Queenstown Airport Corporation Limited 2007 Annual Report

1 Remarkable.

Welcome to Queenstown Airport, gateway to the scenic south of New Zealand.

The airport is situated in the Wakatipu basin, within a short drive of Queenstown – regarded by many as ‘the adventure capital of the world’. The glorious Remarakbles mountain range overlook the airport, a view that greets you every time you visit our busy airport. Queenstown Airport is community-owned with 100 percent of shares held by the Queenstown Lakes District Council. In this, the Company’s first published Annual Report, we are proud to report such highlights as significant growth in international passenger numbers and a $31m upgrade of our facilities.

2 Queenstown International Airport is this District’s single most strategic asset and its continuing development has a vital role in enabling growth and diversification in the Lakes District economy. The expansion projects of recent years have been driven by dedicated Boards who have recognised the importance of the facility. The development of a future proofed high quality terminal which provides an outstanding entrance to Queenstown is a tribute to their vision and commitment. Mayor Clive Geddes Queenstown Lakes District Council.

2 Chairman’s Report 6 CEO’s Report 15 Directors’ Responsibility Statement 16 Statement of Financial Performance 17 Statement of Financial Position 18 Statement of Recognised Income & Expense 18 Statement of Movements in Equity 19 Cash Flow Statement 20 Summary of Accounting Policies and Notes to the Financial Statements 38 Statement of Service Performance 39 Statement of Corporate Intent 40 Audit Report 42 Statutory Disclosures 45 Directory

1 Chairman’s report.

Completing the redevelopment of our aprons and terminal during the year in review was without doubt the major highlight. The facilities were officially opened by the Prime Minister in September 2007, following a two- year construction period and many years of planning.

At a cost of $31m, the project has been extensive. The design brief was to future proof the airport for ongoing growth – at its core is an ‘L’ shaped structure which can be extended at each end to accommodate growth. Our new check-in terminal opened in January ’06, followed by the opening of the domestic and international arrivals areas in July ’06. The departure lounges and retail area were completed over a six-month period and commissioned in March ‘07. Overall we now have approximately 6,000 more metres of terminal space, substantially more commercial space and two more aircraft stands. Expanding the car parking area has doubled spaces to a total of 700. Construction work has also involved extending the runways and rebuilding the aprons – in some cases excavating to a depth of 2.5 metres. The redevelopment was planned for a passenger throughput of 600 per busy hour (previously 250 per hour). During the year, overall capacity reached 430 per busy hour on our winter weekend schedule and international throughput this season has topped 290 per hour. I wish to take this opportunity to thank the airlines for their assistance during the initial planning phase and during construction when obviously operational capability had to be maintained. Their input has meant we have an end-user solution rather than an engineering solution. The whole airport has been designed from the inside out and is the reason why I believe it is working so well operationally. It has also been satisfying to see the project completed on time and on budget. Having only become Chairman of Queenstown Airport Corporation (QAC) in January this year and a Board member for just two years, credit for the success of this project very much lies with the former chair, John Davies and his team, who played a big role in getting the airlines on board during the planning process. With 10 years at the helm, John has been a key driver in growing the airport into a significant asset with capacity for future growth.

2 3 During the year we made the strategic decision to increase the Company’s capability and established the new position of CEO. We were flattered by the calibre of applicants and were pleased to be able to appoint someone with the abilities of Steve Sanderson. Steve is the former CEO of a large manufacturing company in Christchurch and previously held senior roles at utilities companies PowerCo and Lyttelton Port Company. Looking forward to the coming year, it’s time to regroup and focus on the next set of challenges. Uppermost in terms of difficulty are the recently extended RESA (runway emergency safety area) requirements. The impact of RESA is significant as it means that by 2011, we need to extend the strip by 90m to maintain our current operational capability and this will necessarily be into the Shotover River. Obviously this will trigger the need for us to embark on the invariably lengthy resource consent and consultation process with the associated costs, followed by a minimum two-year construction period. The other main challenges for the year and beyond will be participating in the planning processes on our boundaries. In recent months we have received plan change 19 for the Frankton Flats, Remarkables Park’s proposed further development, and the Ministry of Education has given notice that they intend to designate a school close to the airport’s boundary. These are all significant proposals to develop various uses within our noise footprints and it is only realistic to expect further proposals with much at stake for the property owners, QAC and the community. We will be engaging in each of these processes fully to ensure the operational capability of the airport for the future. Turning now to the financials1, increased passenger volumes, property leases and car parking delivered stronger revenues 24 percent per cent ahead to $9.31m. Earnings before interest,

1 Financials discussed exclude a one-off property sale of $1.86m.

4 Adjusted EBITDA* Consolidated revenues (In $ millions) (In $ millions)

2005 2006 2007 2005 2006 2007

9.3

7.5 6.5* 6.0 5.4

4.2

*Eliminated one-off property gain

taxation and depreciation (EBITDA) increased 27.1 percent to $6.35m. This is a strong EBITDA result, however, given the recent significant investment, our finance charges and depreciation reduce our surplus before income tax by 10.81 percent compared with the prior year to $1.55m. For the coming year, with a full year’s charge of our investment in capability associated with managing our increased assets, and the expected costs of participating in the processes of protecting the wider operational capability of the airport, we anticipate only modest improvements in financial performance despite continued strong revenue growth. A detailed analysis of our financial result is included within this Annual Report. Along with John Davies, another longer serving Director, Ian Farrant, stood down during the year in review. Ian has also been highly instrumental in ensuring the success of QAC and I thank him for his service. Dunedin-based accountant Murray Valentine has joined the Board which now includes myself, Bill Walker and Duncan Fea. Murray brings a wealth of tourism experience with his active involvement in Whalewatch Kaikoura, Hermitage Hotel and Southern Alpine Recreation Ltd’s ski fields. Queenstown Airport is pivotal to the future of the Lakes District and particularly its tourism growth. Directors and management are committed to providing an international airport that meets the long term needs of the region.

On behalf of the Board Mark A. Taylor Chairman

5 6 CEO’s report.

Just five months into the role, I still marvel each morning when I come to work and enter my office, with its unobstructed view of the Remarkables and Coronet Peak literally filling my windows – even internationally I struggle to think of a more striking and accessible air transport environment. Most people refer to the Queenstown Airport as being the gateway to our spectacular region but I don’t actually think of it like that – once you’re here, you’re here! Even disembarking an aircraft (via the traditional steps), the stunning design of our new airport means you can’t escape the sheer visual impact of the surrounding landscape. That ‘wow’ factor is something we see on our visitors’ faces daily, let’s face it – hourly. But what really makes Queenstown Airport unique is the fact that you can be at your hotel within 10 minutes of landing and skiing within the hour. Where else in the world can you step off the slopes at 2pm and catch a 5pm international flight, right in the middle of an alpine resort?

7 Chris Read, general manager – aeronautical With 15 years at QAC, Chris is one of the Company’s longest serving staff members. Chris’s extensive knowledge of all facets of the airport’s operations played a central role in the design and delivery of the new terminal facilities. He also has strong, long term relationships with all our airside customers. As general manager – aeronautical, Chris looks after everything airside for QAC.

Statistics for the year ending June 2007 showed a major leap in the number of international visitors arriving into Queenstown with passenger numbers up by 22 percent. The number of flights increased by the same amount which meant the average load factor continued to be strong at 76 percent capacity, comparable with the previous year’s figures. Direct flights from Sydney, Brisbane and Melbourne continued to be popular during winter months with the growing skier and snowboard market. During winter over 16,000 passengers a week were moving through the airport. The introduction of a new summer direct flight from Melbourne will no doubt result in increased international figures again next year and while winter remains our peak international period, it is encouraging to see the demand continue through spring and summer. Domestic passengers also grew by three percent in the year under review, despite a one percent decrease in flights, mainly due to weather diversions. The load factor domestically also saw an increase, up 2.8 percentage points to 72.2 percent. In general we expect to see fewer flight interruptions with the introduction of the Required Navigation Procedure (RNP) technology, which will minimise weather disruption. Queenstown Airport Corporation (QAC) is also benefiting from increased commercial returns from our expanded terminal space. The redevelopment allowed for this to grow from 3200 m2 to over 9000 m2 and demand currently exceeds supply of available space. I am very comfortable with the mix of tenants and have had a good response from the public about what’s now available at the airport – from tourist shops and clothing to a café, newsagent, scenic tours, vehicle rentals and there’s more to come. While we expanded the carpark, I’m aware that increasing parking charges has been unpopular with the community. However, compared with other airports around the country, and considering the available land in Queenstown, our rates are very reasonable. This year we made the decision to introduce 20 minutes free parking but will increasingly move to enforce the ‘no parking’ rule in the drop-off area. During the year in review we had to make unanticipated changes to our international departures area to accommodate new LAGS (liquids, aerosols, and gels) inspections and other

8 Simon Barr, general manager – commercial With a B. Comm and a strong commercial background, Simon recently joined QAC after running his own business in Nelson. He is responsible for the non-aeronautical, commercial side of QAC’s business, including all the airport’s tenants and the carparking areas. And with the airport’s contnued expansion it’s a role that’s growing.

security. Since August, we have undertaken additional mandatory checks – this time involving random testing of passengers for traces of explosive devices. This test takes less than one minute and we expect no delays through our security area. One of the biggest capital expenditure items during the year was our purchase of a new fire appliance - Scania Buffalo manufactured by Rosenbauer Austria. Costing NZ$870,000 it was needed because the existing appliances were ageing and to meet international requirements. We expect to place an order for a similar fire appliance within the next 12 months.

Domestic flights/ International flights/ Percentage passenger passengers passengers loading (thousands) (thousands) (in %)

2005 2006 2007 2005 2006 2007 2005 2006 2007

599 77 76 584 578 73 54 72 69 68

3.9 3.9 3.8 0.2 0.2 0.1

Flights Flights Domestic Passengers Passengers International

9 With the airport redevelopment now complete, our focus has moved to the area around the airport’s boundaries where key decisions are going to be made in the coming years which have the potential to impact quite negatively on our facility’s daily operations. Some of the worst case scenarios could ultimately restrict passenger arrival numbers which would trigger a shockwave of effects on not just the tourism sector but the entire economic fabric of our local community. At the end of our financial year, the Queenstown Lakes District Council announced a plan change for the Frankton Flats area which would see the 69ha of adjacent land currently designated predominately rural become a mix of industrial and open yard space, commercial,

10 Bill Wrigley, fire chief (with helmet) and Daniel Debono, operations manager, inspect QAC’s new $870,000 fire engine delivered in September 2007. The Scania Buffalo meets all the airport’s current and anticipated safety requirements.

visitor accommodation and residential. The proposed plan change will be opened up for public discussion about the community’s preference for different end uses. This is the first time QAC has had to deal with a significant change relating to property on our boundaries. The Frankton Flats are the last remaining major area of flat ground in our district, so there is strong community interest in how this land is re-zoned. Potential end uses could include new industrial activity, a new school, worker accommodation and more affordable residential housing – all things that our community desperately needs. In an ideal world, QAC would like to see future use of this land restricted to activities which are complementary to the airport’s ongoing operations and we have made a submission to this effect. However we are realistic that the airport and its customers’ needs will necessarily have to be balanced with the needs of the wider community. For example, should the land be rezoned to allow for a new school at the end of our cross-wind runway which would provide huge benefit to the community but possibly restrict the activities of our general and commercial aviation and helicopter operators? Or should it allow industrial activity which creates a buffer where business owners are less likely to seek restrictions on any future increase in the number of aircraft movements, but could result in a visually unappealing entrance to Queenstown from a visitor’s perspective? On the other side of the runway is Remarkables Park where it’s proposed that a similar size piece of land as Frankton Flats currently designated Rural General is developed into a mix of commercial, golf course, retirement homes, education, accommodation and residential end uses. Again, QAC will participate actively in the plan change process. In the coming years, a huge range of interested parties will be affected positively and potentially negatively by future changes in activity in the area around our airport, including ourselves. With so many competing interests I suspect our situation is more complex and pressing than any other airport in New Zealand. It’s going to be a real balancing act to achieve a satisfactory end result that balances sufficiently the desires of competing community and commercial interests, let alone the airport’s existing and future physical, conical (height) and noise designations.

11 Ten-year-old Toby Dickson from St Joseph’s Primary School in Queenstown won a seat in the helicopter which flew Prime Minister Helen Clark to Dunedin, following the official opening of QAC’s new terminal facilities on 13 September 2007. The opportunity came about when year six pupils throughout the Wakatipu Basin were invited to write in no more than 50 words what they would like to talk to the Prime Minister about. Toby’s winning topics were ‘global warming’ and ‘recycling’. It certainly turned out to be an action-packed day for Toby – not only did he meet the PM and ride in a helicopter, TVNZ’s Close Up covered the story on national TV.

As Mark has already touched on, in order to meet new RESA (runway extension safety area requirements) by 2011, we need to extend our runway into the Shotover River. This is going to be a huge challenge as it involves a land reclaim in the order of 1 million cubic metres that extends into a sensitive area and means we will undertake an extensive consultation phase supporting our resource consent application. It is important to note that RESA is an important safety requirement and has nothing to do with the QAC seeking to bring in night flights or larger commercial jets. The only other option to adding 90m of safety area to our current runway is to take 90m off it, which would mean existing planes could continue to land but with fewer passengers on board each flight. This would push up the price of travel as the same number of people would need to land to ensure the resort’s survival but would need to be spread across more planes. While we are fully aware of the sensitivities of making significant changes in the Shotover River area, we are encouraged by the Otago Regional Council’s strategy with regards to wanting the river to go more to the ‘true river left’ to help prevent flooding. Their project called ‘Taming the Shotover’ would be assisted by our proposed RESA earthworks. The implementation of RNP (required navigational procedure) in May ‘07 has meant that aircraft fitted with the correct navigational equipment can now land and take off in weather minimas as low as 300m above the runway. This is a very favourable development for the airport as, prior to RNP being introduced, visibility needed to be at least 1000m resulting in the cancellation of many flights which were typically diverted to Invercargill. When this occurs, it has a big impact on customer experiences with arriving passengers experiencing up to four hours inconvenience and some departing passengers having to travel by land from, or to, Christchurch. Most jet passenger planes flying into Queenstown are RNP capable. Under RNP, new ‘lines in the sky’ guide the aircraft through the surrounding mountainous terrain to line it up with the runway. Overall, it means airlines can keep to schedules, avoid diversions and ensure happy passengers. With regards to the general aviation (GA) side of our business it is timely to announce publicly that we plan to move their businesses, and possibly buildings and hangars, from the south-east corner of our site to the north-west side of the main runway. We also plan to establish an FBO (fixed base operation) area for corporate jets in the new area.

12 We are currently undertaking a three-month noise monitoring study which will confirm our capability to operate within our current noise guidelines. Part of this relies on our commitment to moving our GA area to the new site and achieving cooperation among GA users to fly on less noise sensitive tracks on all approaches and departures. It is important to point out that there has been exponential growth in helicopter flights which have a big impact on noise tracks. Likewise, small business owners running fixed wing aircraft create a large amount of noise and will probably be the most affected by likely changes to the zoning of the Frankton Flats. We have been working very cooperatively with the Queenstown Milford Users Group on these issues. Beyond the airport boundary, QAC owns 18ha of land that we plan to develop into a commercial Business Park. A total of 33 sections will be offered for lease as we develop the properties. Owning and developing the Business Park is very much part of our strategy of having some control over as much land as possible outside the airport designation in order to protect the airside capability of the airport. We are already experiencing additional demand from second tier rental companies for space beyond the main operational area but still within close proximity. This is very typical of what occurs in airports throughout the world, where passengers catch shuttles to other sites housing cars and sometimes also the rental company terminal itself. The year ahead will certainly challenge QAC in making sure there is a balance in Queenstown maintaining a strategic air transport system and the demands of a growing resort and community. Finally I would like to thank all of QAC’s people for their contribution.

Steve Sanderson Chief Executive Officer

13 QUEENSTOWN AIRPORT CORPORATION LIMITED Financial statements

14 Financial statements DIRECTORS’ RESPONSIBILITY STATEMENT The Directors of Queenstown Airport Corporation Limited are pleased to present the Annual Report and financial statements for Queenstown Airport Corporation Limited for the year to 30 June 2007. The Directors are responsible for presenting financial statements in accordance with New Zealand law and generally accepted accounting practice, which give a true and fair view of the financial position of the Company as at 30 June 2007 and the results of operations and cash flows for the year ended on that date. The Directors consider the financial statements of the Company have been prepared using accounting policies which have been consistently applied and supported by reasonable judgements and estimates and that all relevant financial reporting and accounting standards have been followed. The Directors believe that proper accounting records have been kept which enable with reasonable accuracy, the determination of the financial position of the Company and facilitate compliance of the financial statements with the Financial Reporting Act 1993. The Directors consider that they have taken adequate steps to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a reasonable assurance as to the integrity and reliability of the financial statements.

This Annual Report is signed on behalf of the Board by:

Mark A Taylor Duncan V Fea Chairman Director 20 September, 2007 20 September, 2007

15 QUEENSTOWN AIRPORT CORPORATION LIMITED STATEMENT OF FINANCIAL PERFORMANCE For the Financial Year Ended 30 June, 2007

Notes 2007 2006 $ $

Income Revenue 2 (a) 9,312,048 7,506,992 Other gains/(losses) 2 (a) 1,724,320 173

Total income 11,036,368 7,507,165

Expenditure Operating Expenses 2,032,975 1,419,256 Employee benefits expense 2 (b) 593,446 509,741 Depreciation expense 2 (c) 2,548,548 1,081,181 Finance costs 2 (d) 2,256,842 1,083,114 Runway maintenance 72,626 79,756 Directors fees 80,000 80,000 Subvention payment - 405,938 Audit Fees 4 33,080 15,350

Total operating expenditure 7,617,517 4,674,336

Surplus before income tax 3,418,851 2,832,829

Less: Income tax expense 3 578,169 934,834

Surplus for the period $2,840,682 $1,897,995

The accompanying notes form part of these financial statements.

16 STATEMENT OF FINANCIAL POSITION As at 30 June, 2007

Notes 2007 2006 $ $

Current assets Cash and cash equivalents 17 (a) 41,900 6,986 Trade and other receivables 5 903,543 1,245,215 Current tax refundable 3 322,834 166,032

Total current assets 1,268,277 1,418,233

Non-current assets Property, plant and equipment 7 45,195,267 34,892,450 Deferred tax assets 3 666,021 564,041

Total non-current assets 45,861,288 35,456,491

Total assets 47,129,565 36,874,724

Current liabilities Bank overdraft (secured) 10, 17 (a) - 51,505 Trade and other payables 8 1,188,418 2,595,084 Income in advance 46,340 40,874 Employee entitlements 9 75,269 52,734 Other financial liabilities 6 144,329 -

Total current liabilities 1,454,356 2,740,197

Non-current liabilities Borrowings (secured) 10 31,100,000 22,400,000

Total non-current liabilities 31,100,000 22,400,000

Total liabilities 32,554,356 25,140,197

Net assets $14,575,209 $11,734,527

Equity Share capital 11 10,330,938 10,330,938 Retained earnings 12 4,244,271 1,403,589

Total equity $14,575,209 $11,734,527

The accompanying notes form part of these financial statements.

17 QUEENSTOWN AIRPORT CORPORATION LIMITED STATEMENT OF RECOGNISED INCOME & EXPENSE For the Financial Year ended 30 June, 2007

Notes 2007 2006 $ $

Net income recognised directly in equity - -

Surplus for the period 2,840,682 1,897,995

Total recognised income and expense for the year $2,840,682 $1,897,995

STATEMENT OF MOVEMENTS IN EQUITY For the Financial Year ended 30 June, 200

Equity at beginning of year 11,734,527 9,430,594

Surplus for the year 2,840,682 1,897,995

Total recognised income and expenses 2,840,682 1,897,995

Issue of ordinary shares 11 - 3,405,938 Dividend Paid (taxable bonus issue) - (3,000,000)

Equity at end of year $14,575,209 $11,734,527

The accompanying notes form part of these financial statements.

18 CASH FLOW STATEMENT For the Financial Year ended 30 June, 2007

Notes 2007 2006 $ $

Cash flows from operating activities Receipts from customers 9,128,545 7,555,412 Interest received 16,349 4,413

Payments to suppliers and employees (2,625,948) (2,070,191) Interest paid (2,243,996) (1,079,564) Income tax paid (net) (836,952) (1,386,372) Net GST (payment)/receipt 514,292 (519,682) Subvention payment - (405,938)

Net cash inflow/(outflow) from operating activities 17 (b) 3,952,290 2,098,078

Cash flows from investing activities Purchase of property, plant and equipment (14,470,431) (17,125,729) Proceeds from sale of property, plant and equipment 1,904,560 245

Net cash inflow/(outflow) from investing activities (12,565,871) (17,125,484)

Cash flows from financing activities Proceeds from borrowings 8,700,000 14,400,000 Proceeds from issue of equity securities - 405,938 Net cash inflow/(outflow) from financing activities 8,700,000 14,805,938

Net decrease in Cash and cash equivalents 86,419 (221,468)

Cash and cash equivalents at the beginning of the financial year (44,519) 176,949

Cash and cash equivalents at the end of the financial year 17(a) $41,900 ($44,519)

Non-Cash Financing Transactions $Nil

The accompanying notes form part of these financial statements.

19 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS For the Financial Year ended 30 June, 2007

1. SUMMARY OF ACCOUNTING POLICIES

Reporting Entity The Queenstown Airport Corporation Limited (“the Company”) is a company established under the Airport Authorities Act 1966 and registered under the Companies Act 1993. The Company is a reporting entity for the purposes of the Financial Reporting Act 1993. The Company is a profit-oriented company incorporated and domiciled in New Zealand. Its principal activity is the operation of a commercial airport in Queenstown, New Zealand.

Statement of Compliance The financial statements of the Company have been prepared in accordance with the Financial Reporting Act 1993, the Companies Act 1993, the Airport Authorities Act 1966 and the Airport Authorities (Airport Companies Information Disclosure) Regulations 1999, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP). The Company qualifies for Differential Reporting exemptions as it does not have public accountability and it is not large. All available reporting exemptions allowed under the Framework for Differential Reporting have been adopted with the exception of NZ IAS-7 ‘Cash Flow Statements’ and NZ IAS-12 ‘Income Taxes’ with which the Company has fully complied. The financial statements comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities that qualifying for and apply differential reporting concessions. These are the Company’s first financial statements complying with NZ IFRS.

Basis of Preparation The preparation of financial statements in conformity with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and in future periods if the revision affects both current and future periods. The financial statements have been prepared on the basis of historical cost, except for the revaluation of derivative financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. The Company changed its accounting policies on 1 July 2006 to comply with NZ IFRS. The transition to NZ IFRS is accounted for in accordance with NZ IFRS-1 ‘First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards’, with 1 July 2005 as the date of transition. An explanation of how the transition from superseded policies to NZ IFRS has affected the Company’s financial position, financial performance and cash flows is discussed in Note 19. The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS Balance Sheet as at 1 July 2005 for the purposes of the transition to NZ IFRS. The financial statements are presented in New Zealand dollars. New Zealand dollars are the Company’s functional currency. Standards and interpretation issued and not yet adopted There are no standards, interpretations, and amendments that have been issued but are not yet effective, that the Company has not yet applied.

20 The following accounting policies which materially affect the measurement of results and financial position have been applied:

SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and GST.

Revenue Landing Dues are recognised in the accounting period in which the actual service is provided to the customer. Revenue from the rendering of services is recognised when it is probable that the economic benefits associated with the transaction will flow to the entity. The stage of completion at balance date is assessed based on the value of services performed to date as a percentage of the total services to be performed. Interest revenue is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Other Gains and Losses Net gains or losses on the sale of property plant and equipment and financial assets are recognised when an unconditional contract is in place and it is probable that the Company will receive the consideration due.

Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to the Statement of Financial Performance on a basis representative of the pattern of benefits to be derived from the leased asset. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

Borrowing Costs Borrowing costs are recognised as an expense in the period in which they are incurred.

21 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year ended 30 June, 2007

SUMMARY OF ACCOUNTING POLICIES cont.

Taxation The tax expense represents the sum of the tax currently payable and deferred tax. Tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Financial Performance because it excludes items of income or expense that are taxable in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the comprehensive balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Current and deferred tax is recognised as an expense or income in the Statement of Financial Performance, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity.

Goods and Services Tax Revenues, expenses, assets and liabilities are recognised net of the amount of goods and services tax (GST), except for receivables and payables which are recognised inclusive of GST. Where GST is not recoverable as an input tax it is recognised as part of the related asset or expense.

Statement of Cash Flows Cash means cash balances on hand, held in bank accounts and bank overdrafts that the Company invests in as part of its day to day cash management. Operating activities include cash received from all income sources of the Company and record the cash payments made for the supply of goods and services. Investing activities are those activities relating to the acquisition and disposal of non-current assets. Financing activities comprise the change in equity and debt structure of the Company.

Financial Instruments Financial assets and financial liabilities are recognised on the Company’s Statement of Financial Position when the Company becomes a party to contractual provisions of the instrument. Investments are recognised and derecognised on trade date where purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs, except for those financial assets classified as fair value through profit or loss which are initially valued at fair value.

22 Financial Instruments cont.

(i) Financial Assets

Financial Assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. The effective interest method, referred to below, is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the interest rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

• Financial Assets at Fair Value Through Profit or Loss Financial assets are classified as financial assets at fair value through profit or loss where the financial asset: • Has been acquired principally for the purpose of selling in the near future; • Is a part of an identified portfolio of financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or • Is a derivative that is not designated and effective as a hedging instrument. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in the Statement of Financial Performance. The net gain or loss is recognised in the Statement of Financial Performance and incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described later in this note. The Company holds forward exchange contracts that do not qualify for hedge accounting.

• Loans and Receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is expensed in the Statement of Financial Performance.

• Impairment of Financial Assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the Statement of Financial Performance. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the Statement of Financial Performance to the extent the carrying amount of the investment at the date of impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

23 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year ended 30 June, 2007

SUMMARY OF ACCOUNTING POLICIES cont.

Financial Instruments cont.

(ii) Financial Liabilities

• Trade & Other Payables Trade payables and other accounts payable are recognised when the Company becomes obliged to make future payments resulting from the purchase of goods and services. Trade and other payables are initially recognised at fair value and are subsequently measured at amortised cost, using the effective interest method.

• Borrowings Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the Statement of Financial Performance over the period of the borrowing using the effective interest method.

(iii) Derivative Financial Instruments

The Company uses derivative financial instruments to hedge its exposure to foreign exchange risk arising from investing activities. The Company does not use derivative financial instruments for speculative purposes. However, derivatives that do not qualify for hedge accounting, under the specific NZ IFRS rules, are accounted for as trading instruments. Derivatives are recognised initially at fair value. Subsequent to initial recognition derivative financial instruments are stated at fair value. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Statement of Financial Performance as they arise.

Fair Value Estimation The fair value of financial instruments traded in active markets is based on quoted market prices at the balance date. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance date.

Property, Plant and Equipment The Company has the following classes of property, plant and equipment: Land, buildings, runway, plant and equipment, motor vehicles, furniture and crash fire.

Cost Property, plant and equipment is recorded at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the assets. Where an asset is acquired for no cost, or for a nominal cost, it is recognised at fair value at the date of acquisition.

Depreciation Depreciation is provided on a diminishing value (DV) basis for all assets so as to write-off the cost of each asset to its estimated residual value over its estimated useful life. Expenditure incurred to maintain these assets at full operating capability is charged to the Statement of Financial Performance in the year incurred.

24 Property, Plant and Equipment cont. The estimated useful lives of the major asset classes have been estimated as follows:

Operational Assets Rate (%) Method Buildings 2.5% - 26.4% DV Runway 1.67-50.0% SL Plant and Equipment 28% DV Motor Vehicles 26% DV Furniture 33% DV Crash Fire 20% DV

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period.

Disposal An item of property, plant and equipment is derecognised upon disposal or recognised as impaired when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Statement of Financial Performance in the period the asset is derecognised.

Impairment of Non-Financial Assets At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use for cash- generating assets, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the Statement of Financial Performance immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the Statement of Financial Performance immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

25 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year ended 30 June, 2007

SUMMARY OF ACCOUNTING POLICIES cont.

Employee Benefits Entitlements to salary and wages and annual leave are recognised when they accrue to employees. This includes the estimated liability for salaries and wages and annual leave as a result of services rendered by employees up to balance date at current rates of pay. Entitlements to sick leave are calculated based on an actuarial approach to assess the level of leave that is expected to be taken over and above the annual entitlement, and calculated using anticipated future pay rates.

Share Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Dividends Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. Dividend distribution to the Company shareholder is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved.

26 Notes 2007 2006 $ $

2. SURPLUS FROM OPERATIONS

(a) Revenue

Revenue consisted of the following items: Revenue: Revenue from rendering of services: Landing dues 4,786,801 4,450,714 Carpark revenue 773,509 554,394 Departure tax 522,452 421,587

6,082,762 5,426,695

Operating lease rental revenue 2,677,124 1,731,329

2,677,124 1,731,329

Interest Revenue: Bank deposits 16,349 4,413

16,349 4,413

Net bad and doubtful debts recovered - 8,873 Other revenue 535,813 335,682

$9,312,048 $7,506,992

Other Gains/(Losses):

Gain on disposal of property, plant and equipment 1,868,649 173

Net change in fair value of derivative financial instruments classified at fair value through profit or loss (forward exchange contracts) (144,329) -

$1,724,320 $173

(b) Employee Benefits Expense

Salaries and wages 593,446 509,741

$593,446 $509,741

Buildings 1,203,510 605,267 Plant and equipment 386,301 59,432 Runway 758,624 344,587 Motor vehicles 1,956 2,643 Furniture 194,827 65,088 Crash fire 3,330 4,164

$2,548,548 $1,081,181

27 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year Ended 30 June, 2007

Notes 2007 2006 $ $

2. SURPLUS FROM OPERATIONS cont.

(d) Finance Costs

Interest on loans 2,251,433 1,067,245 Other interest expense 5,409 15,869

$2,256,842 $1,083,114

3. INCOME TAXES

(a) Income Tax Recognised in Profit or Loss

Tax expense/(income) comprises:

Current tax expense/(credit): Current year 677,086 1,021,557 Adjustments for prior years 3,063 -

680,149 1,021,557

Deferred tax expense/(credit) Origination and reversal of temporary differences (168,582) (86,723) Adjustments relating to changes in tax rates or imposition of new taxes 66,602 -

(101,980) (86,723)

Total tax expense/(income) $578,169 $934,834

The prima facie income tax expense on pre-tax accounting surplus reconciles to the income tax expense in the financial statements as follows:

Surplus/(deficit) before income tax 3,418,851 2,832,829

Income tax expense (credit) calculated at 33% 1,128,221 934,834 Non-deductible expenses - - Non assessable income – gain on disposal of property (616,654) - Adjustments relating to change in tax rates 66,602 -

Income tax expense (credit) $578,169 $934,834

The tax rate used in the above reconciliation is the corporate tax rate of 33% payable by New Zealand corporate entities on taxable profits under New Zealand tax law. There has been no change in the corporate tax rate when compared with the previous reporting period, although legislation has been passed which changes the corporate tax rate in 2008/2009 to 30%.

(b) Income Tax Recognised Directly In Equity

There was no current or deferred tax charged/(credited) directly to equity during the period (2006: $Nil).

28 2007 2006 $ $

3. INCOME TAXES cont.

Current Tax Refundable: Current tax refundable $322,834 $166,032

Current Tax Payable: Current tax payable $Nil $Nil

(d) Deferred Tax Balances Comprise:

Taxable and deductible temporary differences arising from the following:

Opening Charged to Charged to Closing 2007 balance income equity balance Gross deferred tax assets: Temporary differences 564,041 101,980 - 666,021

$564,041 101,980 $Nil 666,021

Opening Charged to Charged to Closing 2006 balance income equity balance Gross deferred tax assets: Temporary differences 477,318 86,723 - 564,041

$477,318 $86,723 $Nil $564,041

Legislation has been enacted which, from 2008/2009, changes the corporate tax rate to 30% from 33%. Accordingly the deferred tax asset has been remeasured at 30% to the extent the underlying temporary differences are expected to reverse in 2008/2009 and beyond.

(e) Imputation Credit Account Balances

2007 2006

Balance at beginning of year 304,056 394,642 Income tax paid 1,000,000 1,386,371 Resident withholding tax paid 2,984 655 Attached to taxable bonus issue - (1,477,612) Income tax refunded (166,032) -

Balance at end of year 1,141,008 304,056

29 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year Ended 30 June, 2007

2007 2006 $ $

4. REMUNERATION OF AUDITORS

Audit fees for financial statement audit 21,830 15,350 Audit fees for assurance and related services 11,250 -

$33,080 $15,350

Audit fees for assurance and related services include: – audit of NZ IFRS transition

The auditor of Queenstown Airport Corporation Limited for and on behalf of the Office of the Auditor-General, is Deloitte.

5. TRADE & OTHER RECEIVABLES

Trade receivables 860,655 771,543 Allowance for doubtful debts - (83,508)

860,655 688,035

Goods and services tax (GST) receivable 42,888 557,180

$903,543 $1,245,215

6. OTHER FINANCIAL LIABILITIES

Financial Liabilities carried at fair value through profit or loss:

Current Forward exchange contracts 144,329 - - -

$144,329 $Nil

30 7. PROPERTY, PLANT & EQUIPMENT

2007 Accumulated Cost Depreciation Net Book Value $ $ $

Land 4,803,556 4,803,556 Buildings 31,515,169 (4,166,568) 27,348,601 Plant & Equipment 1,951,027 (596,065) 1,354,962 Runway 14,592,229 (3,490,407) 11,101,822 Motor Vehicles 21,244 (15,679) 5,565 Furniture 1,061,122 (493,688) 567,434 Crash Fire 210,838 (197,511) 13,327

$54,155,185 ($8,959,918) $45,195,267

2006 Accumulated Cost Depreciation Net Book Value $ $ $

Land 5,830,567 5,830,567 Buildings 24,559,527 (2,988,880) 21,570,647 Plant & Equipment 463,384 (214,198) 249,186 Runway 9,730,180 (2,731,783) 6,998,397 Motor Vehicles 21,244 (13,723) 7,521 Furniture 518,336 (298,861) 219,475 Crash Fire 210,838 (194,181) 16,657

$41,334,076 ($6,441,626) $34,892,450

Impairment losses are included in the line item ‘impairment of non-current assets’ in the Statement of Financial Performance. Impairment losses recognised during the period were $Nil (2006: $Nil).

8. TRADE & OTHER PAYABLES

2007 2006 $ $

Trade payables (i) 269,712 137,142 Other creditors and accruals 96,473 52,553 Terminal, apron and landscaping work 822,233 2,405,389

$1,188,418 $2,595,084

(i) The average credit period on purchases is 30 days.

31 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year Ended 30 June, 2007

2007 2006 $ $

9. EMPLOYEE ENTITLEMENTS

Accrued salary and wages 27,173 5,808 Annual leave 48,096 46,926

$75,269 $52,734

10. BORROWINGS

At amortised cost Bank borrowings (secured) (i) 31,100,000 22,400,000

$31,100,000 $22,400,000

Disclosed in the financial statements as: Current - - Non-current 31,100,000 22,400,000

$31,100,000 $22,400,000

(i) The loan is secured by a first debenture charge over the Company’s assets and undertakings and also a registered first mortgage over all property. The weighted average interest rate on the term loan at balance date was 7.98% (2006: 7.91%).

The Company has a secured facility with the Bank of New Zealand of $34 million (which Includes the $100,000 bank overdraft facility). The Company may draw funding for terms ranging from call to three years. The facility is available on an interest only basis for a further two years.

• Amount used Borrowings 31,100,000 22,400,000 Bank overdraft - 51,505 • Amount unused 2,900,000 11,548,495

$34,000,000 $34,000,000

32 2007 2006 $ $

11. SHARE CAPITAL

Fully paid ordinary shares 10,330,938 10,330,938

$10,330,938 $10,330,938

Number Value 2007 2006 2007 2006

(a) Fully Paid Ordinary Shares

Balance at beginning of year 11,998,690 7,996,370 10,330,938 6,925,000 Issue of shares - 3,703,704 - 3,000,000 Issue of shares - 298,616 - 405,938

Balance at end of year 11,998,690 11,998,690 $10,330,938 $10,330,938

All ordinary shares have equal voting rights and equal rights to distributions and any surplus on winding up of the Company.

On 31 March 2006, 298,616 shares were issued for consideration of $405,938.

On 27 June 2006, 3,703,704 shares were issued as a taxable bonus issue to the value of $3,000,000.

12. RETAINED EARNINGS

Balance at beginning of year 1,403,589 2,505,594

Net surplus/(deficit) 2,840,682 1,897,995

Dividend Paid (Taxable Bonus Issue) - (3,000,000)

Balance at end of year $4,244,271 $1,403,589

13. COMMITMENTS FOR EXPENDITURE

(a) Capital Expenditure Commitments

Property, plant & equipment (i) 1,540,000 12,375,746

$1,540,000 $12,375,746

(i) The Company’s commitments in 2007 are in respect of carpark works including, roading and landscaping works and a rescue fire engine.

33 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year Ended 30 June, 2007

14. CONTINGENT LIABILITIES & CONTINGENT ASSETS

(a) Land Swap Agreement

During the 1998 year, the Company entered into an agreement with Remarkables Park Company of Companies whereby certain Company land is to be swapped with certain Remarkables Park Company land. This land swap is on an equal area basis and valuations have been obtained showing no loss of value to the Company. The land swap was completed in the financial year.

15. RELATED PARTY DISCLOSURES

(a) Parent Entity

Queenstown Airport Corporation Limited is 100% owned by the ultimate parent entity, Queenstown Lakes District Council.

(b) Transactions with Related Parties

Related parties of the Company are: Queenstown Lakes District Council – Shareholder J S Davies – Director, Trojan Holdings Limited

During the year the following (payments)/receipts were (made to)/received from related parties which were conducted on normal commercial terms:

2007 2006 $ $ Queenstown Lakes District Council Rates (123,467) (115,678)

Trojan Holdings Limited Rubbish removal services (44,056) (30,317)

There were no other transactions with related parties.

16. SUBSEQUENT EVENTS

There were no significant events after balance date (2006: Nil).

34 17. NOTES TO THE CASH FLOW STATEMENT

(a) Reconciliation of Cash and Cash Equivalents

For the purposes of the cash flow statement, cash and cash equivalents includes cash on hand and in bank and deposits in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the Cash Flow Statements is reconciled to the related items in the Statement of Financial Position as follows:

2007 2006 $ $

Cash and cash equivalents 6,986 6,986 Bank account/(overdraft) 34,914 (51,505)

$41,900 ($44,519)

(b) Reconciliation of Surplus for the Period to Net Cash Flows from Operating Activities

Surplus for the year 2,840,682 1,897,995

Add/(less) non-cash items: Depreciation 2,548,548 1,081,181 (Gain)/loss on sale of property, plant & equipment (1,868,649) (173) Net change in fair value of derivative financial instruments 144,329 -

3,664,910 2,979,003 Changes in Assets and Liabilities: Decrease in Trade and other receivables 341,672 (479,538) Increase in Other financial assets - - Increase in Current tax refundable (156,802) (365,446) Decrease in Trade and other payables (1,406,666) 883,122 Increase in Income in advance 5,466 12,692 Increase in Employee entitlements 22,535 (11,998) Increase in Deferred tax asset (101,980) (86,723)

Movement in items reclassified as investing activities 1,583,155 (833,034)

287,380 (880,925)

Net cash inflow from operating activities $3,952,290 $2,098,078

35 QUEENSTOWN AIRPORT CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont.) For the Financial Year Ended 30 June, 2007

18. FINANCIAL INSTRUMENTS

(a) Capital Risk Management

The Company is not subject to any externally imposed capital requirements.

(b) Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, and the basis of measurement applied in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements.

2007 2006 $ $

Financial Assets Cash and cash equivalents 41,900 6,986 Trade and other receivables 903,543 1,245,215

Financial Liabilities Bank overdraft - 51,505 Trade and other payables 1,188,418 2,595,084 Income in advance 46,340 40,874 Employee entitlements 75,269 52,734 Fair value through profit or loss 144,329 - Borrowings 31,100,000 22,400,000

36 19. IMPACTS OF THE ADOPTION OF NEW ZEALAND EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Company changed its accounting policies on 1 July 2006 to comply with NZ IFRS. The transition to NZ IFRS is accounted for in accordance with NZ IFRS-1 ‘First-Time Adoption of New Zealand Equivalents to International Reporting Standards’, with 1 July 2005 as the date of transition. There were no material differences between the Company’s financial position, financial performance and cash flows presented under NZ IFRS and the Statement of Financial Position, Statement of Financial Performance and Cash Flow Statement presented under the superseded policies.

37 QUEENSTOWN AIRPORT CORPORATION LIMITED STATEMENT OF SERVICE PERFORMANCE

With the Frankton Flats secured as the airport site for the foreseeable planning period of at least 15 years, QAC set itself the task of providing the continued financial stability and viability to progress the modest planned development of both airside and landside facilities.

PERFORMANCE MEASURES

• Continue and improve liaison with the Council as shareholder, and the community, in order to promote the concept of “the responsible use of airspace over Queenstown”.

• To develop the airport terminal and associated facilities to meet the needs of users for the next 10-15 years.

OUTCOME

• Council is represented at regular meetings of the Board of Directors. Additionally the QAC provide six-monthly reports to Council.

• The Company has completed all stages of extensive additions to the terminal building, and apron, and the majority of landside works.

2007 2007 Actual Forecast $ $

Income 11,036,368 9,087,448 Operating Expenses 7,617,517 7,349,418

Net Surplus/(Deficit) Before Tax 3,418,851 1,738,030

Taxation 578,169 573,551

Net Surplus/(Deficit) After Tax 2,840,682 1,164,479

Note 2007 income includes a gain of $1,868,649 arising from the sale of land.

38 STATEMENT OF CORPORATE INTENT

The Company sets various performance measures in its annual Statement of Corporate Intent. These are now reported on:

Objectives and Performance Indicators

1. Provide suitable terminal facilities for satisfactory Trans–Tasman operations.

2. Promote planning measures designed to ensure the mission and goals of the QAC can be achieved.

3. Ensure adequate communication exists between the QAC and the community and its elected representatives by way of an ongoing public information service and the holding of regular open meetings with a liaison group comprising community group representatives, interested individuals, airport users, etc., while continuing existing reporting systems.

4. Implement all viable steps to mitigate the noise impact of the airport on the surrounding residential area especially at the western end.

5. Achieve the forecast profit result.

6. To achieve an average tax paid rate of return on Shareholder’s Funds commensurate with that achieved by similar organisations. For the year ending 30 June 2007 the target was 4.97%. This target was lowered due to the extensive capital costs undertaken in the last two financial years.

7. The Company will operate with a debt equity ratio that will not exceed the allowable lending criteria.

Actual Performance achieved

1. The completion of the terminal redevelopment will allow for satisfactory Trans-Tasman operations for a number of years.

2. The Company continues to be involved in ensuring that surrounding land developments and planning are consistent with the airport’s operations.

3. The shareholder of the Company is represented at Board meetings as an observer, and the Company provides quarterly reports to the shareholder. Regular meetings are held with airport users and interested members of the public regarding airport operations.

4. The Company continues to promote “the responsible use of airspace over Queenstown” through the Queenstown/Milford Users Group.

5. The budgeted profit result was a surplus after tax of $1,164,479. The actual result was a surplus of $2,840,682 The reason for the variance is that the Company made a gain of $1,868,649 from the sale of land.

6. The tax paid return on shareholders funds was 21.59%.

7. The Company operates within its approved banking facilities.

39 QUEENSTOWN AIRPORT CORPORATION LIMITED AUDIT REPORT TO THE READERS OF QUEENSTOWN AIRPORT CORPORATION LIMITED’S FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION FOR THE YEAR ENDED 30 JUNE, 2007

The Auditor-General is the auditor of Queenstown Airport Corporation Limited (the Company). The Auditor- General has appointed me, Peter Gulliver, using the staff and resources of Deloitte, to carry out the audit of the financial statements and performance information of the Company, on his behalf, for the year ended 30 June, 2007.

Unqualified Opinion In our opinion: - The financial statements of the Company on pages 15 to 37: - comply with generally accepted accounting practice in New Zealand; and - give a true and fair view of: - the Company’s financial position as at 30 June, 2007; and - the results of its operations and cash flows for the year ended on that date. - The performance information of the Company on pages 38 and 39 gives a true and fair view of the achievements measured against the performance targets adopted for the year ended 30 June, 2007. - Based on our examination the Company kept proper accounting records. The audit was completed on 20 September 2007, and is the date at which our opinion is expressed. The basis of the opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and the Auditor, and explain our independence.

Basis of Opinion We carried out the audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the New Zealand Auditing Standards. We planned and performed our audit to obtain all the information and explanations we considered necessary in order to obtain reasonable assurance that the financial statements and performance information did not have material misstatements, whether caused by fraud or error. Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements and performance information. If we had found material misstatements that were not corrected, we would have referred to them in the opinion. The audit involved performing procedures to test the information presented in the financial statements and performance information. We assessed the results of those procedures in forming our opinion. Audit procedures generally include: - determining whether significant financial and management controls are working and can be relied on to produce complete and accurate data; - verifying samples of transactions and account balances; - performing analyses to identify anomalies in the reported data; - reviewing significant estimates and judgements made by the Board of Directors; - confirming year-end balances; - determining whether accounting policies are appropriate and consistently applied; and - determining whether all required disclosures are adequate. We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and performance information. We evaluated the overall adequacy of the presentation of information in the financial statements and performance information. We obtained all the information and explanations we required to support the opinion above.

40 Responsibilities of the Board of Directors and the Auditor The Board of Directors is responsible for preparing financial statements in accordance with generally accepted accounting practice in New Zealand. Those financial statements must give a true and fair view of the financial position of the Company as at 30 June, 2007. They must also give a true and fair view of the results of its operations and cash flows for the year ended on that date. The Board of Directors is also responsible for preparing performance information that gives a true and fair view of the service performance achievements for the year ended 30 June, 2007. The Board of Directors’ responsibilities arise from the Financial Reporting Act 1993 and the Local Government Act 2002. We are responsible for expressing an independent opinion on the financial statements and performance information and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001 and section 69 of the Local Government Act 2002.

Independence When carrying out the audit we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the Institute of Chartered Accountants of New Zealand. Other than the audit, and providing assistance with the Company’s adoption of International Financial Reporting Standards, we have no relationship with or interests in the Company.

Peter Gulliver Partner DELOITTE On behalf of the Auditor-General Dunedin, New Zealand

41 QUEENSTOWN AIRPORT CORPORATION LIMITED STATUTORY DISCLOSURES

Your Directors have pleasure in submitting the Annual Report of the Company together with the financial accounts of the Company for the year ended 30 June 2007.

1. Financial Statements The financial statements for the Company for the year ended 30 June 2007 are included in this report.

2. Changes in Accounting Policies There have been no changes in accounting policies.

3. Principal Activities of the Company The principal activity of the Company during the year was airport operator. There has been no material change in the Company’s business that the Company is engaged in during the year that is material to an understanding of the Company’s business. Details of the year under review and future prospects are included in the Chairman’s Report.

4. Board of Directors The Directors of the Company during the year under review were: M A Taylor (Chairman) M W Walker D V Fea M G Valentine (appointed 27 November 2006) J S Davies (retired 27 November 2006) I F Farrant (retired 27 November 2006)

5. Results For the Year Ended 30 June 2007 Net Tax Paid Profit for the year was $2,840,682 compared to a Profit of $1,897,995 in the previous year. The Directors recommend that no final dividend be paid. Appropriation Account Net Tax Paid Profit of 2,840,682 Plus Retained Earnings Brought Forward 1,403,589 Leaves Retained Earnings to be Carried Forward of $4,244,271

6. Directors Interests The following transactions were entered into by the Directors of the Company during the year. During the year Trojan Holdings Ltd was contracted to provide rubbish removal services at the airport. Mr J S Davies, a Director during the year, is also a Director of Trojan Holdings Ltd. All of the transactions were provided on normal commercial terms.

7. Share Dealings No Director acquired or disposed of any interest in shares in the Company during the year.

42 8. Directors Remuneration The following are particulars of Directors remuneration authorised in accordance with Section 211(1)(f) of the Companies Act 1993 from the effective date. 2007 2006 M A Taylor 21,250 15,000 J S Davies 10,000 20,000 I F Farrant 7,500 15,000 M W Walker 16,250 15,000 D V Fea 16,250 15,000 M G Valentine 8,750 – $80,000 $80,000

9. Remuneration of Employees There was one employee who received remuneration and any other benefits in excess of $100,000 for the financial year as follows: Number of Employees Bracket 1 $130,000 - $140,000

10. Donations The Company made no donations during the year.

11. Use of Company Information During the year the Board received no notices from Directors of the Company requesting to use Company information received in their capacity as Directors which would not otherwise have been available to them.

12. Auditor The Auditor General is the statutory auditor of the Company in accordance with the Public Audit Act 2001. The Auditor General has appointed Peter Gulliver of Deloitte to undertake the audit on his behalf.

On Behalf of the Board

Mark A Taylor Chairman 20 September, 2007

43 QUEENSTOWN AIRPORT CORPORATION LIMITED DISCLOSURE OF INTERESTS BY DIRECTORS

Mark A Taylor (Chairman) BMS, CA, MinstD Murray G Valentine (Director) B.Com, CA Ardmore Airport Ltd Alpine Deer Group Limited Perry Group Limited Animation Research Limited Queenstown Resort College Ltd Aoraki Mount Cook Alpine Village Westmed Development Capital Ltd Limited plus a number of other private Farra Engineering Limited companies Holcim (New Zealand) Limited Jackson Valentine Limited Duncan V Fea (Director) B.Com, CA Mainland Poultry Limited Cook Adam & Co Ltd Mackenzie Irrigation Limited Pioneer Generation Ltd Queenstown Airport Corporation Limited Walker Group Ltd and subsidiary Simons Pass Station Limited companies Southern Alpine Recreation Limited plus a number of other private companies Southern Lakes Laundries Limited Taylormade Media Limited M W (Bill) Walker (Director) ONZM Terralink International Limited Walker Group Ltd and subsidiary Trojan Holdings Limited companies Whale Watch Kaikoura Limited Skyline Enterprises Ltd and subsidiary Whitestone Pastures Limited companies plus a number of other private plus a number of other private companies companies

QUEENSTOWN AIRPORT – MANAGEMENT

Queenstown Airport – Management

Steven Sanderson MBA, Grad Dip BA, MinstD Chief Executive Officer

Christopher D Read B.Av; Dip.Av; B.Com, CA; AFNZIM General Manager Aeronautical

Simon D Barr B.Com General Manager Commercial

44 DIRECTORY

Board of Directors Mark A Taylor (Chairman) M W (Bill) Walker Duncan V Fea Murray G Valentine (appointed 27 November 2006) John S Davies (retired 27 November 2006) Ian F Farrant (retired 27 November 2006)

Chief Executive Officer Steven Sanderson

Accountants McCulloch & Partners Chartered Accountants Lakeland House 34 Camp Street Queenstown

Auditors Deloitte (on behalf of the Controller and Auditor General) PO Box 1245 Dunedin

Bankers The Bank of New Zealand PO Box 70 Queenstown

Solicitors Macalister Todd Phillips Bodkins Barristers & Solicitors PO Box 653 Queenstown

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