growth in Global Proteins over the last few years. Moving on to our balance sheet, which continues to show a strong financial position. The movement in capital employed mainly reflects our investment in Fayman, an increase in working capital CapEx in Mr Apple's Whakatu packhouse and revaluation of Mr Apple's land and buildings. Our net cash position at 31 December decreased to $27 million due to primarily to the Fayman investments and movement in working capital. Total cash dividends for the 2022 financial year were 98% of underlying net profit attributable to shareholders. From the 2023 financial year onwards, our dividend policy will revert to 50% to 75% of net -- of underlying net profit after tax attributable to shareholders. We're pleased to report that group return on capital employed or ROCE continues to be above our target percent. The next section I'd like to cover is sustainability. Sustainability has always been important to Scale's. Our business is based on production that comes from the land, and we understand that looking after our environment is critical to our long-term success. Whilst we have always been -- whilst this has always been a core value of scales, we've only started to report on our initiatives and environmental impacts in more recent years. We're employing additional resources to this area and you'll see continued improvement in our reporting going forward. We're pleased to report our inaugural group-wide baseline calculations for water, carbon and soil as part of our regenerative Orchard trials. This slide summarizes the progress we've made on some of our sustainability initiatives. As ever, people are a key focus as without them, we wouldn't be the business that we are Mr Apple has built a value proposition program and also 2 leadership programs to help develop our employees and leaders. We've also reengaged the Ethical Voice platform, an online survey targeted at our RSE workers so that we can be kept informed about their overall well-being. We're pleased to note that Mr Apple has consistently scored excellent and improved across all 2019 baselines. Touching on a few other initiatives. We've completed a decarbonization road map outlining key initiatives, CapEx and reduction targets. Supporting New Zealand Apples and Pears, Smart and Sustainable program to investigate the minimization of sprays. Set group-wide climate scenarios and established sustainability committees across our divisions. We cover this in more in detail in the sustainability section of our annual report, which I encourage you to read. A quick summary of some of our workplace statistics, although I point -- I'd like to point that we never treat our staff as just numbers. We're proud of the culture that we strive to maintain are eager to develop talent and seek to embrace inclusiveness in every aspect of our business. Moving on to an update of our divisional businesses, starting with Global Proteins. The division generated an exceptional performance over the year, revenue increasing 46% and underlying EBITDA increasing 80%. The increase in profitability was due to a number of factors as summarized on screen, including operational efficiencies, new product development, a strong leadership team with long-term customer relationships, changes in product, customer and market mix and profit contribution from Fayman. Volumes increased 6% from around 149,000 metric tons to around 159,000 metric ton. Given the primarily edible nature of its product, we haven't incorporated Fayman's volumes under the volume of petfood sold by Meateor and Shelby. However, over 9,000 metric tons of product was sold by Fayman's during November and December. I'd now like to touch on the future of Global Proteins division as we're very optimistic about its prospects. We've summarized the attributes of the division in the current slide, which includes resiliency against market cycles as well as above-average returns on investment. The worldwide nature of the opportunities also allows us to leverage our existing networks with our current focus being towards North America. The industry is supported by many macro tailwinds, including the global growth of the middle class and its associated demand for protein. We see no abatement in the demand for protein in the foreseeable future. Our petfood customers are also particularly optimistic about the future and are investing substantial sums and to meet future demand. Supply chains and sourcing of raw materials have been identified as the biggest future production challenges for petfood manufacturers. Meateor and Shelby have a very experienced and well-connected leadership team and have developed deep relationships with customers over 25 years, which gives us confidence that we will participate alongside our customers in this growth. As a result of the opportunities I've just described, we have global ambitions for the division. As shown on this slide, we already have significant operations in New Zealand, Australia and North America. North America is the world's largest petfood market with Europe being the second largest. As many of our existing customers operate in Europe, we're continuing looking for ways to extend our operations there. As a result, discussions regarding potential opportunities are currently taking place. The structure that we have in place today is a result of careful planning. We specifically target existing end market players with strong existing relationships and find a way to partner with them. We'll continue to adopt this strategy for growth. Once we've invested, we'll leverage our existing experience and relationships to achieve win-win synergies and growth from the expanded group. Our current investment parameters will ensure that potential opportunities have strong earnings and cash flows, which allow a significant portion to flow to the parent company. Moving to the Horticulture division. 2022 was a difficult year for horticulture with a number of challenges presented to the business, as mentioned earlier. Notwithstanding this division produced a solid result. Revenue was only down 6% on 2021 with underlying EBITDA of around $17 million. We saw pleasing growth in some of our premium volumes, including Dazzle and Prince. Our overall crop of 3.3 million [ tons ] was down on 2021, consistent with the industry performance. Good progress was made on our strategic objectives to develop volumes of high-value premium varieties and increase our market penetration into Asia. The proportion of premium apples increased over 2021 as to the percentage of sales to Asia and Middle East. In addition, many premium prices were in line with or slightly above 2021. As mentioned earlier, our intention is to continue to focus on the premiumization of our orchards and build demand for our premium varieties in the Asia and Middle East markets. Last but certainly not least, its logistics. The Logistics division produced an outstanding full year result despite continued global supply chain sector difficulties with 51% increase in revenue and a 33% increase in underlying EBITDA. Whilst there was a 9% decrease in ocean freight volumes managed, airfreight volumes increased by 52%. Once again, the skill and expertise of the Logistics team has been an evidence in 2022. We believe this is a key advantage for Scales' internal divisions as well as Logistics' external freight customers. Moving on to the outlook for the current year. Due to the impacts of Cyclone Gabrielle, we revised our earnings guidance in early April. Underlying NPAT attributable to shareholders is now expected to be in the range of $14 million to $19 million compared to our original guidance of $23.5 million to $28.5 million. Global Proteins have commenced the year well with Shelby trading in line with 2022. The construction of the Meateor Australia processing facility is on track to be commissioned during 2023 albeit slightly later than initially anticipated with some potential disruption to earnings anticipated in the second half of the year rather than the first half as initially advised as we transition processing to this facility. As you can imagine, it was a difficult start to the year for horticulture as a result of Cyclone Gabrielle. The Horticulture team once again showed its resilience recommencing picking and packing operations as soon as it was safe to do so. Prudent management of our capital resources continues to be of high importance. And as previously mentioned, our dividend policy will revert to 50% to 75% of underlying NPAT, net profit after tax, attributable to shareholders from 20 -- FY '23 onwards. Moving on to the trading update for each of the divisions. As mentioned, Global Proteins has started the year well and continues to make -- take advantage of the strong and growing global petfood market. We're also continuing to investigate opportunities to develop our investments, through Fayman, in the edible proteins byproduct market. The harvest is complete with total pick up around 3.9 million TCEs of Mr Apple, we anticipate that the packout rate will be lower than average this year due to storm-related damage resulting in an export crop that is currently estimated to be between 12% and 15% down on 2022. Early pricing indications are in line with forecast and with a shortage of apples due to the cyclone, we're cautiously optimistic for the second half of 2023 Logistics has also had a positive start of the year and continues to provide invaluable support to its customers. That concludes my presentation. We'll answer questions following the resolutions. But in the meantime, I'll pass back to Mike to cover the formal part of today's meeting. Thank you.

Thank you, Andy. Good comprehensive update of where the business is at. And I'm sure there'll be questions after we do the formal part of the meeting, and we look forward to those as we work our way through them. Thank you very much. I will now move to the business part of the meeting. All items of business are ordinary resolutions and are required to be passed by a simple majority of votes. Current best practice for shareholder voting is by way of poll. Accordingly, a poll will be held for each of the resolutions. I'd just like to advise you that I and my fellow directors hold the following undirected proxies. With respect to Resolution 1, the authorization for the directors to fix the auditor's remuneration for the coming year [ 467,123 ] shares. With respect to Resolution 2, the reelection of Nick Harris as Non-Executive Independent Director, 476,446 shares. With respect to Resolution 3, election of Miranda Burdon as Nonexecutive Independent Director, 474,736,000 shares. And with respect to resolution 4, the election of myself, Mike Petersen as Nonexecutive Independent Director, [ 474,736 ] shares. Your board supports these resolutions, and we intend to vote all the shares in favor of those resolutions. I'll now go through each of the 4 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 it's 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. Do you have any questions on this resolution? Thank you. We'll move on to the next resolution. Resolution 2. Resolution 2 relates to the reelection of a Director. The NZX Listing Rules state that directors must not hold office without reelection past the third annual meeting following the Director's appointment of 3 years, whichever is longer. Accordingly, Nick Harris is required to retire at this meeting. Nick was first appointed to the Board in 2014 and a brief biography for him was included in the Notice of Meeting. Nick being eligible, offers himself for reelection and the Board unanimously supports his reelection and recommends that shareholders vote in favor of Resolution 2. I'd now like to invite Nick to briefly address the meeting on his proposed reelection. Thanks, Nick.

Ladies and gentlemen, as Mike alluded to, I have been involved in Scale since -- on Board since 2014. But prior to that, has been a Director of the Storage and Logistics division since 2012. This included the Polarcold and Whakatu Coldstores, Liqueo and Meateor and Scales Logistics. Over the following years, I've been on the Audit and Risk Committee. And when the subcommittee of health and safety and sustainability was set up I chaired it until late last year. Outside of Scales, I've been in the meat industry all of my life, helping set up Hellers, New Zealand's largest bacon, ham and small goods company. Currently, day to day, I own and manage Harris Farms Limited, an integrated meat company and Cheviot North Canterbury many of you will probably know where that is. Farming 1,000 hectares of irrigated and dry land farming with prime animals being processed in our own on-farm and meat processing facility. We plug you'll find our products in most Pak'nSaves, New Worlds and Four Squares in the South Island. I am a qualified accountant [indiscernible] Clive Marshall, hereby the last 30 years, helped support many not-for-profit trade organizations and supporting entities on their committees, trusts and Boards. Having worked in and managed the large business. I understand the day-to-day operations of our subsidiary companies. This, along with my knowledge of the meat industry, I feel is advantageous as Scales expands its Global Proteins division. I now sit on the Board of our subsidiary company, Fayman International Group based in Melbourne, Australia. I'd like to take this opportunity now to thank Tim Goodacre, our departing Chairman; and Mark Hutton, one of the other directors for their leadership over the last few years, they will both be solely missed. And I'd like to now just welcome Mike and personally and also Miranda. I look forward to serving the Scales' shareholders and working with the Scales' team for another term as we move forward rolling out the company's future plans and direction. Thank you.

Thank you, Nick. A selfless flat for the business, too, which is healthy. Just to get some sales along the way. Look, I now move as an ordinary resolution having retired by rotation and Nick Harris 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. Resolutions 3 and 4 relate to the election of directors appointed since the last annual meeting. The NZX Listing Rules state the directors appointed by the Board must not hold office without reelection past the next annual meeting following the director's appointment. Resolution 3 relates to the reelection of Miranda Burdon. Miranda was appointed to the Board in August 2022 and a bit brief biography for who was included in the Notice of Meeting. Miranda, being eligible, offers herself for reelection, and the Board unanimously supports her reelection and recommends that shareholders vote in favor of this resolution. I'd now like to invite Miranda to briefly address the meeting on a proposed reelection. Over to you, Miranda. Thank you.

Good afternoon, everyone. Firstly, I'd like to thank the shareholders for the opportunity to support the growth and continued prosperity as an Independent Director of Scales Corporation. It's a business with enormous heritage in the primary sector and one that continues to lead and innovate to deliver ongoing diversification and growth. I take on this role following a career that is centered on the primary sector in New Zealand, albeit predominantly on the commercial side and on the commercial side of many of the good things in life, such as mushrooms, dairy and wine. Most recently, I started a business in emerging protein -- in the emerging protein space. As we look at how we shift in diet will drive a shift in food systems. The business is called Food Nation, as you can see from this, and you can find it in Countdowns, New Worlds [indiscernible] Pak'nSaves and other stores around the country. Shall I continue? I hadn't realized. I'm fortunate to be able to utilize the combined experience from these prior roles and current roles to support the different divisions of Scales in its growth journey. My governance experience up until now has involved roles on private Boards, crown entities, charities as well as sector initiatives such as chairing Emerging Proteins in New Zealand. I must reflect that I've been very impressed by the commitment of the executive team and the caliber of people involved in the business. The past few months have been a period of real challenge, not least in the Horticultural division, given our very large holding in the Hawke's Bay. The team has demonstrated good systems and resilience as a business that will continue to stand us in good stage. As a member of the Health, Safety and Sustainability Committee, it's been very visible how much work is taken to achieve these outcomes. I look forward to continuing to support the team and the business, and thank you for your support.

Thank you, Miranda. Another selfless flag for the business, which is always goes down well. [indiscernible]. I now move as an ordinary resolution having retired by rotation that Miranda Burdon 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, and I'm going to ask Alan Isaac to introduce this Resolution 4.

Thanks, Mike. Resolution 4 relates to the election of Mike Petersen. Mike was appointed to the Board in April this year and a brief biography for him was included in the Notice of Meeting. Mike being eligible, offers himself for reelection, and the Board unanimously supports his reelection and recommends the shareholders vote in favor of Resolution 4. I now invite Mike to briefly address the meeting on his proposed reelection. Over to you, Mike.

Thank you, Alan. I thought it was appropriate we asked Alan to introduce me because he and I are the only ones wearing ties. But can I just say thank you for the opportunity. I'm delighted to be given this opportunity to be on the Board of Scales Corporation. Look, it is one of New Zealand's most established and successful agri business companies. And it's got such a proud heritage, and I'm absolutely delighted to be able to offer the opportunity to be on the Board. I just want to tell a story of when the appointment was made public. I got a phone call from an 86-year-old neighbor. And I won't name him, just in case he's watching on screen, but he gave me a call and he said, Mike, congratulations on your appointment. He said, and I said, "Look, thank you very much. So I'm really, really excited about the role and he said, well -- he said, I just want to tell you that our family have been shareholders in Scales Corporation since the early 1900s. He said, "Don't back it up, will you? I don't know what I'm allowed to say that online. But yes, No. Don't make a mess of it. Will you son? Yes, it was pretty much what he said. So look, honestly, it's a big honor. I'm a sheep and beef farmer from Central Hawke's Bay. I also serve in a number of governance roles and agribusiness on the Board of ANZCO Foods, which is based here in Christchurch. I also Chair a digital platform business called Nui Markets in Auckland, and I'm also a director of a number of other agribusiness companies, including large farming groups. And I'm delighted to be able to offer myself for election on to the Scales' board here today. So thank you very much, and I look forward to your support, and I really look forward to working with the other directors and the management team. Tim Goodacre and I have very, very similar values. We really focus on the importance of people and culture in the business and good people and good culture drives good outcomes and success for us all. So thank you very much.

Thanks, Mike. I now move as an ordinary resolution having retired by rotation that Mike Petersen be reelected as an independent Non-Executive Director. Are there any questions on this resolution? Thank you. I'll now pass back to Mike.

Thank you, Alan. We'll now move to finalize the voting and we'll answer general questions. 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've not already done so, please cast your votes now and give your voting forms to Computershare while we take questions. And there will be a couple of people wondering around with purple boxes. And so once your votes are cast and if you could deposit them into the boxes or if you are voting online, please vote online. I'll give you a couple of minutes just to complete those. [Voting]

How many people are online. I'll ask Steve Kennelly, who can hopefully help us there?

There are 41 people online at the moment.

41 people. Yes. Great. So look, if there are any questions on the financial results, the business update or any other matters you'd like to raise. For those online, please do so through the Computershare online meetings platform. A reminder of the process is shown on screen. So you can see the Q&A question there, so please just push that button and start the process there. For those of you present, I'll open the floor to any questions and I just want to remind you that if we do run out of time, we will endeavor to answer any questions that we need to, and we'll do that by following up and writing after the meeting. So firstly, can I ask if there are any questions from the floor for a start, and then we'll go to online if there's not. Yes, at the back of the room. Ian, there's a microphone right there.

My name is Ian Abston. I'm concerned about the damage up in the orchards. You mentioned the leases that have been damaged that are coming -- that are expiring. Is this the right word, contingent liability to remedy the damage on those expiring leases? Or does that become the problem for the landlord?

Yes, for the landlord. Yes. No, look, I'll get Andy to cover this off in detail. But certainly, remember, these releases that were due to expire anyway. But I'll get Andy to cover that off in a bit more detail.

Yes. And I think under the terms of the lease, it's also the active guard that the event was is not to be not a remedial damage requirement of the lessee. So it was unfortunate timing, I guess, for those leases that they were due for expire anyway, but no contingent liability for the company. No. Well, we're on the hook for a bit of a cleanup on our own and some other ongoing leases, but yes, not the expiring ones. No. No. We had about 5% of our orchards wiped off the planet, if you want to call it that way, by the huge torrent, half of them were leases expiring in half of our own. We won't be replanning on the land that we've had wiped out by the torrent. But the main part of the damage has been self-inundation on nearly 100 hectares, Andrew? About that. And the removal of that has been our biggest challenge to date. We're getting through it though.

Yes. Sorry, please -- just a reminder, please use the microphones because they get picked up through the online system.

Will the trees that had silt put around them have to be replaced? Or would the root damage be enough to -- for you to have to replace those trees?

We're thinking they won't need replaced because we've done a lot of work, removing the silt away from them. And generally, the experience from our other colleagues and Nelson of saying that if you work -- if you can release that silt pretty quickly and it should be okay.

So you're pretty optimistic that...

At this stage, yes. We really won't know fully until the spring, but they're showing good, obviously, regrowth and et cetera, now.

I live in Hawke's Bay. And look, we've noticed a number of operators that are not bothering to clean the silt away from the trees. We spent a lot of time trying to clean up our orchards. We're stockpiling silt. The regional counsel says they're going to come and take it away. So we're holding them at their word. And look, it's been a massive impact on the region. In what I would suggest is after the meeting Andrew van Workum is here who heads up our Apples business. And so maybe catch up with him afterwards sort of bit more detail. Thanks, Ian. Any other questions from the floor.

Yes, sir. As far as shareholders, you're sort of indicating a sort of double whammy of the profit could be as much as half down plus you're going to drop the dividend from around 80% to maybe 50%. It's obviously going to mean that our share price is going to languish for 1 year or 2 years yet.

Thanks, Paul. No, I think -- well, yes, the statements you made are correct, but the outcomes hopefully will be different. We feel the dividend policy is really back to where we were when we listed and we were paying out a higher ratio when we were holding strong levels of net cash post the sale of Polarcold. So we said we would pay out 100% of NPAT to -- while we're holding that strong net cash position, but now that we've started to invest it with the Australian operation and earlier with Shelby we thought it was prudent to go back to the 50% to 75% ratio. As for the share price, I think as our earnings, we sort of said that 2023 and 2024 will be -- will transition for the Global Proteins as we're investing. Certainly, Mr Apple will bounce back for its earnings next year in a more normal year. So that, combined with as our investments in the Global Proteins, parts like in Australia and there's more growth in America. Those earnings will come through and hold the -- we would see this -- I don't really like commenting on share prices. But what I can comment on is we would anticipate a rising net profit attributable to shareholders.

Thank you. It's certainly, from a Board's perspective, we're very focused on ensuring the business is performing well. We want to make sure that the profits are what determine the outcome. And of course, that will lead to a better return or around. Any other questions on the floor? Yes, from the floor. And Steve, I might come to you if you have some online questions.

Alan Williams. Do you expect the Horticulture business to be the largest continuing business or with your expansion in the Global Proteins and maybe production in Europe as well as the other places, will it consistently become bigger than Apples.

Yes. Yes, we probably do think that in the long run. It's -- we're expecting the Horticulture business to bounce back solidly, but the growth that we've seen and is already embedded in the Global Proteins business has been strong. The initiatives we've undertaken in America have worked out really well. We're really proud of the team up there. Yes, and there are other growth opportunities. These businesses really are starting from scratch or rebuilding in Australia, especially going in with the new plant there. So we're -- I think our longer-term Global Proteins will be bigger than Horticulture.

I think 1 of the beauties about Scales Corporation is this 3-legged stool that we've got and that is with Horticulture, Global Proteins and Logistics. And so if we were only a Horticulture business, and you've seen some of those businesses reporting recently, it's been a really tough year for them. We've had the beauty of having the Global Proteins as an upside that's counted some of the challenges we've had in Horticulture. So as a company, I think it's a good strategy. And the Logistics, of course, feeds in nicely to both those other leagues as well. Do you have any questions online, Steve, that you'd like to...

Yes, a good one. A question form Alan King, were the damaged orchards planted in traditional or premium varieties.

Good Point. Good question. Andy?

Well, there are a mixture really. They were -- so there were some damage definitely to new plantings, which we've largely remediated, but in part of the 2.5% of wiped out trees, there were some new plantings as well. So it was really -- I wouldn't say predominantly one or the other, so we pretty much say a mixture of losses.

Thank you, Steve.

No further questions online.

Lovely. Thank you. Yes, sir.

Lloyd Russell. I'd just like an update on automation in the horticultural side. Can you give us an update on where we're at with -- on orchard and packing sheets and so on.

Certainly. Look, there's obviously good progress in the packhouse. Andy, do you want to...

Yes. Look, we've completed the automation of the robotic palletizing. So we're in -- we'd already had robotic palletizing in our Longview packhouse, but now we've put it into our biggest packhouse. We -- the [ apples ] move out of the packhouse over in a tunnel to an adjacent building. And -- so we're in the main pack as there was probably 25, 30 people palletizing apples, apple pellets, the boxes. They're now all done in a robotic room with 4 or 5 people in it. So that's finished. We probably put the actual finalization of the robotics into the packhouse on hold because of these last couple of difficult years. We have, though, upgraded the software and our defect orders, and that has actually allowed us to reduce the number of people standing at all the lanes. So just a simple thing like going back to a defect soda manufacturer and them looking at the software program, we've been able to take out or identify more defects using the photographic equipment in the defect soda. So that's all being done. In the orchards, the new -- every time we replant, we're planting both [indiscernible] closer together and the apple trees grow out laterally. And so they're cheaper to prune, thin and harvest. So that's an ongoing process. And yes, so I think we've certainly gained some of the benefits, and we needed to because of the high cost of labor. So we're reducing the labor both on the orchard and in the packhouses as why we're doing the automation and it's working, but it's an ongoing thing. And yes, holding off on probably the big investment, which is the -- where there were -- the people and the packhouse would drop and a big one from 80 down to 30, that would be coming when we did a full upgrade of the robotics. But we -- because of these last couple of years, we're just holding off on that at this time.

Yes. Can I just add then another question. So are you doing any automated picking in the orchards yet? And could you also comment on the RSE workers, how many and where you're accommodating them, please?

Yes. No, no automatic picking. We do see it's quite a while off. I mean Andrew and the team have seen it operating. We've been up to Washington and the U.S. to see it. We've had a -- there's been the odd one trialed in New Zealand, but we've even seen them doing it on with drones, believe it or not. But nothing that's commercially viable that we've seen globally yet. I think the -- come to the RSEs, they've been back to -- well, not back to normal, but whatever normal is, there's still a lot of pressure on the regulation of them. There's a lot -- you'll see in the media, there's been a lot of commentary about their ill treatment. That is those people that have been found for that, they should not suffer the consequences because we were the first ever business in New Zealand that took on the RSE workers. And we -- we treat them with absolutely -- it's a win-win, so it's a privilege to have them. And we look after them in appropriately the best way we can. They're all accommodated on -- in Mr Apple accommodation. And we're very -- the accommodation is -- meets all the standards and we want them to be warm, comfortable, well feed and everything, so they can work in the orchard. So it's not like we're doing it as a favor to anyone. It's a human practice to do what we're doing, and we're pretty -- it's a hugely essential part of our business, and we want to see it continue. So we're very confident and motivated to administer the scheme as it should be.

Yes. Just at the back of the room here, Jon. Thank you.

Just with regard to the orchards that you own at Brookfield and Pakowhai did you say that you were not going to replant them?

No. The Pakowhai one we lease. But the -- and in the Kinross orchard -- is Kinross Andrew? Yes. In Kinross, we own orchard and where we got -- lost about 2.5 hectare -- or 2.5%, sorry. We've got the flood being burst and took out the orchard together. And then the other really badly flood damaged orchards were leased. Sorry -- and that was also up in the Kinross block because the Kinross orchard is about 75% freehold owned by us and 25% leased.

So would you be replanting it?

We won't be replanting the areas wiped out, which is -- for us its about 2.5% of Kinross area or no, of the total area, but -- so we've had about 5% of our entire orchards lost to the torrent and half of them were leases and half of them were [indiscernible].

So what will you be doing with the land that you own.

Look, it's a sand pit at the moment. So I don't know what we're going to do with. Andrew, do you know?

Yes. Look, there's a range of impacts if you go into the orchard in some places at Kinross, there's a couple of rows down, and we'll be replacing those. And we've got other areas in what Andy calls the sandpit, which good description. That won't be replanted. So -- but a lot of the damage that we have incurred on our own land is a few rows and amongst a good orchard and we have a plan to fix those portions of the business.

So I suppose what I was trying to get at was you mentioned that you would take the opportunity to move into more premium varieties. Is that solely then going to be done by leasing?

No, not necessarily. We've always sort of had a combination of leasing and owning and we'll continue that. And where we -- is really where the replanting will be where, yes, obviously, where there's damage on our own orchards. Some when there's damage on the leasehold orchards, but -- it's very much for -- it's also taking out blocks of, if you like, the old traditional plantings that aren't as efficient to pick and prune and with a variety mixes that we are pulling out, Braeburn, for example, because we're just not getting the return in the market.

It's such a shame. I love Braeburn.

Are you a Braeburn fan? We wish more people were. But certainly, the redevelopment program, Andrew, we're only replacing with premium varieties. So just to be clear, so there is an opportunity there for us as a business. But at the moment, it's within our normal improvement program. So I think we reached.

So in other words, are you going to lease any more or buy any more land or you're just going to be happy with where you're at?

Probably happy where we are at the moment, Paul, we are, just to really capitalize on what we got to push more of the crop into the Middle East and Asia, the red varieties. So not looking for supersonic growth at the moment, really looking for a return to really solid profitability.

Yes, better returns, increased returns. Yes, sir.

So I had a question to extend that -- given the outlook, I guess, for global warming and the likelihood of having this kind of event more often. Is there any kind of plan or have you given any thought to land use and even moving out of some of those low-lying areas in Hawke's Bay. I mean historically that it's flood playing from East Valley right around gets -- so is it some kind of contingency? Or is it too early for you to comment on that?

No. But it's really what we'd like to have happened if the regional council does what it's supposed to do for the landowners and put the appropriate investment into stopbanks, appropriate investment -- or compliance monitoring into the debris blocking up the bridges in that. I think that most of -- very much all of our orchards are viable long-term orchards have biggest mitigation to weather events, is the spread of the location of our orchards. I mean we're from Napier, very close to Napier right down to the Central Hawke's Bay where Mike lives and that's 70-odd kilometers, and that spread has always been our best mitigation. We still think Hawke's Bay is the best place in the world to grow apples. So we really would ask out of this. We're hoping that the both local and central government sort of do what they're supposed to do and look after the -- put the infrastructure in place that's fit for purpose, stop the Hill Country neighbors sharing their waste with the [indiscernible] farmers.

See here we go. This is going to be the orchards versus the sheep and beef farmer surely. Be careful. But look, Andy is right. There was -- just this week, there were a whole series of maps released for Hawke's Bay in the flood regions. And that's out for consultation now. So there's a lot of talk happening in the region about just where people should be able to build houses. We talk today that actually when you look at our footprint, we're actually in land that looks like it's going to be -- we're going to be able to carry on. So we're in a land where we can certainly carry on farming and growing apple successfully. Any other questions from the floor? What about online, Steve?

No further questions online.

There must be another question surely. I'm told that you're all an inquisitive bunch. Okay. All right. Well, ladies and gentlemen, that concludes our discussion on the items of business. Shortly, I'll close the voting system. So please ensure that you've cast your vote on all resolutions. And I'll now also just allow people to cast your votes online. I know those of you in the room have put them in the ballot box, and we'll just wait for about 30 seconds. Okay. We won't wait for 30 seconds. Voting is now closed. Ladies and gentlemen, the results of all votes will be released to the NZX later today. And as it doesn't appear to be any further business for discussion that brings an end to the formal business of Scales Corporation's 2023 Annual Shareholders Meeting. I'd like to thank you all for taking the time to connect with us today, be it online or in person. And I now declare the meeting closed. As outlined earlier, I'd now like to invite all of those presents to stay for a light refreshment and the opportunity to have informal discussions with the directors and the management team. So thank you again, ladies and gentlemen, and all the very best for the rest of your day. Thank you, team.

Tradition, you're welcome to take some apples home with you. But this time, listen Paul, this is for you, Paul. You're going to have Apples and a dividend, all right. [indiscernible].

Well, I think, there's a variety of apples here for you to try isn't there, Andrew. I think it's 4 different flavors in each bag. There you go. So all premium, I'm sure. Thank you, ladies and gentlemen.