The Waikato Community Trust Incorporated Consolidated Statement of Financial Performance for the Year Ended 31 March 1999 Notes 1999$'000 1998 $'000 Revenue3 21,380 26,753 Expenses4 (1,635[teh]) (924[teh]) Surplus before donations 19,745 25,829 Less: distributions Donations paid from income15 & 16 (5,322[teh]) (2,483[teh]) Net surplus before taxation 14,423 23,346 Income tax5 Net surplus retained as trustees income $14,423 $23,346 The surplus has been allocated to: Capital 1,256 5,247 Investment fluctuation reserve 7,870 14,005 Donation reserve 5,297 4,094 $14,423 $23,346 The accompanying notes form part of these financial statements. Consolidated Statement of Movements in Trust Funds for the Year Ended 31 March 1999 Notes 1999$'000 1998 $'000 Trust funds at the start of the year 204,782 181,964 Surplus and revaluations Net surplus for the year: Capital 1,256 5,247 Investment fluctuation 7,870 14,005 Donation reserve 5,297 4,094 Total recognised revenues and expenses for the year 14,423 23,346 Other movements Donations paid from trust capital funds7 (1,234[teh]) (528[teh]) Trust funds at the end of the year $217,971 $204,782 The accompanying notes form part of these financial statements. Consolidated Statement of Financial Position as at 31 March 1999 Notes 1999$'000 1998 $'000 Trust funds Capital6 181,397 180,141 Investment fluctuation reserve7 26,188 18,318 Donation reserve7 10,386 6,323 Total trust funds 217,971 204,782 Current liabilities Accounts payable8 278 198 Donations payable 2,319 505 2,597 703 Total trust funds and liabilities $220,568 $205,485 Current assets WestpacTrust cheque account 30 16 Short term deposits 819 165 849 181 Non-current assets Investments9 218,774 205,282 Fixed assets10 945 22 219,719 205,304 Total assets $220,568 $205,485 J. A. GRACE, Chairman. M. M. BROOKER, Trustee. Dated this 21st day of June 1999. The accompanying notes form part of these financial statements. Consolidated Statement of Cash Flows for the Year Ended 31 March 1999 Notes 1999$'000 1998 $'000 Cash flow from operating activities Cash was provided from: Investment income received 7,407 11,155 7,407 11,155 Cash was disbursed to: Payments to suppliers and employees (1,534[teh]) (829[teh]) Donations paid (3,478[teh]) (2,304[teh]) (5,012[teh]) (3,133[teh]) Net cash flow from operating activities13 $2,395 $8,022 Cash flow from investing activities Cash was applied to: Net increase in investments (172[teh]) (7,725[teh]) Purchase of fixed assets (945[teh]) (3[teh]) Net cash flow from investing activities ($1,117[teh]) ($7,728[teh]) Cash flow from financing activities Cash was applied to: Donations from capital (1,264[teh]) (339[teh]) Net cash flow from financing activities ($1,264[teh]) ($339[teh]) Net increase (decrease) in cash held 14 (45[teh]) Cash at beginning of the year 16 61 Cash at the end of the year $30 $16 Notes to and forming part of the Consolidated Financial Statements for the Year Ended 31 March 1999 1. Statement of Accounting Policies Basis of Reporting The financial statements presented here are for the reporting entity the Waikato Community Trust Incorporated and its wholly-owned subsidiary Waikato Community Trust Charities Limited. The financial statements have been prepared in accordance with the requirements of the Institute of Chartered Accountants of New Zealand for the measurement and reporting of profit on an historical cost basis with the exception of investments which are recorded at market value. Specific Accounting Policies The following specific accounting policies which materially affect the measurement of financial performance and the financial position have been applied: (a) Trust Funds In order to prudently manage the financial affairs of the trust the trustees have adopted the following policies for accounting for the trust's capital and retained earnings. * Capital Following the sale of the trust's shares in Trust Bank New Zealand Limited in April 1996 the Trustees agreed that the value of the trust at that time should be maintained for the benefit of current and future generations living in the Waikato region. For this purpose the trustees agred that $169,800,000 would be considered as the ``initial capital'' of the trust. The ``initial capital value'' is increased each year to show the ``base capital value'' which reflects growth due to inflation and regional growth. An amount was transferred from retained earnings in 1997 to increase the capital of the trust from its original amount of $21,316,622 to the ``initial capital value'' and to provide for growth during the 1997 year. Each year an appropriate amount is transferred from income to allow for growth due to inflation and regional population growth. * Investment Fluctuation Reserve The trustees have adopted an investment strategy with a targeted long term annual rate of return of 7.5 percent of the trust's ``base capital value''. Recognising that actual returns are likely to fluctuate from year to year, the trust holds the variation from the target in an investment fluctuation reserve. In years when investment returns are less than the target an appropriate amount will be transferred to income. At the trust's current risk profile the investment fluctuation reserve should have a lower limit of 8.1 percent and an upper limit of 20.3 percent of the ``base capital value''. If the reserve falls below the lower limit then the level of annual donations will be reduced. If the reserve exceeds the upper limit then any further excess returns will be transferred to the donation reserve. * Donation Reserve The trust's present donation policy is to distribute annually as donations 3.5 percent of the ``base capital value''. The trustees recognise that for a number of reasons this might not always be achievable and that there will inevitably be fluctuations between the donations distributed and the actual target. The surplus after transfers to capital and the investment fluctuation reserve is held in the donation reserve and represents the trust's retained earnings. It is the trust's intention to apply this fund to future donations. (b) Fixed Assets All fixed assets have been recorded at cost price less accumulated depreciation. (c) Depreciation Depreciation of fixed assets is calculated using taxation rates so as to allocate the cost of the assets over their useful lives. (d) Donations and Distributions Donations and distributions made are included in the statement of financial performance when approved by the trustees. (e) Goods and Services Tax The trust is not registered for goods and services tax purposes. Accordingly, these financial statements are stated on a G.S.T. inclusive basis. (f) Investments Investments are stated at market value. Adjustments to market value of investments are included in the statement of financial performance. (g) Taxation Income tax expense recognises the current obligations payable to the Inland Revenue Department. No deferred tax is recognised. No deferred tax liability is expected to crystalise in the foreseeable future. (h) Changes in Accounting Policies The accounting policies for trust funds have been modified this year, however, as they impact on the treatment of funds within total trust funds it has no impact on the financial position of the trust. All other policies have have been applied on bases consistent with those used in the prior year. 2. Incorporation The Trust Bank Waikato Community Trust was incorporated on 5 August 1988 with trust capital of $21,316,622. The name of the trust was changed to the Waikato Community Trust Incorporated in December 1997. 1999$'000 1998 $'000 [xt] 3. Revenue [rt] Comprises: Managed funds21,362 24,218 Other investments18 2,535 $21,380 $26,753 [xt] 4. Expenses [rt] Comprises: Audit fees10 10 Accountancy/secretarial fees36 26 Consultants donations34 Consultants tax29 Consultants other23 Employee remuneration121 71 Funds management services812 510 Investment advisory services131 96 Recruitment7 Rental costs9 10 Statutory reporting136 Trustees fees135 89 Depreciation22 9 Other expenses130 103 $1,635 $924 [xt] 5. Taxation [rt] Net surplus after distributions as per statement of financial performance14,423 23,346 Less: Non-assessable income(33,464[teh]) (23,304[teh]) (19,041[teh]) 42 Add: Non-deductible expenditure569 228 Non-deductible losses12,370 Foreign Investment Fund income5,442 Imputation tax credits received and withholding tax deducted 271 185 Adjustment for prior year(2,241[teh]) 7 Donations payable2,309 161 18,720 581 Assessable income for the year(321[teh]) 623 Less: Loss brought forward (63[teh]) Assessable income (loss) for tax purposes$(321[teh]) $560 Taxation @ 33 percent 185 Imputation credits received and withholding tax deducted (185[teh]) Imputation tax credits transferred to loss carried forward 491 Assessable loss for tax purposes321 Losses carried forward$812 $ [xt] The ability to carry forward tax losses is subject to statutory provisions. 6. Capital [rt] Balance at beginning of the year180,141 174,894 Transfer from income1,256 5,247 Balance at the end of the year$181,397 $180,141 [xt] The transfer from income for inflation and regional population growth was calculated at an annual rate of 0.697 percent on the balance at the beginning of the the year (1998 3 percent). 7. Reserves 1999$'000 1998 $'000 Investment Fluctuation Reserve Balance at beginning of the year18,318 4,313 Transfer from income7,870 14,005 Balance at the end of the year$26,188 $18,318 Donation Reserve Balance at beginning of the year6,323 2,757 Transfer from income5,297 4,094 11,620 6,851 Less donations paid(1,234[teh]) (528[teh]) Balance at the end of the year$10,386 $6,323 [xt] 8. Payables [rt] Accounts payable278 198 $278 $198 [xt] 9. Investments [rt] Passive global equities28,066 29,256 New Zealand fixed interest and cash83,733 69,282 Active global equities28,057 31,643 New Zealand equities and cash37,774 35,198 Global fixed interest41,144 39,903 $218,774 $205,282 [xt] 10. Fixed Assets [rt] Office equipment: At cost55 16 Accumulated depreciation(17[teh]) (11[teh]) Net book value38 5 Motor vehicles: At cost37 31 Accumulated depreciation(6[teh]) (14[teh]) Net book value31 17 Land and buildings: At cost886 Accumulated depreciation(10[teh]) Net book value876 Total fixed assets$945 $22 [xt] 11. Financial Instruments The trust uses the services of an investment advisor to pursue an investment policy considered appropriate for the trust. The current policy is to achieve a long term asset allocation of: [rt] New Zealand equities5.0 percent New Zealand fixed interest20.0 percent New Zealand cash30.0 percent Global fixed interest (fully hedged)20.0 percent Passive global equities (fully hedged)12.5 percent Active global equities12.5 percent 100.0 percent The following financial assets have been recognised in the financial statements of the trust. 1999$'000 1998 $'000 Term deposits819 165 Investments218,774 205,282 $219,593 $205,447 These are demoninated in the following currencies: Australian dollar equivalents787 661 Austrian schilling equivalents56 58 Belgium franc equivalents196 213 Canadian dollar equivalents589 1,074 Danish krona equivalents416 639 Deutsch mark equivalents2,868 6,709 Euro equivalents 10,700 Finland markka equivalents224 127 French franc equivalents3,297 5,661 Great Britain pound equivalents10,359 12,688 Hong Kong dollar equivalents611 526 Irish pound equivalents56 71 Italian lira equivalents1,413 1,616 Japanese yen equivalents7,550 7,499 Malaysia ringgit equivalents59 109 Netherlands guilder equivalents1,668 1,869 New Zealand dollars122,919 104,914 Norway krone equivalents56 86 Portugal escudo equivalents84 99 Singapore dollar equivalents174 115 Spanish peseta equivalents1,383 1,296 Swedish krona equivalents1,533 2,066 Swiss franc equivalents1,777 2,683 United States dollar equivalents50,818 54,668 $219,593 $205,447 All financial instruments are disclosed at fair value. No undisclosed credit risk exists. At 31 March 1999 the trust's investment managers had forward exchange contracts to cover the global fixed interest and passive global equities position. The value of the New Zealand cover is $69,000,000. 12. Currency Translation Monetary assets denominated in foreign currency are converted to New Zealand dollars at the exchange rates reported at balance date and any unrealised profit or loss resulting from the conversion is effected in the statement of financial performance. Trust policy is to hedge the currency movements on global fixed interest and passive global equity investments to reduce exposure to fluctuation in foreign exchange. Any unrealised losses and gains are recorded at year end through the statement of financial performance. 1999$'000 1998 $'000 [xt] 13. Cash flow Reconciliation [rt] Net surplus14,423 23,346 Adjust for non-cash items: Depreciation and loss on sale25 9 Investment income(14,350[teh]) (16,438[teh]) (14,325[teh]) (16,429[teh]) Movement in working capital: Increase (decrease) in accounts payable76 87 Increase (decrease) in donations payable1,844 179 (Increase) decrease in accounts receivable 8 (Increase) decrease in accrued interest377 831 2,297 1,105 Net cash inflow from operating activities$2,395 $8,022 14. Related Party Information Waikato Community Trust Charities Limited (WCTC Limited) is a wholly-owned charitable company established by the trust and will be used to carry out some of the trust's future activities. The trust acts as nominee for investments held by WCTC Limited. 15. Donations On 14 October 1998 the Waikato Times published a list, totalling $5,363,800 which showed all of the donations approved by the trust from the period 1 April 1998 to 14 October 1998. In the period from 15 October to 31 March 1999 the trust has also committed or made the following donations: 1999$'000 Chanel Park Joint Venture500,000 Te Awamutu Events Centre Trust250,000 Hamilton Y2000 Millennium Comitteee81,000 Order of St John Putaruru10,000 Waikato District Council (Skateboarding - Huntly)3,500 Te Wharekura O Rakaumanga50,000 Hamilton Squash Club5,000 Rotongaro Branch Federated Farmers (Hakarimata Walkway)45,000 Waikato Regional Sports and Events Centre Trust1,850,000 Waikato Gun Club30,000 Te Kuiti High School30,000 Returned Donation(350[teh]) $2,854,150 These donations bring the total donations for the 199899 financial year to $8,217,950. Of this amount $4,344,950 has been actually paid to community groups during the year. The remainder of $3,873,000 represents donations which will be paid when it is clear to the trust that the project in question will proceed and any other conditions have been met. The total of donations payable at balance date for the 199899 and previous years is $2,318,500. 16. Capital Commitments and Contingent Liabilities Commitments of $6,750,000 exist for donations that have been approved in the current or previous years subject to the fulfilment of certain conditions in future years. These donations which will be distributed from either capital or future income sources have not been recorded in either the statements of financial performance or financial position. There are no other capital commitments or contingent liabilities at balance date (1998 Nil). Audit Report to the Trustees of Waikato Community Trust Incorporated We have audited the consolidated financial statements. The consolidated financial statements provide information about the past financial performance of the group and its financial position as at 31 March 1999. This information is stated in accordance with the accounting policies set out in the statement of accounting policies. Board of Trustees' Responsibilities The board of trustees are responsible for the preparation of consolidated financial statements which give a true and fair view of the financial position of the group as at 31 March 1999 and of the results of the operations and cash flows for the year ended 31 March 1999. Auditors' Responsibilities It is our responsibility to express an independent opinion on the financial statements presented by the board of trustees and report our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: the significant estimates and judgments made by the board of trustees in the preparation of the financial statements, and whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the consolidated financial statements. Other than in our capacity as auditors, we have no other relationship with or interests in the group. Unqualified Opinion We have obtained all the information and explanations that we have required. In our opinion the consolidated financial statements fairly reflect the financial position of the group as at 31 March 1999 and the results of its operations and cash flows for the year ended 31 March 1999. Our audit was completed on 15 June 1999 and our unqualified opinion is expressed as at that date. DELOITTE TOUCHE TOHMATSU, Chartered Accountants. Hamilton. A copy of these financial statements and a full list of 199899 donations are available on request.