The Community Trust of Otago Trustee Banks Restructuring Act 1988 The Community Trust of Otago Directory for the Year Ended 31 March 1999 Trustees: Clive Matthewson (Chairperson), Dunedin; Ross Allan, Middlemarch; Nancy Bamford, Balclutha; Graeme Bell, Alexandra; Peter Gibson, Dunedin; Sir Robin Gray, Dunedin; Ele Ludemann, Oamaru; Richard McKnight, Dunedin; Alan McLay, Oamaru (appointed September 1998); James Ng, Dunedin; Gail Tipa, Dunedin; and Richard Walls, Dunedin. Executive Director: Keith Ellwood. Registered Office: Second Floor, Community Trust House, corner of Filleul Street and Moray Place, Dunedin. Auditor: Taylor McLachlan, Dunedin. Solicitor: Anderson Lloyd, Dunedin. Investment Advisors: Frank Russell Limited, Auckland. Bankers: Westpac Trust, Dunedin. Custodian: Chase Manhattan Bank, Sydney. Chairpersons Report 1999 The Community Trust of Otago has had another very good year. Our income has been very pleasing and we committed over $10 million for distribution into the community. We are starting to realise our potential creating or adding value as well as sustaining activity but thankfully are by no means set in our ways. Investment Performance Readers will see from our accounts that the trust is again able to report a good result. Our income was $17.7 million, our managed funds returning 10.3 percent before fees. When we consider the real (inflation adjusted) rate of return which is what we are interested in, because of the need to preserve our original capital this return is about twice what we expect to earn on average. The result enabled us to further improve the size of our reserves. What that means is that we are well placed to maintain a consistent level of donations to the community despite an inevitable degree of volatility in investment performance. Because of this strong financial position trustees have recently been able to modestly increase the proportion of equity investments in our portfolio. The reason for doing so is, of course, to increase our long-term average predicted income and therefore what we can distribute to the community. I emphasise that this is a decision for the long term. We would be delighted to have another good result in the current year, but we are not expecting that. Donations Highlights The trust committed itself to over 900 donations, totalling over $10.1 million. I mention only a few highlights to show the range of activity supported. The number of ``small'' (i.e. less than $10,000) donations was 792. We continue to see this programme, which helps to sustain community activity of all types, as most important. We committed $1.7 million to all the primary schools of Otago for the installation of technology, which we expect will invariably be information technology. This is modelled on our existing scheme for secondary schools, which is developing wonderfully well. We want Otago students to get simply the best start in the country. We committed $300,000 to a publicity resource that will be available for Otago interests to use for the good of themselves and the province. We expect this will be useful for business (including tourism), civic, educational and events promotion. It will include a videotape and film library, a commercial 30 minute videotape and a ``Southern Man'' compact disc. We are excited about the way it is shaping up, and expect that individuals will also be interested in the videotape and the CD. The millions who watched the Super 12 final on Sky Television saw a 3 minutes initial compilation of this visual and audio material, and feedback from that has been that it was ``powerful''. Otago and Southland cancer patients will receive more prompt and accurate radiology treatment as a result of our $456,000 donation, together with $274,000 from the Community Trust of Southland, to the Oncology Department at the Dunedin Public Hospital to replace aging equipment there. We continued to heavily support sport and recreation, believing that the opportunity for active leisure and the pursuit of excellence both separately add to life fulfillment. An exciting new development is ``Sportsforce'', a strategic sports support program to be managed by Sport Otago. This will involve 6 sports and more could possibly join later. The trust has wanted to provide more encouragement to arts and cultural activity, mostly for its own sake but aware also of the positive image that will be transmitted outside the region. The most prominent this year has been to the Frances Hodgkins Fellowship and the Chinese Splendour exhibition. Next year should see some interesting new developments. The Direction of the Trust Our strategic plan is under continual review, as are our policies and processes. There are no competitive pressures from outside the trust and so we must generate a culture of improvement from within. Our personality is maturing and the community and operational characteristics that we value are becoming established. I would like to provide a brief comment about economic development. Trustees are conscious that economic good health underpins general community good health and are always conscious of this when considering donations proposals. Merely making $10 million of donations which becomes spending of one sort or another directly creates economic activity, of course. For example, if we make the difference on whether a swimming pool proceeds or not, we help local builders as well as provide family recreation. In this way, we earn income from outside our region and bring that back to invest in strengthening the local economy. But trustees also support or generate projects directly intended to have an economic impact. The video project I have already mentioned is just one of many good examples. Because of the trust's financial strength, we are uniquely placed to provide a resource that can be used by others to attract business sales or investment, tourists, students, conferences or future residents. To these direct effects can be added the intangible benefits flowing from the boost that this project might provide to provincial pride and self belief. Trustees earlier this year made the formal decision to consider whether there are any ways in which we might make other imaginative contributions to economic good health, and this consideration is under way. But we do not expect that we will directly invest in any business, either by way of ownership or by way of being a banker, for any reason other than to meet our investment goal. Our investment goal is to obtain the best possible income at our appropriate level of risk, because that is what will allow us to maximise what we have to spend locally. Nor do trustees believe that the best way for us to assist economic development in the region is for us to attempt ourselves in some way to ``pick winners''. Trustees do not have closed minds on these matters. We want only to do the best for Otago, and we are always open to suggestions. But we will not be guided by popular sentiment or anything other than rigorous thinking in our desire to get it right. Our Trustees and Staff I want to thank fellow trustees for their wise, constructive involvement and for the harmonious way in which the trust operates. I also want to assert that the trust has high quality staff. Our chief executive, Keith Ellwood, provides quality thinking and leadership, our donations assessor, Carol Melville, remains key to our operations, and Heather Wyatt and Fay Jackson are ever cheerful and efficient. For myself, I am grateful for the opportunity to be involved. The trust will continue to do its absolute best to make a positive difference for the people of Otago. CLIVE MATTEWSON, Chairperson. Consolidated Statement of Financial Performance for the Year Ended 31 March 1999 Note 1999$000 1998$000 Revenue1 17,687 25,493 Expenditure2 (1,705) (1,268) Surplus before donations 15,982 24,225 Donations paid from income4 (6,650) (6,745) Trustee surplus $9,332 $17,480 This surplus has been allocated to: Capital maintenance reserve 10 3,843 Uncommitted surplus 9,322 13,637 $9,332 $17,480 The notes to these financial statements form part of and should be read in conjunction with this consolidated statement of financial performance. Consolidated Statement of Movement in Trust Funds for the Year Ended 31 March 1999 Note 1999$000 1998$000 Opening trust funds 174,923 157,889 Donations paid from capital4 (333) (446) 174,590 157,443 Trustee surplus 9,332 17,480 Closing trust funds $183,922 $174,923 The notes to these financial statements form part of and should be read in conjunction with this consolidated statement of movement in trust funds. Consolidated Statement of Financial Position as at 31 March 1999 Note 1999$000 1998$000 Source of funds Trust funds3 183,922 174,923 Current liabilities Creditors 101 101 $184,023 $175,024 Employment of funds Current assets Current account Westpac Trust 155 260 Short-term bank deposits 1,296 1,838 Debtors 3 1,454 2,098 Non current assets Managed funds5 181,101 171,499 Fixed assets6 1,468 1,427 182,569 172,926 $184,023 $175,024 Approved on behalf of the board: CLIVE MATTHEWSON, Chairperson. RICHARD McKNIGHT, Trustee. Date: 27 May 1999. The notes to these financial statements form part of and should be read in conjunction with this consolidated statement of financial position. Consolidated Statement of Cash Flows for the Year Ended 31 March 1999 1999$000 1998$000 Cash flows from operating activities Cash was provided from: Managed funds17,375 24,046 Interest received on investments220 1,597 Other90 57 17,685 25,700 Cash was disbursed on: Payment to suppliers and staff850 713 Fund management772 528 Donations to voluntary organisations6,983 7,191 Managed funds reinvested9,602 23,456 18,207 31,888 Net cash inflow/(outflow) from operating activities (522) (6,188) Cash flows from investing activities Cash was disbursed on: Purchase of managed funds 41,950 Purchase of fixed assets125 1,454 125 43,404 Net cash from investing activities (125) (43,404) Net increase/(decrease) in cash held(647) (49,592) Add opening cash brought forward2,098 51,690 Ending cash carried forward $1,451 $2,098 Ending cash comprises: Cheque accounts155 260 Term deposits1,296 1,838 $1,451 $2,098 The notes to these financial statements form part of and should be read in conjunction with this consolidated statement of cash flows. Notes to the Consolidated Financial Statements for the Year Ended 31 March 1999 Basis of Preparation These are the consolidated financial statements of the Community Trust of Otago, Otago Community Charities Limited, the Community Trust Amateur Sports Co Limited, the Community Trust District Improvement Co Limited and Fillmor House Limited. The Community Trust of Otago was incorporated as a charitable trust in accordance with the provisions of the Trustee Banks Restructuring Act 1988. The financial statements have been prepared to comply with the Financial Reporting Act 1993 and comprise consolidated statements of the following: financial performance, movement in trust funds, financial position, cash flows, as well as notes to these financial statements. The financial statements are prepared on the basis of historical cost, except for the revaluation of managed funds. Specific Accounting Policies Income Income from managed funds includes both realised and unrealised income and is recorded gross of fund management expenses. Interest is recognised on an accrual basis. Donations Donations are accounted for as they are distributed. Foreign Currencies All amounts denominated in foreign currencies are converted to New Zealand dollars at balance date. All realised and unrealised gains and losses are recognised in the statement of financial performance. Taxation Income tax is recognised on the surplus after distribution, adjusting for differences between taxable and accounting income. Future tax benefits are not recognised unless realisation of the asset is virtually certain. Fixed Assets Fixed assets are recorded at cost less accumulated depreciation. Depreciation Depreciation has been charged to the financial statement using rates, which will write off the cost of assets less their estimated residual value over their estimated economic lives. The depreciation rates used are: Buildings 4 percent Office furniture and equipment 1248 percent G.S.T. The trust is not registered for G.S.T. purposes and therefore the financial statements have been prepared on a G.S.T. inclusive basis. Capital Maintenance Reserve The capital maintenance reserve represents the additional amount necessary to preserve the real value of the capital allowing for inflation as measured by the consumers' price index (CPI). Investments Investments are valued at year end market value. All realised and unrealised gains and losses are recognised in the statement of financial performance. Hedging Instruments The trust through its investment managers enters into hedging instruments such as futures, options and forward exchange contracts. These are converted to the New Zealand dollar rate at balance date with all realised and unrealised gains and losses being recognised in income and expenditure as income from managed funds. Statement of Cash Flows Cash comprises cash at bank and call deposits but does not include cash or deposits held by the fund managers. Changes in Accounting Policies There have been no changes in accounting policies during this accounting period. Changes in Comparative Figures Where applicable, certain comparatives have been restates to comply with the accounting presentation adopted for the current period. 1999$000 1998$000 1. Revenue Interest222 1,390 Managed funds17,374 24,046 Other91 57 $17,687 $25,493 2. Expenditure Depreciation81 57 Fund managers fees772 528 Loss on sale3 Occupancy45 29 Other operating101 103 Professional fees171 118 Promotion75 37 Public and statutory reporting61 50 Staff206 218 Trustee fees146 103 Trustee expenses44 25 $1,705 $1,268 Professional fees Payments to auditors Audit fees4 4 Other professional fees13 34 Legal advisors3 12 Professional investment advisers68 55 Other47 13 Tax advice36 $171 $118 3. Trust Funds Trust Capital The trust capital represents the realised value of its original asset, being shares in Trust Bank. They were sold, partly in 1994 when Trust Bank listed on the New Zealand Stock Exchange and the balance in 1996 when Westpac took over Trust Bank. Opening balance131,467 21,202 Transfer from uncommitted surplus 110,265 Closing balance$131,467 $131,467 Capital maintenance reserve Opening balance9,063 5,220 Transfers10 3,843 Closing balance$9,073 $9,063 Uncommitted surplus Opening balance34,393 131,467 Adjustment to reflect original capital (110,265) Donations to non profit bodies(333) (446) Trustee surplus9,332 17,480 Transfer to capital maintenance reserve(10) (3,843) Closing balance$43,382 $34,393 Total trust funds at 31 March 1999$183,922 $174,923 4. Donations Donations paid from income6,650 6,745 Donations paid from capital333 446 $6,983 $7,191 In the prior year, for ease of presentation and taxation purposes, the accounting policy was altered to show only donations paid during the period. Donations which the trust has conditionally approved but not yet paid are shown in the accounts as a contingent liability (see note 8). 5. Managed Funds Managed by external managers Opening balance171,499 106,093 Gross income17,374 24,046 Fund managers fees(772) (590) Trust Bank share sale proceeds 43,950 Withdrawals to fund donations(7,000) (2,000) Closing balance$181,101 $171,499 Investments comprise: Cash, deposits and miscellaneous27,655 21,454 Bonds88,445 83,035 Equities65,001 67,010 Total managed funds $181,101 $171,499 Held in: New Zealand89,124 81,669 Offshore91,977 89,830 $181,101 $171,499 6. Fixed Assets 1999Cost$000 Accum.Depn.$000 BookValue$000 BookValue$000 Land432 432 432 Buildings1,025 88 937 866 Office furniture and equipment163 64 99 129 $1,620 $152 $1,468 $1,427 7. Financial Instruments The financial instruments are subject to an interest rate risk. The investment portfolios are treated as lump sum investments. The fund managers or custodians manage both the credit risk and foreign exchange risk. No comparison is provided between the carrying value and estimated fair value of financial instruments, due to the carrying value reflecting market price. 1999$000 1998$000 New Zealand Bonds and deposits77,179 68,568 Equities13,396 15,199 90,575 83,767 Overseas Bonds and deposits40,372 38,018 Equities51,605 51,812 91,977 89,830 Total Bonds and deposits117,551 106,586 Equities65,001 67,011 $182,552 $173,597 8. Contingent Liabilities Contingent liabilities at 31 March 1999 consist of donations approved but not disbursed of $8.828 million (1998: $5.702 million). 9. Taxation 1999$000 1998$000 Net surplus before taxation as per statement of financial performance 15,982 24,225 Less: Unrealised equity gains 4,422 Charitable business exemption 10,869 15,109 10,869 19,531 5,113 4,694 Plus: Unrealised equity losses2,025 Non deductible expenditure309 193 Imputation and withholding tax credits received373 242 2,707 435 Total taxable income 7,820 5,129 Less: distribution of income to beneficiaries 6,993 4,334 Total trustees taxable income 827 795 Less: losses brought forward 197 256 Assessable income for tax purposes $630 $539 Taxation @ 33 percent 208 177 Less: withholding tax credits 51 Taxation payable before imputation credits 157 177 Less: imputation credits 320 242 Excess imputation credits ($163) ($65) Losses brought forward and not claimed Conversion of excess imputation credits to losses 494 197 Total losses to be carried forward $494 $197 10. Reconciliation of Reported Surplus to Net Cash Flow From Operating Activities 1999$000 1998$000 Surplus for the period9,332 17,480 Add: Non-cash items: Depreciation81 57 Less: Non-cash items: Managed funds revaluation(9,602) (23,456) Donations paid from capital(333) (446) (522) (6,365) Movements in working capital items: Increase/(decrease) in creditors (30) Increase/(decrease) in committed donations Increase/(decrease) in debtors 207 177 Net cash flow from operating activities($522) ($6,188) Audit Report We have audited the consolidated financial statements. The consolidated financial statements provide information about the past consolidated financial performance of the Community Trust of Otago and its consolidated financial position as at 31 March 1999. This information is stated in accordance with the accounting policies as outlined. Trustees' Responsibilities The trustees are responsible for the preparation of consolidated financial statements which give a true and fair view of the consolidated financial position of the trust as at 31 March 1999 and of the consolidated results of operations and cash flows for the year ended 31 March 1999. Auditors' Responsibilities It is our responsibility to express an independent opinion on the consolidated financial statements presented by the 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 consolidated financial statements. It also includes assessing: the significant estimates and judgments made by the trustees in the preparation of the consolidated financial statements, and whether the accounting policies are appropriate to the trust's circumstances, consistently applied and adequately disclosed. We conducted our audit in accordance with New Zealand auditing standards. 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 obtain reasonable assurance that the consolidated 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. Our firm carries out other assignments for the trust in the area of special consultancy projects. The firm has no other interest in the trust. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: Proper accounting records have been kept by the trust as far as appears from our examination of those records; and The consolidated financial statements: comply with generally accepted accounting practice; give a true and fair view of the consolidated financial position of the trust as at 31 March 1999 and the consolidated results of its operations and cash flows for the year ended on that date. Our audit was completed on 27 May 1999 and our unqualified opinion is expressed as at that date. TAYLOR McLACHLAN. Dunedin. Note: A full list of donations may be obtained from the community trust office.