Agenda of Corporate and Strategic Committee - Wednesday, 6 December 2023

Meeting of the Corporate and Strategic Committee

Date: Wednesday 6 December 2023

Time: 11.00am

Venue:

Council Chamber

Hawke's Bay Regional Council

159 Dalton Street

NAPIER

Agenda

Item Title Page

1. Welcome/Karakia/Notices/Apologies

2. Conflict of Interest Declarations

3. Confirmation of Minutes of the Corporate and Strategic Committee held on 20 September 2023

Information or Performance Monitoring

4. Financial report for the period 1 July - 30 September 2023 3

5. Organisational Performance report for the period 1 July – 30 September 2023 9

6. 2024 Long Term Plan project update 13

7. Treasury Compliance report for Q1 FY 2023-2024 17

8. Investment Strategy Review update 23

9. HBRIC Ltd quarterly update 27

10. Port of Napier 2022-2023 year-end results 39

Decision Items (Public Excluded)

11. Confirmation of 14 June 2023 Public Excluded Minutes 41

12. Confirmation of 20 September 2023 Public Excluded Minutes 43

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 06 December 2023

Subject: Financial report for the period 1 July - 30 September 2023

Reason for report

1. This item presents the Committee with a summary of financial results for the first quarter of the 2023-2024 financial year.

Executive Summary

2. The overall funding position (operating income, expenditure and capex) for the Council to 30 September 2023 was $4.7m more favourable than budget, $6.3m favourable on business as usual (BAU) activities and $1.6m adverse for cyclone related areas.

3. Year to date (YTD) operating income from BAU activities was $4.5m against a budget of $5.1m with a shortfall in Works Group external activity being the main factor as attention has been on cyclone recovery.

4. Operating expenditure for the BAU Groups of Activities for the three months to 30 September 2023 was $17.5m against a budget of $22.8m. Asset Management and Integrated Catchment Management have both seen delays in activities in the first quarter due to cyclone recovery work and wet weather.

5. These factors have also seen BAU capital expenditure (net of capital grants) being underspent by $1.6m for the first quarter.

6. Cyclone related activities are overall $1.6m adverse to budget for the first quarter. This represents NEMA and insurance claims not being processed as quickly as planned and some areas of expenditure not being as prominent as the even phasing of the budget would have assumed.

7. Investment income net of investment expenditure shows a loss of $2.1m rather than the budgeted gain of $4.9m for the quarter. This reflects the uncertainty around the HBRIC dividend.

8. Rates income is $10.7m YTD and reflects 26% of the annual budget. Rates remissions for extreme financial hardship resulting from the cyclone are being processed and approved weekly and are likely to be within the $500k allocated in the Annual Plan.

9. Overhead cost centers have spend of $7.3m for the first quarter compared to a budget of $6.7m. Underspend on ICT projects is offsetting overspends related to additional support work post cyclone in other areas.

10. Staff are currently designing a new look financial report for use from quarter two. This will more closely align to the Annual Plan statements.

Background

11. Rates funding allocations, reserve movements and loan funding have not been included in this report as these have, historically, been calculated at year end.

12. Groups of activities (GOA) expenditure include each activity’s external expenditure, internal staff time, finance costs (interest and debt repayments), depreciation/amortisation and a share of overheads. The operating income presented for each GOA, includes fees and charges, user charges and recoveries and grants, and excludes rates, loans or investment income (which are allocated to activities at year end).

GOA Operating income and expenditure ($,000)

13. Figures presented in the tables above are in thousands.

14. Governance and Partnerships expenditure is 7% over budget year to date.

14.1. Economic development expenditure is over budget year to date by $0.6m due to the delayed establishment of the Regional Economic Development Agency (REDA), which will be offset by external income.

14.2. Tangata Whenua Partnerships is under budget by $0.2m due to timing delay in engaging consultants to support Kotahi engagement activities (anticipated to pick up in the new year).

15. Policy and Regulation income (after excluding the Silt Taskforce) is $0.7m against a budget of $0.9m. On the expenditure side this is at 70% of YTD budget, an underspend of $0.9m.

15.1. Under spends in compliance are a result of low staff numbers and the subsequent reduced level of activity. Transport overspend is due to the significant indexation increases.

15.2. Consents income is lower than budget due to there being fewer resource consents and a significant amount of staff time spent on non-recoverable activities, including training.

15.3. Transport income is favourable year to date representing Waka Kotahi’s share of the indexation costs.

16. Integrated Catchment Managements revenue is ahead of budget by $0.5m and expenditure is under budget by $1.7m.

16.1. The main underspends are in biodiversity and catchment management where there were delays due to the weather. Work is now well underway in Q2.

16.2. The revenue is ahead of budget due to new third party funding agreements (including support for nature based solutions for flood / drought mitigations).

17. Asset Management expenditure for the three months totalled $3.3m against a budget of $5.2m.

17.1. Operating expenditure is underspent across most LTP activities, especially in flood protection & control works and open spaces, which will be driven by a focus on cyclone recovery work.

17.2. The shortfall in operating funding is mainly due to the postponement of the Tangoio harvest and reduced external contracting in Works Group.

Capital expenditure (net of capital grants) ($,000)

18. ICM was underspent on capital items by $391k mostly in Land for Life due to the original use of capital not being required during the pilot.

19. Asset Management capital expenditure was underspent by $1.1m which is mostly in regional water security, where the Heretaunga Water Storage project is on a go-slow pathway, and the CHB Water Security project is progressing to a business case for a go/no go decision to Council in June 2024. The total budget will not be required this financial year (mix of Kanoa funding and long-term investment reserve).

20. Corporate Services ICT underspend of $0.2m is due to the new treatment of software development costs as expenditure rather than capital (it was budgeted as a capital spend).

21. Corporate services capital overspend (excluding ICT) totals $0.2m, most of which is timing of vehicle renewals in the first quarter this year.

22. The Cyclone Gabrielle response operating and capital income and expenditure is overall $1.6m adverse to budget.

22.1. Income from insurance and NEMA claims had been budgeted evenly across the year, however, claims are taking longer to be agreed.

22.2. Expenditure on silt and debris is ahead of the budget timing but is being closely monitored to ensure it is within the overall funding.

22.3. Expenditure on other recovery is behind budget as the budget was spread evenly for the year based on the limited information we had at the time.

Investment income ($,000)

23. The income figures presented in the table above are presented net of investment expenses, and exclude property fair value gains (not yet assessed).

24. Managed Funds returns are as expected, however, the portfolio values are impacted by the continuing downward trend of global markets, pulling overall returns significantly down on budget.

25. The HBRIC annual budget includes the dividends issued on the back of the Napier Port dividend. For accounting purposes this has been spread over 12 months, while the actual dividends are paid six-monthly on a cash basis in December and June. An accrual was not made at Q1 due to uncertainty at the time of the likely dividend.

Rates collection ($,000)

26. We have remitted $99k for extreme financial hardship due to the cyclone. This was for 98 different applications. We also have 53 pending application and anticipate a possible further $110k in remissions based on the current applications.

Overheads ($,000)

27. Overhead costs overall are $0.6M overspent.

27.1. Operating expenditure overspends are in a number of areas including Communications, Corporate Support, Finance, Investments and GIS. These largely relate to the increased workloads still being experienced post cyclone, investment strategy support, and several annual software licence costs coming due in the first quarter.

27.2. P&C are overspent by $187K with an increase in H&S training due to a catch up in training requirements, plus recruitment costs related to high staff turnover and a tight job market.

27.3. Executive is overspent by $121K predominantly due to increased legal costs.

Debtors

28. Outstanding trade receivables for HBRC as at 30 September 2023 was $24.6m compared to $10.4m at the end of the 2022-2023 financial year. The large increase relates to an $11.5m invoice to Department of Internal Affairs for silt and debris and a $7.7m increase in rates and sustainable homes due to the annual billing cycle (total outstanding at 30 September 2023 $11.2m).

29. The balance of the debt (excluding rates and DIA) of $1.9m mainly consists of outstanding freshwater science charges ($0.7m), cyclone-related recoveries for helicopters and generators ($0.3m) and deferred leasehold rentals ($0.4m) which are fully recoverable when the lease is sold.

Decision-making process

30. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the Financial summary for the period 1 July - 30 September 2023 report.

Authored by:

Pam Bicknell

Senior Group Accountant

Chris Comber

Chief Financial Officer

Approved by:

Susie Young

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

06 December 2023

Subject: Organisational Performance report for the period 1 July – 30 September 2023

Reason for Report

1. This item presents the Organisational Performance Report for the period 1 July – 30 September 2023.

Organisational Performance Report content

2. The report contains four parts:

2.1. Executive summary continues to have a focus on our region’s cyclone response (pp 4-6)

2.2. Corporate metrics that focus on how well we are performing across a number of corporate-wide measures such as employee turnover and corporate carbon footprint (pp 7-13)

2.3. Activity reporting by groups of activities with non-financial and financial traffic light status and commentary (pp 14-27)

2.4. NEW Strategic Projects report that provides the most recent monthly project management report on our 12 key strategic projects (pp 28-30).

3. Organisational performance reports were established in 2018. The status and commentary reporting are rolled up from cost centre to activity level. Commentary by cost centre is still available to committee members via the PowerBI dashboard (see points 16-20 below).

4. Staff complete their reporting in a software tool called Opal3. For LOSM and activity reporting, staff select the status (red, amber, green) and provide commentary on what they did in the quarter against their annual work plans.

5. The financial ‘lines’ are broken down (where applicable) to:

5.1. operating expenditure (opex) which includes external costs only

5.2. capital expenditure (capex) which includes external costs only

5.3. other revenue which includes fees and charges, grants, and proceeds from other income – both opex and capex.

Points of interest

6. Levels of service measures are not included for the first quarter reporting.

Corporate metrics (pp 7-13)

7. LGOIMA requests have dropped to 41 this quarter but are still high compared to an average of 25 per quarter over the last five years.

8. Employee count of 365 staff remains at a high due to the extra staff across the organisation brought in to help with recovery.

9. Our customer experience team received the highest number of calls in a month (August), with rates being the top topic. This was higher than the peak of the cyclone response.

Activity reporting (pp 14-27)

10. Staff have reported 13 activities as ‘off track’ from their usual workplans. This is down from 16 last quarter. Most of these are from the Asset Management and Corporate Services groups.

11. Financial reporting now shows underspend as green rather than red. At this early period in the financial year, most activities are reporting underspent budgets due to phasing. Overspends are largely due to recovery cots.

12. The Executive Advisory Group of People & Capability, Strategy & Governance and Māori Partnerships team has been separated out from Corporate Services.

Strategic projects reporting (pp 28-30)

13. This is new to the quarterly reporting cycle. Strategic Projects were previously reported to Council monthly.

14. This most recent month (October 2023) is presented as an ‘exceptions’ report meaning the commentary highlights key issues rather than an overview. Emphasis is given to schedule, budget and risk with a status flagged green (on track), amber (at risk) and red (off track). The status is provided for the last six months.

15. The Reporting Dashboard (PowerBI) has additional commentary not included in this report, which is edited for readability.

Reporting dashboard (PowerBI)

16. The dashboard is produced using PowerBI to give a visual representation of the results over time. The Organisational Performance Report document is produced from the dashboard.

17. The dashboard also provides committee members with the ability to delve deeper into activities of interest (via cost centres) particularly under Work Programmes. There is often more commentary in the dashboard than in the published report.

18. To access the dashboard, please open your PowerBI app on your iPad. The link to the dashboard is https://shorturl.at/csEQY. Staff from the Strategy and Performance team are available to go over the dashboard with councillors who would like to review its content.

19. Strategic projects commentary and status by schedule, risk, and budget are updated on a monthly basis on the dashboard. The most recent month is now included in the Quarterly Organisational Performance Report presented to this committee on a quarterly basis. Note that the last month of updates was October 2023.

20. We are continuously improving the dashboard and improving the data reliability across all areas and would appreciate any feedback you have.

Decision-making process

21. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the Organisational Performance Report for the period 1 July – 30 September 2023.

Authored by:

Hariza Adlan

Performance & Data Analyst

Sarah Bell

Team Leader Strategy and Performance

Approved by:

Desiree Cull

Strategy and Governance Manager

Attachment/s

1 ⇨

HBRC Organisation Performance Report Q1 2024 year

Under Separate Cover

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 06 December 2023

Subject: 2024 Long Term Plan project update

Reason for Report

1. This information paper provides the Corporate and Strategic Committee with a progress update on the 2024-27 Long Term Plan project. As per its terms of reference, the C&S Committee is responsible for recommending actions, responses and changes to Council for (amongst other things) oversight of the development of Council’s annual and long term plans.

Background

2. The Local Government Act 2002 (LG Act) requires the adoption of a Long Term Plan (LTP) every three years. The LTP ensures councillors and staff take a long-term view of HBRC’s operations and assets and the macro-factors influencing its business. The three-yearly planning cycle provides an opportunity to consult with the community on the community outcomes it aims to achieve, and the activities it funds to achieve them.

3. The LTP must meet the requirements of the LGA 2002, in terms of both content and process (including timing, consultation, decision-making and audit). As a document, it includes financial, asset and service performance information.

4. As a process, the LTP contains a lot of moving parts (referred to by Taituarā as the LTP Jigsaw). As such it requires careful sequencing of information and recording of decisions. It involves staff from across HBRC who must actively engage elected members as the owners of the plan.

5. This is HBRC’s eighth Long Term Plan under the LG Act. Like in previous years, staff manage its development as a project.

Project goals

6. The LTP project goals are to develop a ‘fit for purpose’ LTP in consultation with our community that:

6.1. Sets the overall direction of HBRC for the period 2024-2034

6.2. Defines what activities, services and projects HBRC will deliver and how it will deliver them

6.3. Complies with legislation.

Project scope

7. In September 2023, an Order in Council under the Severe Weather Emergency Recovery Act (SWERLA) was made to replace the 10-year 2024 Long Term Plan with a three-year unaudited plan and relax some disclosure requirements for eight councils. This temporary change is to enable these eight councils - Kaipara and Far North District Councils, Gisborne, and all councils within the Hawke’s Bay region - to focus on cyclone recovery.

8. It recognises that the affected councils will find it too hard to forecast spending beyond three years with enough certainty to meet the standards required under normal LTP requirements.

9. Under the new legislative requirements the Council is still required to consult and must adopt its Long Term Plan by 30 June 2023.

Project timeline

10. The table below shows the key dates for the project, including consultation in April 2024.

Date	Milestone
June -Aug 2023	Strategic-direction setting
Aug-Oct 2023	Top down budgeting
Oct-Nov 2023	Content pieces - Forecasting Assumptions, Infrastructure Strategy, Level of Service measures
Nov-Jan 2024	Detailed budgeting
Feb-March 2024	Consultation material developed
27 March 204	Council adopts draft for consultation
April 2024	Public consultation
May 2024	Hearings and Deliberations
June 2024	Council adopt Long Term Plan

Project risks

11. Council’s is facing a challenging financial outlook leading into this long term plan. Council is committed to delivering a $247M flood mitigation works programme for Category 2 properties while facing inflationary cost increases and reduced funding options due to investment returns and borrowing carried out for the previous LTP.

Project interdependencies

12. At the same time as the development of the Long Term Plan, Council is working on two interrelated documents, being a review of its Revenue and Financing Policy (R&F Policy) and its Regional Land Transport Plan (RLTP).

13. The Draft R&F Policy was adopted for consultation on 29 November 2023, for a period of 8 weeks. Following hearing and deliberating on submissions, the Council will decide whether to adopt the new policy at the council meeting at the end of February. If adopted, the new policy will take effect from 1 July, the first year of the 2024 Long Term Plan. The R&F Policy sets how we fund our activities such as the split between general rates, targeted rates and user-charges. The LTP determines which activities are funded.

14. The RLTP sets the strategic direction of our regional transport system (including all roads and modes of transport) and the 10-year transport priorities, as well as the policy environment that will help support and enable them. The RLTP is the statutory responsibility of the Regional Transport Committee (RTC), a joint Committee made up of all Territorial Authority Councils, HBRC, Waka Kotahi, and advisory representatives from key areas of our community. Consultation on the RLTP is planned for February 2024.

15. The RLTP is the single avenue to secure funding through the National Land Transport Fund (NLTF). Funds are allocated based on the applicable Funding Assistance Rate (FAR). Typically Waka Kothi will provide up to 51% of the total cost. The remaining amount must be sought through the relevant council’s LTP process. In the case of HBRC, this is for Public Transport and Road Safety.

Decision-making process

16. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Corporate and Strategy Committee receives and notes the 2024 Long Term Plan project update report.

Authored by:

Desiree Cull

Strategy and Governance Manager

Approved by:

Nic Peet

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

06 December 2023

Subject: Treasury Compliance report for Q1 FY 2023-2024

Reason for Report

1. This item provides compliance monitoring of Hawke’s Bay Regional Council (HBRC) treasury activity and reports the performance of Council’s investment portfolio for the quarter ended 30 September 2023.

2. This reports usually forms an agenda item on the Risk and Audit Committee, however, due to the timing of the next RAC being February 2024, officers thought it was prudent for oversight purposes to bring to this forum.

Overview of the quarter – ending 30 September 2023

3. At the end of the quarter to 30 September 2023, HBRC was compliant with all measures in its Treasury Policy with the exceptions of:

3.1. the interest rate risk control limit.

3.2. the counterparty risk policy during the period.

4. Cyclone Gabrielle has impacted both cash balances and borrowing requirements, with ongoing additional borrowing required to fund the recovery. Insurance proceeds when received will soften the effects of additional borrowing. The full impact of the cyclone on long-term funding is yet to be determined.

5. Additional borrowing has implications on the liquidity ratio and credit rate risks.

Background

6. Council’s Treasury Policy requires a quarterly Treasury Report to be presented to the Audit and Risk Sub-committee. The policy states that the Treasury Report is to include:

6.1. Treasury Exceptions report

6.2. Policy compliance

6.3. Borrowing Limit report

6.4. Funding and liquidity report

6.5. Debt maturity profile Interest rate report

6.6. Investment management report **(see point 7)

6.7. Treasury investments

6.8. Cost of funds report Cash flow and debt forecast report

6.9. Debt and interest rate strategy and commentary

6.10. Counterparty credit report

6.11. Loan advances.

7. The Investment Management Report** has specific requirements outlined in the Treasury Policy. This requires quarterly reporting on all treasury investments plus annual reporting on all equities and property investments.

8. In addition to the Treasury Policy, Council has a Statement of Investment Policy and Objectives (SIPO) document setting out the parameters required for funds under management for the HBRC Long Term Investment Fund.

9. Since 2018, HBRC has procured treasury advice and services from PricewaterhouseCoopers (PwC) and their confidential quarterly Treasury Report containing the reports noted in paragraph 6 is provided to Committee members in Stellar.

Treasury exceptions report & policy compliance

10. During the quarter to 30 September 2023, there were 4 instances of noncompliance with the HBRC counterparty risk policy as outlined below.

11. In all cases, the purpose behind the transfers being made to Jarden (of which sat with ANZ) was to ensure that short term returns (through higher interest rates) were received by Council rather than large sums of funds held in non-interest bearing facilities. Jarden have supported HBRC in cyclone activities and funding with offering limited fees to support our cyclone work.

12. The counterparty breaches were corrected as soon as practical and officers can foresee this becoming more difficult to manage within existing policy limits due to the increase in expenditure required as part of Council recovery activities.

13. Officers will be recommending a review of these limits in the Treasury Policy as part of the LTP process

14. HBRC is currently non-compliant with interest rate risk control limits as follows:

15. This is mainly due to the delays in firming up our long term debt requirements as this poses greater risk of over or under hedging until confirmed. Officers intend that this will be back within policy by 31 March 2024.

Funding & Liquidity

16. To ensure HBRC has the ability to adequately fund its operations, current policy requires HBRC to maintain a liquid balance of “greater than 10% of existing total external debt”. Current liquidity ratio is 23.73% and therefore meets policy.

17. The following table reports the cash and cash equivalents on 30 September 2023.

30 September 2023	$000
Cash on Call	18,550
Short-term bank deposits	-
Total Cash & and Deposits	18,550

18. To manage HBRC liquidity risk, HBRC retains a Standby Facility with BNZ. This facility provides HBRC with a same day draw down option, to any amount between $0.3-$10.0m, and with a 7 day minimum draw period.

Debt Management

19. On 30 September 2023 the current external debt for the Council group was $99.35m. At 30 September HBRC had no pre-funded debt. ($115.9m including the loan from HBRIC).

20. Since the June quarter an additional $15m in borrowings were received to assist with increased cash requirements following Cyclone Gabrielle. $5m of this funding is short-term, with the remaining $10m is medium term.

21. The following summarises the year-to-date movements in Council’s debt position.

Summary of HBRC Debt	HBRC only
Summary of HBRC Debt	$000
Opening Debt 1 July 23 - excluding HBRIC Loan	84,830
New Loans Raised (principal only)	30,000
Less amounts paid (principal only)	(15,480)
Closing Debt 30 September 2023	99,350
Net Interest repaid on LGFA coupons not included in PwC balances	(125)
*PwC Closing balance 30 September 2023*	*99,225*
HBRIC Loan (Related party loan)	16,663
Total Borrowings as at 30 September 2023	115,888

22. Council debt maturity profile remains compliant, however continued short term drawdowns continues to put pressure on the policy limit in the 0-3 year bucket. This will remain high while we work through the cyclone funding. The below infographic includes our $5m Undrawn bank facilities in 0-3 year bucket for the purposes of the funding profile.

23. During the quarter ended 30 September, Council have borrowed a further $15m on in the and are forecasting further drawdowns being required in Q3 between 1 January 2024 and 31 March 2024. However, the amounts required and timing is yet to be confirmed and will depend on the execution of the capital programme planned and further cyclone repairs between now and then.

24. Any insurance or NEMA proceeds will be used to repay the short-term debt which is currently c$30m.

Cost of funds

25. For the quarter ended 30 September 2023, Gross Cost of Funds was 3.29%.

26. HBRC are progressing with the proposal to obtain a credit rating in early 2024 to support future funds required to support our business for the future required funding for Category 2 Flood Mitigation.

Managed Funds

27. Total Investment Fund portfolios capital, adjusted for inflation at 30 September 2023 was $14.375m below the inflation-adjusted contribution target. Based on results to date and the value of the protected amount of funds, funds held are not sufficient to deliver the returns required to meet Council’s requirement. No divestments have been made from managed funds this year.

28. The following table summarises the fund balances at the end of each period and the graph illustrates the asset allocations within each fund at 30 September 2023.

	30 June 2023	30 Sept 2023
Fund Balances HBRC	$000	$000
Fund Balance HBRC	110,828	108,039
Capital Protected Amount HBRC (2% compounded since inception)	116,541	117,124
Current HBRC value above/(below) capital protected amount	(5,713)	(9,085)
Funds Balances (Group + HBRIC)
Total HBRC	110,828	108,038
Plus HBRIC	45,638	44,415
Total Group Managed Funds	156,467	152,453
Capital Protected Amount (2% compound inflation)	165,999	166,828
Current group value above/(below) protected amount	(9,532)	(14,375)

29. Financial markets have continued to be volatile this year and at 30 September the consolidate portfolio value was down 2.57% on 30 June 2023. Fund performances have been steady this year with all cash returns reinvested.

Decision Making Process

Recommendation

That the Corporate and Strategic Committee receives and notes the Treasury Compliance report for Q1 2023-2024.

Authored by:

Jess Bennett

Senior Manager Finance Recovery

Tracey O'Shaughnessy

Treasury & Investments Accountant

Approved by:

Susie Young

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

06 December 2023

Subject: Investment Strategy Review update

Reason for report

1. This paper provides a high level update to the Committee on progress with implementing the steps being taken to address phase 2 work of the Investment Strategy review of HBRC and HBRIC entities.

Executive Summary

2. A joint HBRC-HBRIC Investment Review Implementation project team has been established through to 30 June 2024 to proactively address transition activities as identified as phase 2 actions of the Investment Strategy review.

3. The project team will ensure a smooth transition of responsibilities, to ensure appropriate reporting, controls and delegations are in place, and to maintain good alignment and line of sight for both organisations on those parts of Council’s LTP Financial Strategy that are impacted by the Investment Strategy.

4. HBRIC intend to propose to Council the Statement of Investment Policy and Objectives (SIPO), for endorsement on 13 December 2023. This SIPO is a revised document to enable better returns across our managed funds and ensure return expectations can be achieved.

Background

5. The outcome of HBRC’s Investment Strategy review, led by Susie Young and Scott Hamilton, was manifested in a series of resolutions of Council on 25 October 2023. These resolutions triggered a series of implementation steps including, but not limited to:

5.1. HBRC to issue an updated Statement of Expectations (SoE) to HBRIC – this has been completed and formally issued to HBRIC following that meeting as final.

5.2. The following actions are underway and are likely to be presented back to Council for approval in the coming months:

5.2.1. HBRIC to submit an updated SIPO for council approval in relation to the Group’s Investment Assets.

5.2.2. HBRIC to submit an updated Statement of Intent (SoI) that reflects the SoE in the first quarter of 2024 for Council approval.

5.2.3. HBRIC and HBRC to collaborate on the development of the Financial Strategy for 24/33 Long Term Plan (for Investment Strategy related matters).

5.2.4. HBRIC to review its own operational and investment strategy to accommodate the changes to the SoE and to implement accordingly.

Discussion

6. HBRIC and HBRC are underway with planning to execute the transition of asset investment management responsibilities as directed by the SoE.

7. The following table sets out the Group’s investment assets and approximate value:

8. A joint HBRC/HBRIC project team (with Dan Druzianic and Susie Young as project sponsors) has been established to drive these outcomes that have been committed to. Initial scoping of workstreams include those outlined in the table below.

9. All activities will and need to be aligned with all proposed activities across our Long Term Plan specifically the Investment Strategy, Treasury Policy and Dividend Policy outlined in the LTP.

10. The new Independent Directors of HBRIC, including current members remain motivated in ensuring the success of the Investment Strategy outcomes.

11. In order to execute and give HBRIC confidence and ability to execute on long term (and short term) deliverables, it is likely that HBRC will require changes in the articulation of how strategic and non-strategic assets may be used. Current descriptions used in the Long Term Plan limit ability to use (for the purposes to make further returns) our strategic assets. As such there are limited opportunities to improve returns as in some instances funds are “locked down”.

Next Steps

12. Challenges are already existing with the proposed SOE finalised, and budgetary constraints presented in the LTP. It is expected that further engagement may be required with the HBRIC board should small changes be needed in Y1 return expectations.

13. The implementation team will continue to finalise:

13.1. The Budgets for the expanded HBRIC team and functions (staff, board, accommodation, due diligence). This will be partially offset by savings inside Council.

13.2. Create a dividend policy to allow both a feed into 2024 LTP and achieve a Letter of Expectation and Reserving objectives.

13.3. HBRIC to create a SIPO to achieve the objectives of the HBRC/HBRIC Group.

13.4. Bring a recommendation on Strategic Assets to the Long Term Plan meetings.

Decision-making process

14. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendations

That the Corporate and Strategic Committee receives and notes the Investment Strategy Review update report.

Authored by:

Tom Skerman

HBRIC Commercial Manager

Approved by:

Susie Young

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 06 December 2023

Subject: HBRIC Ltd quarterly update

Reason for Report

1. This item presents the HBRIC quarterly update for Q1 July to Sept 2023.

Financial Reporting

2. HBRIC’s YTD Financial Statements as at 30 September 2023 are attached to this report.

3. Key Items to note:

3.1. Statement of Financial Performance

3.1.1. YTD surplus of $131k (excluding fair value movements through other comprehensive income)

3.1.2. YTD $186k interest income

3.2. Statement of Financial Position

3.2.1. Decrease in net assets of $18.7m to $325.7m as at 30 September 2023.

3.2.2. NPHL share price had decreased YTD 6% from $2.50 to $2.34 – total decrease is $17.6m

3.2.3. Decrease in managed fund value of $1.2m

Managed Funds

4. The funds remain under management in compliance with Council’s SIPO.

5. The value of managed funds with HBRIC after divestments as at 30 September 2023 amounted to $44.4 million, a movement of approximately -$1.2m (-2.68%) year to date.

FoodEast

6. Since the last report:

6.1. The FoodEast AGM took place on 9 October 2023 – with the HBRIC Chair thanking outgoing HBRIC director Craig Foss for his efforts.

6.2. The new FoodEast Board held an induction and first meeting on 17 October 2023, at which HBRIC-appointed Director Nicky Solomon was appointed as the new FoodEast Chairperson.

6.3. The FoodEast Board hosted a Strategy Refresh workshop on 13 November 2023 involving FoodEast partners (including HBRC’s Chairperson) and industry experts.

7. Building update:

7.1. The building project continues on time and budget.

7.2. Building A: is now ‘water tight’, with roofing, walls and windows fitted. It is due for completion in March 2024.

7.3. Building B: is due for completion at the end of this month although the site remains a construction zone until building A has been completed.

Napier Port

8. Napier Port released their FY23 Financial Results on 14 November 2023 and will hold their Annual Shareholders Meeting on 15 December 2023.

9. New shipping services calling into Napier, new customers, and cargo arriving through the gates created buoyant cargo flows. Strong growth of trade revenue in the first half demonstrated the Port’s ability to deliver under “normal” circumstances.

10. Cyclone Gabrielle affected customers, exporters and regional infrastructure, diluted trade volumes and dented the rebound gains since the pandemic. However, good progress in regional recovery efforts, key export trade positivity and increased cruise activity sees the port now looking to a resumption of earlier momentum.

11. Highlights included a revenue rise of 3.5% to $118.4 million on the back of yield improvements and the return of cruise vessels, while operating activities fell 7.1%. However, inflationary cost pressures were not fully offset by the increase in revenue.

12. Insurance claims of $7.25 million contributed to earnings.

13. Net profit after tax dropped from $18.6 million in 2022 to $10.7 million. Reported net profit is down 18.8% from $20.4 million to $16.6 million.

14. Final dividend was declared at 3.55 cents, fully imputed, bringing the total dividends for the 2023 financial year to 5.25 cents per share (7.5 cents per share in 2022).

HBRC Investment Strategy

15. As resolved by Council at its 25 October meeting, a new Statement of Expectations was issued to the HBRIC board on 9 November, reflecting that wider suite of workshop outputs and formal resolutions that were made to conclude HBRC’s Investment Strategy Review.

16. At its 27 November 2023 Board Meeting, HBRIC held a workshop dedicated to implementation of the changes to give effect to Council’s decision to assume the role of Investment Manager for the Group’s investment assets, including managed funds, investment property and forestry assets (that will continue to remain in HBRC ownership).

17. Ahead of that meeting, a joint HBRC-HBRIC Investment Review Implementation project team has been established through to 30 June 2024 to ensure a smooth transition of responsibilities occurs, to ensure appropriate reporting, controls and delegations are in place, and to maintain good alignment and line of sight for both organisations on those parts of Council’s LTP Financial Strategy that are impacted by the Investment Strategy.

Decision-making process

18. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, ass this report is for information only, the decision-making provisions do not apply.

Recommendations

That the Corporate and Strategic Committee receives and notes the HBRIC Ltd quarterly update report.

Authored by:

Jess Bennett

Senior Manager Finance Recovery

Tracey O'Shaughnessy

Treasury & Investments Accountant

Tom Skerman

HBRIC Commercial Manager

Approved by:

Susie Young

Group Manager Corporate Services

Attachment/s

1 ⇩	HBRIC Ltd Financial Reports Q1 2024 year
2 ⇩	September 2023 HBRIC Ltd Cashflow 2023 to 24

Hawke’s Bay Regional Council

Corporate and Strategic Committee

Wednesday 06 December 2023

Subject: Confirmation of 14 June 2023 Public Excluded Minutes

That the Corporate and Strategic Committee excludes the public from this section of the meeting being Confirmation of Public Excluded Minutes Agenda Item 11 with the general subject of the item to be considered while the public is excluded. The reasons for passing the resolution and the specific grounds under Section 48 (1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are:

General subject of the item to be considered	Reason for passing this resolution	Grounds under section 48(1) for the passing of the resolution
Port of Napier 2022-2023 Half Year results	s7(2)(c)(ii) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of that information is necessary to protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide and would be likely otherwise to damage the public interest	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.
HBRIC independent director remuneration	s7(2)(i) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of the information is necessary to enable the local authority holding the information to carry out, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

Authored by:

Leeanne Hooper

Team Leader Governance

Approved by:

Desiree Cull

Strategy and Governance Manager