ANNUAL REPORT 2012

& Waikato-Tainui Fisheries Limited

& waikato-tainui fisheries limited Our business

Our core business is property investment and development.

Tainui Group Holdings Limited (TGH) and Waikato-Tainui Fisheries Limited (WTF) are the commercial entities of Waikato-Tainui Te Kauhanganui Incorporated (WTTKI), the Shareholder and tribal authority of Waikato-Tainui. Our role is to deliver commercial returns on assets for the Waikato-Tainui people. This includes assets that were returned by the Crown under the Waikato Raupatu Claims Settlement Act 1995 as redress for raupatu (land confiscation) in the 19th century.

TGH’s principal objective is to maximise Shareholder wealth through a sustainable asset portfolio. This is achieved through our core business which is property investment and development. Our strategy of identifying and growing high quality assets to generate income from them, allows us to provide consistent, long- term dividends for the benefit of current and future generations of Waikato-Tainui.

These dividends are used by our Shareholder to meet tribal expenditures and for charitable purposes distributed in the form of grants, to Waikato-Tainui marae and registered tribal members for education, welfare, health and social and cultural development.

Strong governance of our strictly commercial business model is the cornerstone of our business philosophy. A clear distinction between wealth creation and the responsibilities of distributing wealth has been agreed between us and the Shareholder. The two parties have signed a Statement of Corporate Intent (SCI) that documents all the necessary understandings that must exist between us. Tainui Group Holdings Annual Report 2012

2 Financial performance summary 3 Year in review 4 Our strategy 6 Our structure 7 10 years in review

contents 12 Business review Chairman’s report CEO’s report Overview Operational review Financial overview Sustainability Growth Partnerships

34 Our people Our management Our team

38 Our directors Board of directors Directors’ report Governance

48 Financial information Five year trend statement Financial statements – Tainui Group Holdings Limited Financial statements – Waikato-Tainui Fisheries Limited

1 Financial performance summary (TGH and WTF)

2012 2011

Net operating profit $20.7m $14.9m

Additional rental and hotel income more than offsets the increase in financing costs.

Net profit $39.9m $23.1m

Unrealised movement in value of assets provided favourable increases.

Revenue growth 57.7% 16.3%

Increase in hotel income and a full year’s rental from Te AWA contributed 32% to the revenue growth.

Total assets $694m $658m

Capital expenditure on The Base and the divestment of shares in Ryman Healthcare is represented in the movement in assets.

Capital expenditure $56.4m $114.2m Te AWA and Novotel Auckland Airport were completed during the year.

Bank debt to total assets 26.0% 28.3% Proceeds from the sale of the Ryman Healthcare shares were applied to debt.

Dividend $11.0m $10.5m

The dividend increases by $0.5m annually. The 2011 dividend was declared on 31 March 2011 and is recorded in the financial statements. The 2012 dividend in relation to the year ended 31 March 2012 was declared on 22 June 2012 and is not recorded in the financial statements.

Return on Shareholder funds 10.3% 6.7%

Returns have been affected by the unrealised movement in asset values as well as a full year’s earnings on major developments.

2 Tainui Group Holdings Annual Report 2012

August November February Here-turi-kookaa Whiringa-aa-rangi Hui-tanguru Lease of Te AWA complete for April Paenga-whaawhaa stages 1-4 Demolition commences for TGH wins TVNZ Hoyts at Te TGH head office Marae Investigates: AWA opens at 6 Bryce Street, 2011 Maori Stage 3 at Te AWA with the global Hamilton of the year – opens premiere of business section Billy T: Te Movie May Haratua TGH wins March Human Rights Poutuu-te-rangi Commission: TGH white water Special award rafting team for cultural building references and Novotel Auckland bi-lingual signage Airport Hotel at The Base and in opens particular, Te AWA TGH a finalist The in the New June Pipiri Base Zealand Institute gift of Chartered Raukura Hauora WTTKI vs TGH card Accountants: O Tainui opens its car rally is launched office as the first 2011 Best non-retail tenant July Annual Report at The Base Hoongongoi September by a Corporate Bank debt Mahuru Organisation facility for $50 The Callum million signed, Brae Tainui increasing total Joint Venture December lending facilities sales surpass 600 Hakihea from $200 million sections to $250 million October TGH’s 2011 annual Whiringa-aa-nuku stakeholder function New Te Arataura Public formed and Resource consultation unanimously consents for the by Hamilton approves development of Novotel Auckland City Council appointment of Sir the balance of Airport wins for Ruakura Henry van der land at The Base Auckland commences Heyden as TGH is approved Architecture director and Awards: appointment of Ryman Commercial Joanna Perry as shares architecture and an advisor to the sold interior award TGH board.

3 Our strategy

Our vision To lead Maaori economic development, alongside other iwi-owned businesses, to benefit Maaori and the whole community.

Our objective To maximise wealth, provide long term returns and a consistent dividend to our Shareholder. We do this primarily through strategic acquisition, investment and development of property, and by investments in fishing, managed funds and equities.

Our formula To meet our Vision and Objective, we apply a formula that is targeted towards the following key components that are important to our company.

Growth We invest for the long term, a horizon that stretches over decades.

We maintain a strong balance sheet with prudent borrowing levels.

We bring freshness, vibrancy, quality and longevity to the design and functionality of our property portfolio.

Customers We cultivate long-term tenant relationships for mutual benefit.

Shareholder We reflect Waikato-Tainuitanga in business wherever appropriate.

We provide a consistent dividend stream.

Stakeholders We engage leading specialists to deliver the best service and products for our business.

We invest in long term partnerships with other businesses, including iwi.

We encourage cultural, social and environmental responsibility.

We invest in the team.

4 Tainui Group Holdings Annual Report 2012

Key Strategies Objective Progress Outlook

Deliver a long term TGH assets grew by 5.5% to Ruakura will be a Growth sustainable dividend $694 million in 2012. unique commercial Grow beyond stream. The Base is New Zealand’s development that Be a recognised largest single retail development will become a $1 billion in contributor to the by area and Australasia’s only project of national high quality region’s economy. hybrid (large format and mall) significance centre. Businesses at The Base creating growth and total assets Be the leader or employment. preferred partner employ 1,528 full and part-time by 2021 of significant employees. development projects. The completion of award winning Novotel Auckland Airport has contributed $59 million to total assets.

Deliver investment Weighted average cost of capital Assess all future Operational returns in excess of methodology used to assess capital and market based hurdle performance of TGH’s existing investment projects Deliver returns rates. asset portfolio and inform to determine investment decisions. if returns meet required hurdle rate.

To develop highly Implementation of the People Recruitment and People competent, motivated Strategy 2025. retention focus on Value employee and engaged people. Graduate recruitment evening creating a motivating To enable people held in March 2012 to showcase and positive contributions to express their full TGH achievements. environment. potential. Medical checks and flu jabs offered for all staff. Weekly provision of fresh fruit provided to the team. Team building events.

Create enduring A group of preferred, strategic Regular review Partnerships relationships with partners to provide appropriate of long-standing partners whose views advice and support as relationships and Create enduring are closely aligned required which includes banks, active engagement relationships with TGH. construction, legal, financial and with principals to advisory services. We profile a ensure that our sample of our strategic partners business needs are on pages 30 to 33. being met.

Differentiate from Novotel Auckland Airport hotel The current Sustainability competitors by is infused with Waikato-Tainui development of the completing projects design features providing the new TGH offices Differentiate from that reflect the first insight into New Zealand at 6 Bryce Street, competitors enduring place in New culture for many travellers. Hamilton will feature Zealand society of The Base, and in particular, Waikato-Tainui Waikato-Tainui. Te AWA design features are influences. embedded with cultural elements from Waikato-Tainui.

5 Our structure

Waikato-Tainui Te Kauhanganui Incorporated is the Shareholder of both Tainui Group Holdings Limited and Waikato-Tainui Fisheries Limited. Waikato-Tainui consists of over 60,000 registered iwi members. Each iwi member affiliates to at least one of the 68 Waikato-Tainui marae. Each marae tri-annually elects three representative iwi members for the appointed WTTKI – or the Tribal Parliament. One additional representative to the Tribal Parliament is appointed by the Head of the Kaahui Ariki – currently Kiingi Tuheitia. From the Tribal Parliament, 10 members are elected onto its executive – Te Arataura, and one is appointed by Kiingi Tuheitia. Te Arataura oversees the tribal operations which are based in both Hopuhopu and Hamilton.

Waikato-Tainui iwi members

68 Waikato-Tainui marae

Waikato Raupatu Waikato-Tainui Te Kauhanganui Waikato Raupatu Lands Trust Incorporated (tribal parliament) River Trust

Te Arataura

Tainui Group Waikato-Tainui Holdings Limited Fisheries Limited

TGH Corporate Structure

Chief Executive Officer

General Manager Chief Corporate Services General Manager Property Financial Officer

People Property Management Group Treasury

Legal and Property Investment Corporate Administrative and Development Financial Services Services

6 Tainui Group Holdings Annual Report 2012

Chairman John Spencer and CEO Mike Pohio reflect on a decade of TGH’s operation as a separate commercial entity, and provide some insights into the company’s thinking throughout that period.

Early years Rebuilding appointees and three 2004 1995-2002 2003-2006 independents. The charter stipulated that one of the Ownership of commercial assets In 1995 Waikato-Tainui settled The tribe took stock, and independent directors must transferred from the its Raupatu or confiscation in 2002 John Spencer was be the Chairman. Board Shareholder to TGH claims for $170 million, approached to advise on a processes were reviewed, Raukura Moana Seafoods ceased harvesting and comprising both land and new direction. TGH took over and governance standards selling fish cash. In 1997 all the property all commercial assets, as up established, based on the transfers from the Crown to till then some had been held nine principles set down in the tribe were completed, and under other structures. The the Securities Commission TGH was established. settlement included over guidelines (now the Financial 450 property titles, but some Markets Authority). New Positive decisions were were little more than roadside Board appointments were taken in those early years. strips, so a full stock-take was made, including the Hon. TGH invested in Hamilton required. Koro Wetere, and John Riverview Hotel Limited with The Base construction Spencer became Chairman. commences Hamilton City Council and A Board ‘charter’ was A new management structure eventually written for the Accor in 1998, and the Novotel was established. Tainui was built in 1999. company, providing for decisions.” Agreement was “The most important task The 655 section residential six directors – three tribal eventually reached for non- was to restore the confidence development at Huntington strategic lands to be sold but 2003 of lenders. Without the ability commenced in 2001, and The on condition that the company to borrow, the company Base was identified as a high Restructured would acquire other (more management wouldn’t be able to proceed productive) parcels of land priority for future development team commence with developments such as (along with TGH offices over time to compensate, and John Spencer appointed The Base. This meant at least and rationalisation of non a process was established as TGH’s Chairman three years of TGH proving it performing assets). to help guide future land Huntington development could live within its means,” decisions. Key parcels, such commences However, a number of other says Spencer. as The Base, were also placed early business ventures failed The only way to achieve back in tribal ownership under due to inadequate systems this was to sell assets and ‘Pootatau Te Wherowhero and processes, and some $40 establish a pool of funds. title’, with TGH retaining million was lost. While banks “This was a difficult time,” management responsibilities. had earlier lent money to TGH, says Spencer. “Having just As land was sold, proceeds they were now reluctant to had their land returned, were placed in a managed renew debt facilities. and given their ancestral fund that could be liquidated connections to it, the easily as opportunities tribe was faced with hard were identified. Leases also

7 received early attention, with 2006 New directions for developing the rest of a formal register created, and 2007-2012 The Base was still only in its evaluations made of their value Puka Park Resort sold conceptual stages. Three for either income or strategic Acquisition of two Formal discussions took factors swayed the decision: properties in Hamilton purposes. For those that CBD for $13m place between TGH and the the price was never going were retained, independent tribe to resolve a key issue to get cheaper, internal valuations were needed for – consistency in dividend confidence TGH could go balance sheet purposes and to income from TGH, making it it alone and 12 hectares on reach agreement with tenants possible for the tribe to plan the northern boundary that to ensure fair market rentals its activities with certainty. could now be added to the were being paid. “Processes John Spencer says a trade-off development. like these were vital steps in had to be made between the It had become apparent that establishing a professional desired level of dividend and further development of The commercial reputation for the reinvestment in the business Base had to be TGH’s single company,” says Spencer. (to enable capital growth). most important strategic In 2006 TGH undertook to investment. There were simply The company’s big break guarantee an annual dividend no other comparable options. came in 2003 when Sir of $10 million for 5 years, and By this time the majority of Stephen Tindall, owner of the company was given a potential asset sales had been The Warehouse, agreed to become the anchor tenant at strict new focus – to maximise realised. Projecting forward, 2005 The Base, and to joint venture shareholder wealth. the company also knew that income from section sales at Managed fund the development with TGH In August 2006 Mike Pohio Huntington were coming to investments purchased on a 50/50 basis. Crucially, he replaced Steve Murray as an end. Hamilton Riverside also advocated for the project Chief Executive. By now TGH Casino sell down of 15% minority interest with Hamilton City Council, was once again able to borrow Meanwhile, the Ibis-Tainui was Raukura Moana Fisheries who at that time seemed intent money for development, via an built, and a close relationship 30% sell down on rejecting TGH’s resource initial $30 million facility from was developed with Ngai Tahu The Base opens its first consent application so as to Westpac. The timing could not Holdings Corporation. large format retail stores protect Chartwell Shopping have been more fortuitous. Throughout this period, TGH Centre. “Without his personal In 2007 agreement was became very concerned intervention, The Base would reached with The Warehouse about an over-heated property not exist today, and once The to sell its 50% share of The market. If it deflated suddenly, Warehouse was established Base, and with borrowed property values could on the site, it attracted other capital, TGH was able to take plummet, risking a decline ‘big box’ retailers, enabling the outright ownership. Placing in equity. The company did project to gain momentum,” all TGH’s eggs in one basket however take confidence that says Spencer. was however a risk: the plan its debt to asset ratio was well

$M Total assets and debt (TGH and WTF) $M net profit (TGH and WTF) 800 80 69 694 64 700 Total assets 658 62 60 52 600 Debt 536 529 40 40 500 497 34 22 23 400 378 20 18 316 300 238 0 200 166 180 -20 100 (28) 0 4 6 13 73 75 88 187 180 -40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

8 Tainui Group Holdings Annual Report 2012

2007 Pohio says that achieving this that we were flexible in significant: the BNZ had in a market where no-one meeting their individual needs, written off a loan in the early Construction of else could attract tenants was and we had a real commitment years. Having them back was Ibis-Tainui Hotel commences an absolute turning point for to quality.” a very special moment, and the company. “What swung another important milestone. it was prospective tenants’ 2009 In 2008 the company understanding of what TGH liquidated its managed funds, Partial selldown was capable of, and what Te of managed funds and these proceeds were AWA could mean for their investments also earmarked for Te AWA, competitive position.” Construction at Te AWA along with a new opportunity. stage 1 commences TGH and Ngai Tahu Holdings $30m debt facility with “For perhaps the first time, Westpac established Corporation had signed a the penny dropped that TGH co-investment agreement, and was a property investor, not a under its self-imposed 30% the chance to jointly purchase property developer. In other limit, and that by now all its shares in Ryman Healthcare words, we weren’t going to properties were insulated by came up. TGH bought 4.5% of build this flagship asset and either strategic value or solid Ryman. “We very much saw then flick it on in six months,” tenancies. it as a way to consummate says Spencer. “Tenants saw Construction of The Base large format retail ends the relationship,” says Pohio. Nevertheless, as the Global Financial Crisis (GFC) hit, 2008 That quality came not just 2010 TGH postponed most planned Ibis-Tainui opens from attention to detail. “Both developments save The Base. Full selldown of managed Purchase of shares in The Base and Te AWA are funds investments Planning for Te AWA, the mall, Ryman for $37m hugely complex equations”, Construction at Novotel was underway, and in 2008 $14m of shares in Auckland Airport hotel says Pohio. “It included Spencer says the company Aotearoa Fisheries commences Limited received selection of the right tenants, made “its biggest-ever call, 50% of The Base acquired their placement in relation to to proceed with this new from the joint venture each other, their infrastructure development despite the partners, The Warehouse Group and support needs, and the ongoing impact of the GFC.” management of everything The Board however issued from security to waste to Planning for Ruakura a caveat: 80% of tenancies commences had to be signed up before maintenance.” Construction of Te AWA construction could begin on Te AWA was partially financed stage 2 commences each stage of development. by a new $50 million debt $50m debt facility with Farmers Trading became the facility, this time from the BNZ. BNZ established anchor tenant and construction Planning for Te AWA Spencer says the signing Debt facility with Westpac commences is increased to $100m commenced in January 2009. of this agreement was very

$M Annual dividend (TGH and WTF) $M Capital Expenditure (TGH) 12 120 11.0 Dividend 10.7 10.5 10.5 10 10 Te AWA 10 100 Dividend The Base (excluding Te AWA) % % of NPAT 84 % Novotel Auckland Airport % 70 8 68 % 80 7.4 64 Farms and other investment property 57% Hamilton CBD properties 6 53% 60 5.5 Callum Brae Tanui 46%

4 3.4 35% 40

2 21% 20 0.0 0 0% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

9 “Although we sold out in 2012 regional and national design at which the company’s results has now accepted that what to help finance the Novotel and architectural awards, is a are presented to community happened in the early days Auckland Airport hotel, we showcase of New Zealand’s leaders, councils, the business after the settlement is well maintain close ties with Ngai rich cultural heritage.” community and Members of and truly in the past,”says Tahu, and are always on Spencer. “More recently too, The Accor Group again Parliament. They have also the look-out for other co- people have moved past the featured as a commercial seen the publication of an investments.” idea that we’re some kind partner in a TGH-led hotel enhanced annual report, one of threat.” The final stages The Novotel Auckland Airport development, and was a good that the New Zealand Institute of The Base were famously hotel wasn’t specifically in example of TGH’s approach to of Chartered Accountants blocked in late 2009 by what TGH’s strategic plan, though joint-venturing. “The reality is recognised as a finalist in was known as ‘Variation 21.’ It it had looked at potential that we don’t want to finance the main category of their was overturned by the High hotel developments. It came everything ourselves, even if 2011 Annual Report Awards. Court, and following the 2010 about unexpectedly through we could. And more than that, In recent years it has been augmented with a special local body elections, the issues pre-existing relationships it recognises that each party shareholder supplement that were successfully resolved with Accor and Auckland brings different skills to the provides further details on the by face to face negotiation. International Airport, but it was table,” he says. definitely an opportunity worth financial results. TGH’s website “We now have a real sense TGH has developed close checking out. “Airport hotels has also had a refresh to make that Hamilton and the Waikato working relationships with are a very sound commercial it more user-friendly. see TGH as part and parcel of a range of professional investment. Auckland had their future.” advisors as well. These 2012 “Our track record shows include: architects Ignite 2011 Novotel Auckland that we’re here for the long and Warren and Mahoney, Construction of Te AWA Airport opens term. We’re big investors stage 3 commences property development in the local economy. We’re project managers Greenstone into partnerships. We value Group, engineers Boffa long-term relationships. And Miskell, construction Ruakura is potentially the company Naylor Love, law biggest future driver of the firm Bell Gully, auditors Sale of shares in Ryman Waikato economy,” says Pohio. PricewaterhouseCoopers, Huntington development For John Spencer, these kinds financial advisors Ernst Young nears completion of initiatives mean that iwi- Te AWA stage 1 & 2 opens and public affairs advisors Te AWA stage 3 & 4 opens owned investors are going Busby Ramshaw Grice. to be a crucial part of New Partnerships will again be Behind the scenes, the Zealand’s economy in the to the fore in the inland port company puts a lot of effort years to come. and freight hub at Ruakura. into shareholder consultation One myth he still does want All these developments have via an annual strategic $50m debt facility with to dispel though is that BNZ signed increasing brought a higher public planning session with Te debt capacity to $200m Waikato-Tainui, and Ngai Tahu, profile, and from 2006, TGH Arataura, the tribal executive, are ‘rich.’ “Take the annual started to come out of its and regular presentations to dividend and divide it by none on its campus, and with shell. Up till then, it had been Te Kauhanganui, the tribal 60,000 members of the tribe. a 70% share, we got an added a case of proving by doing. Parliament. The Chairman and It’s a few hundred dollars each. boost to our future cashflows,” What changed was a survey CEO also have regular contact And if you liquidated TGH says Pohio. the company did back then of with the Te Arataura Chair on tomorrow – sold everything, public attitudes. “There were day to day matters. “Equally importantly, along paid off the loans – each many misconceptions, and with Te AWA, it entrenched Spencer and Pohio have person would get a one-off a lot of negativity. It showed our reputation for creating observed more than one cheque of about $6,000. So we had to get out there more top quality assets,” he sea change in the past few there’s a long way to go yet, and tell people what we were says, “and reinforced our years in attitudes toward but the trick is to stay positive doing, and by then we had a commitment to reflecting the company. “The tribe and to keep looking for what’s good story to tell.” Waikato-Tainui ownership are certainly pleased with possible.” in our developments. The Those efforts in recent years what’s been achieved, and I hotel, which has since won have included an annual event think the wider community

10 Tainui Group Holdings Annual Report 2012 A lifetime of service

Hon. Koro Wetere

The Hon. Koro Wetere has Koro’s involvement with the Waikato-Tainui of ethics requires it to consult with the served as a tribally-appointed Raupatu (land confiscation) settlement and relevant hapuu of Tainui. Director on TGH since April its aftermath goes back a long way. Apart from carrying out his normal 2002, and retires this year. He was a member of successive Director’s duties, Koro has played a He was previously a Member Parliaments that created the Waitangi pivotal role in undertaking this work, of Parliament, holding the Tribunal, extended its remit so it could not least because of his knowledge of electorate seat of Western hear claims back to 1840 and expanded history and the fact that he knows so Maori for 27 years, and was Minister of Maori Affairs its resources so it could process more many of the people concerned. from 1984 to 1990. claims, more quickly. He was also involved For example, following Koro’s in several of those decisions in various consultations, the Novotel Tainui, The Base official capacities. and the Ibis Tainui all received the green Although Waikato-Tainui finally settled light from the local hapuu, who then went their Raupatu claim by direct negotiation on to erect their own poupou at the sites. with the Crown, they were only able to do With Ruakura, the latest development, so in this context. consultation with Tauranga Moana iwi was involved. “Tauranga people have Transition had a long association with us,” Koro Koro was instrumental in the consolidation explains. “When we went to see them of the tribe’s commercial operations in about Ruakura, they were very keen. the early 2000’s, signing off on a plan that These working relationships go back saw TGH separated out and given a single some years, well before our time, and can objective – to maximise returns to its always be rekindled.” Shareholder. Tribal and commercial After that early restructuring, a long alignment period generating revenue and steady accumulation of assets followed. Looking ahead, Koro says that TGH and Development also started on The Base. the Waikato-Tainui Executive are likely to Koro derives great satisfaction from what’s come together more often than in the past. been achieved there today, particularly “We need to continue to communicate the tribal elements that infuse the whole with one another, continue to work complex. “Our history is implanted in it.” together, and for the tribe to understand The late 2000’s were also a challenging the long-term steps we are taking to time with the Global Financial Crisis. “Our develop and expand the assets.” valuations went down, and several projects “People at every level of the tribe, were put on hold, but we were still able to right down to the marae, need to be pay the dividend.” involved and understand what this is By the time the Novotel Auckland Airport about. Communication is of the utmost hotel came along, TGH’s assets had grown importance, from the top down. Our young sufficiently for the company to finally people need to be involved to ensure the normalise its banking relationships. whole operation is based on true transition and succession.” “That was a big thing. They could see we were all reading off the same page, that On his retirement, Koro says it’s important we had good asset backing and we were to place on record the contribution of the determined to move ahead.” independent Directors he has worked with over the years. “I want to especially Responsibilities acknowledge the time and expertise they have given, which I have greatly Before any action can be taken on land it appreciated.” manages or owns, the company’s code

11 business review

From the Chairman

Overview

It’s my pleasure to introduce TGH made good progress in 2012. the 2012 Annual Report of General economic conditions remained subdued during the year, and the European debt crisis created Tainui Group Holdings Ltd great uncertainty in late 2011 and early 2012. (TGH) and Waikato-Tainui However, the company remained very much focused during the first six months on completing the Novotel Fisheries Ltd (WTF). Auckland Airport hotel and Te AWA, the specialty retail mall at The Base.

All the necessary structures, policies, processes and standards that are critical for commercial success for TGH have been entrenched. Kua oti te puumau o ngaa puunaha, ngaa tukanga, ngaa tikanga me ngaa paerewa mahi e ora ai te mahi pakihi a TGH. John Spencer, Chairman The cash flows they will generate over time are critical to maintain a steady dividend to our Shareholder and also to help finance development of the freight hub and inland port at Ruakura. The Base has been TGH’s primary focus for almost a decade. While there are still several stages to go before the whole complex is complete, for the first time we have sufficient certainty there to be able to concentrate our attention on another major development. Ruakura is that new project, and this was very much the focus during the second six months.

2012 Financial Results

We are pleased with the 2012 results, despite the flat to negative market conditions experienced through the year, especially in the retail sector. The combined net operating profit for TGH and WTF was $20.7 million, up $6 million (40%) from 2011. The increase is largely due to revenues from Te AWA and the Novotel Auckland Airport hotel. Stage 3 of Te AWA opened in April with the remaining planned stage in August, and the Novotel Auckland Airport hotel opened in late May. For the first time, income from the hotel and retail tenancies comprised the majority of the company’s revenue, though we continue to derive great stability from long-term commercial and Crown leases. Residential property earnings were lower than 2011, recognising that we are coming to the end of the Callum Brae Tainui development at Huntington. 29 sections were sold during the year.

12 Tainui Group Holdings Annual Report 2012

The net profit for TGH and WTF was $40 million, up Net operating profit after 73% from $23 million last year. This largely reflects minority interest TGH + WTF the improved operating profit. $M 22 21 TGH’s and WTF’s combined dividend to its 20 18 18 Shareholder of $11 million was up $0.5 million from 16 16 2011, and the return on Shareholder funds improved 15 14 12 from 6.7% to 10.3%. 12 There was little movement in our balance sheet this 10 8 year. Total assets at 31 March were up $36 million to business review 6 $694 million. 4 On the plus side, re-valuations recognised Ruakura 2 0 advancing as a development proposition over the past 12 months. The Base also rose in value, now that Te 2008 2009 2010 2011 2012 AWA is completed and additional resource consents have been granted. The sale of our Ryman shares for $57 million gave a capital uplift, though this is now represented by an increased value of the property in Net profit after minority interest TGH + WTF which we invested the proceeds. $M The value of our swap book has fallen into negative 60 45 territory, not an unexpected result given the fact that 14 0.5 30 interest rates remained near historical lows. The value is 38 0.4 39 15 34 of course unrealised, and when interest rates eventually 23 0 rise, the book will come back into positive territory. -15 (27) -30 Borrowings have fallen slightly to $180 million. During (1) the year TGH took the opportunity to renegotiate its 2008 2009 2010 2011 2012 existing debt facilities. These were increased $50 million TGH WTF to $250 million in anticipation of upcoming projects. TGH’s debt is currently budgeted to grow to around $200 million by the end of the 2013 financial year and $235 million by 2014. This however has to be seen Net profit after minority interest TGH + WTF in the context of expected growth in the value of the $M company’s assets. TGH has a stated policy that debt 60 cannot represent more than 30% of total assets. It is 45 currently sitting at 26%. 30 18 19 15 34 8 16 21 I’d also reiterate the points I made in last year’s report, 0 18 12 15 that apart from retained earnings, debt is currently -15 (40) the only source of capital for the company. We are -30 also in the fortunate position to have been funding -45 -60 developments over the past three years during a 2008 2009 2010 2011 2012 period of low borrowing costs. Trading Non-Trading

Portfolio value by sector TGH + WTF

% % Fishing 5 Development 3 Total Assets TGH + WTF % Hotels 11 $M 700 13 14 14 13 525 13 645 680

350 522 484 516 % Investment properties 81 175

0

2008 2009 2010 2011 2012 TGH WTF

13 Ruakura, Hamilton

Strategic direction Hence also the current focus on Ruakura. If the necessary Regional and District planning approvals As I’ve stated in previous years, while the company’s are obtained, it will become the main development primary objective is to maximise returns to its focus for the company for several years. Shareholder, the strategies needed to achieve that do In 2012 the company continued to enhance existing not focus on short-term financial results. partnerships and develop new ones, as this long- TGH is a firmly committed multi-generational investor, established strategy will remain a key to its future looking to grow and add value to its investment success. For example, TGH is looking to sign a co- portfolio over the long term. investment agreement with Te Arawa Group Holdings In recent years our business has become more Limited, the result of several meetings during the year. specialised, with the emphasis on property TGH also invested in our people, supporting training investment. This is in part a natural progression: as at all levels and recruiting new staff. Interest in our we invest more deeply in our property holdings, they graduate programme continues to grow, which is increase in value relative to our other assets. extremely heartening, and at some stage in the future However the company has consciously sought to we may expand the programme beyond four to five diversify within that portfolio. Once The Base is places. At a recent recruitment evening, we had 27 complete for example, it is unlikely we will pursue attendees, mostly of Waikato-Tainui descent, up from other retail opportunities. 19 last year.

Te AWA, The Base

14 Tainui Group Holdings Annual Report 2012

Improving the capability to deliver

Rukumoana Schaafhausen has been a member of Te Kauhanganui, the tribal Parliament, since its inception in 1995. She was a tribally appointed

Director of TGH from 2009- business review 2012. She is also a Director of Genesis Energy, Regional Facilities Auckland Limited and the NZ Centre for Social Innovation. In 2011 she applied for and was accepted on a one year course run by the New Zealand chapter of ‘Global Women in Leadership’. The course is designed for women in either the public or private sectors who are breaking into senior management or governance roles. It involves a programme of study and assignments, Te koohao o te ngira ki Te AWA supported by monthly day-long workshops and ongoing mentoring. Governance For Ruku, the most significant benefit was In February I gave notice of my intention to resign on becoming more aware of her own leadership 30 June 2012, after almost a decade on the Board. On capabilities, and developing more confidence to 30 March, Te Arataura, the Executive of Waikato-Tainui, use them. “I definitely felt I was able to make a unanimously approved TGH’s recommendation that greater contribution to TGH as a result, especially Sir Henry van der Heyden, the outgoing Chairman of around strategy.” Fonterra, replace me as an Independent Director. At “Being a tribally-appointed Director is all its July meeting this year, the TGH Board must elect a about ensuring alignment between the tribe’s new Chairman. objectives and TGH’s commercial ones. It From 1 April 2012, chartered accountant and also involves going back to the tribal Board professional director Joanna Perry joined TGH as a (Te Arataura) and talking with them about the specialist advisor to the Board. It has long been our challenges and opportunities facing TGH. What intention to find a replacement in this role for Rob you’re looking for is win-win outcomes,” she says. McLeod, who performed this function for several years. Looking back over her time in tribal governance I would like to thank retiring Board members roles, Ruku says that tribal members have Rukumoana Schaafhausen and Rahui Papa for their become very astute and are more involved. work during the year, and welcome Paki Rawiri and “They have always been clear about what they Hemi Rau. wanted, but now they want to see greater and more tangible returns from both tribal and I do however want to pay a very special tribute to the commercial investments.” Hon. Koro Wetere, also retiring, who has served with me on the Board for the whole decade I have held the She applauds this. “If iwi are doing well, so will role of Chairman. His has been a pivotal role. Koro the rest of New Zealand.” has been the rock-solid bridge between the tribe and TGH, and between ourselves and other tribes with whom we have sought to establish commercial relationships over the years. He has also been an active and engaged member of the Board throughout. He, as much as anyone, deserves enormous credit for where the company is today.

15 Outlook

For the next few years, the company’s results are likely to be fairly similar to 2012. Longer term growth in earnings is currently dependent on obtaining planning approvals for Ruakura and finalising a plan for the development. Mike Pohio, Chief Executive, elaborates further on this in his report.

The region’s future is also inextricably bound up with Waikato- Tainui and TGH, and vice-versa. Ko te whanake o teenei rohe e whiri kotahi ana ki a Waikato-Tainui me TGH.

Parting comments

Since this is my last Chairman’s Report for TGH consequent on my resignation, I’d like to sign off with two parting comments. First, one of the objectives we set for TGH a decade ago was that the community also benefit from our investments. However, an alternative option that could have been pursued was to put the Waikato-Tainui settlement in a managed fund, much like the KiwiSaver schemes of today that readers will be familiar with. Had that option been chosen, there might be few if any good quality hotels in Hamilton today. The tribe could’ve leased the land at Te Rapa for industrial use: there would then be no Base retail centre, and Hamiltonians would’ve spent much of their shopping dollar elsewhere. Neighbouring cities would have gone from strength to strength. There would be no contemplation of a freight hub at Ruakura, with other regions instead looking to capitalise on the opportunity. Te AWA, The Base Today, despite some short-term issues, the Waikato can look forward to a prosperous future. Dairying has always been seen as the area’s strength, but history shows that it’s not sufficient on its own. The region’s future is also inextricably bound up with Waikato- Tainui and TGH, and vice-versa. Second, it is my hope that iwi as a whole will at some stage realise their common potential by investing at least some of their assets in a single investment vehicle. There is strength in numbers, and such a venture could truly diversify risk and take on

16 Tainui Group Holdings Annual Report 2012

large projects. Like all iwi investments, it would be long term, and all New Zealanders would be the beneficiaries, just as the Waikato and Auckland have been from TGH’s investments. The country sorely needs large local investors, as ongoing debates over foreign ownership reveal. If I look back on the ten years I have served as Chairman of the Board, my overwhelming feeling is one of huge admiration for the people I’ve worked business review with – my fellow Directors, the management team, our staff, business partners, customers and suppliers. It is not possible here to name them all, but I’d like to sincerely thank everyone with whom I have worked in my capacity as TGH Chairman. It is my hope that Waikato-Tainui continues to produce directors capable not only of sitting on their own commercial board but who can also at the same time operate at the top levels of commercial governance in New Zealand as Rukumoana Schaafhausen has done. The quality of my fellow independent Directors and advisors has always been high, and is even more so today with the likes of Mike Allen and Matthew Cockram, and now Sir Henry van der Heyden and Joanna Perry. The management team and staff, under Mike Pohio’s leadership, are as good as any I have encountered in my managerial and directorship careers. All the necessary structures, policies, processes and standards that are critical for commercial success for TGH have been entrenched. So the future for the company is surely a bright one, and I wish everyone associated with it all the very best.

John Spencer, Chairman.

Te AWA, The Base

17 From the CEo

2012 was very much a year of The financial results for the year were very welcome, consolidation and vindicate our decisions to continue investing in new property assets in recent years, despite the for Tainui Group Global Financial Crisis (GFC). The GFC has in fact been an advantage in some respects: construction Holdings. costs, for example, have been very competitive. Our initial focus during the financial year was on bedding in Te AWA, the new specialty retail mall at The Base, and the new Novotel Auckland Airport hotel, both of which were completed in the first half. The result is that TGH is now in the position of having better comfort around future cash flows.

there will be huge opportunities for others to join us in the Ruakura development, and that it will attract considerable external investment into the Waikato. araa anoo ngaa wheinga o ngeetehi kia puea a Ruakura, ka tooia mai tahi ngaa putunga tahua o waho ki te riu o Waikato. Mike Pohio, CEO

We are constantly making strategic assessments of what the best options are for each of the company’s assets. We benchmark each of our properties against others in the same asset class. This not only gives us the criteria for investment decisions, but also allows us to measure how we’re performing over time. The result is that we have more certainty than ever before about where our future opportunities lie. So in the second half of the year, it was more of a behind-the-scenes effort directed toward that end. Planning for our proposed freight hub and inland port at Ruakura took up a lot of our time. It involved an intensive programme of work to prepare the project for inclusion in the draft Hamilton City District Plan and Waikato Regional Council’s Regional Policy Statement. Both are up for renewal and therefore consultation this calendar year. The Ruakura project involves creating a master plan for 500 hectares of land, with all land uses fully envisioned and integrated, and all necessary infrastructure identified to facilitate those land uses. It also means fully comprehending what is involved in creating an effective inland port and freight hub. But above and beyond that, it involves developing a real vision for what Ruakura could become, more than just what it must become. Also high on the agenda in 2012 was identifying future priorities at The Base and finalising The Base master plan, having secured resource consents for most of its remaining stages.

18 Tainui Group Holdings Annual Report 2012

Novotel Auckland Airport hotel

The 263-bed, four and a half star Novotel Auckland Airport was officially opened on Friday 27 May by Kiingi Tuheitia and the Prime Minister, John Key, in a dawn ceremony. With just 100 days out from the start of the Rugby World Cup, the hotel was able to capitalise on that business review event, and since then has maintained consistently good occupancy and rates. It has certainly met our expectations, as well as that of customers, who have provided very positive Te AWA, The Base feedback. The hotel is located 20 metres from the international terminal, and so is well placed to offer accommodation for international travellers arriving Te AWA late in the evening or departing early morning. Stage 3A opened in April, and Stages 3B and 4 opened The hotel’s restaurant, conference and meeting in August, featuring the new Hoyts cinema complex facilities are also being well utilised, given that the and the worldwide premiere of Billy T: Te Movie. area has been short of such amenities. A major challenge for us with Stage 3A and 3B of The $65 million project was developed by a joint Te AWA was securing tenants in a subdued retail venture comprising ourselves, Auckland International market. The February Christchurch earthquake and Airport and Accor, who operate the hotel. Queensland floods also affected the process, with Auckland Airport handles over 13 million passengers some potential tenants’ decisions unavoidably delayed annually, projected to grow to 24 million by 2025, with because of these events. more than 70% of all international visitors to New TGH’s property team however made a huge effort, Zealand arriving or departing from Auckland. and while Stages 3A and 3B were not 100% tenanted The hotel therefore meets all our criteria for a high on opening day, we did achieve this milestone shortly quality, long term investment. thereafter. Completion of Te AWA was the right strategic decision for TGH, just as locating there was the right one for the new mall’s tenants. When we were planning Te AWA, we undertook a careful study of who its customers would be: the 312,000 people in the Waikato region, of which 60% were resident outside of Hamilton City. We also knew there was leakage to comparable malls in Auckland and Tauranga, because there was little in Hamilton to compete with them. While we had large format retail at The Base, specialty retail, especially fashion and complementary stores, was the value proposition for Te AWA. That approach has been validated by customer patronage. On Boxing Day 2010, for example, 23,000 people visited Te AWA. A year later, on Boxing Day 2011, 41,000 did so. And in mid-March 2012, a normal trading Saturday, 20,000 came to the mall. Apart from the numbers, Te AWA has undoubtably broadened the range of customers coming to The Base, and has reinforced our property diversification Novotel Auckland Airport strategy, this time within the retail space.

19 The Base We have determined that the next addition to The Base will be an ‘auto precinct,’ providing a range of vehicle For the remaining stages of development at The Base, services. These are likely to include a valet service, a we secured all resource consents during the year except tyre service, muffler and brake workshops, WOF, and for the hotel and one other large format retail site. so on. Customers coming to The Base or Te AWA can We also continued to develop the master plan for shop, eat or go to the movies while their cars are being those remaining stages, working out what would be attended to. The precinct will match the rest of The the next best step to take. This work has been made Base for the highest standards of quality. easier by our purchase of the one hectare property on The precinct will be located next to Heathcotes. the corner of Te Kowhai and Te Rapa Roads, a parcel Foundations will be laid by the end of 2012, and we of land within the area that the tribe did not own. expect it to be open for business around the end of Given the ongoing positive customer response to The the first quarter of 2013. Base, access, egress and parking were a big focus for us in 2012. Ruakura We completed all underground parking under Te As I mentioned earlier, we determined that AWA, extended the parking areas at The Base envisioning what Ruakura could truly become was entrance, and created a new staff parking area going to be the key to a really special and successful (important given that over 1,500 people work there). development. We created a new mid point access to The Base, which This has involved considering the scope of activity, opened in Easter 2012, and signalisation of the Base what technologies could be deployed there, and what Parade will take place this coming financial year. different models we could use. To this end, we built Our commitment to resolving traffic issues with on our 2011 visits to several US and Australian inland the Hamilton City Council builds on significant ports by engaging expert advisors with extensive expenditure by TGH made in earlier years. The two international expertise. lanes that used to be State Highway One running past It is the right sequencing and aggregation of linkages The Base for example, were expanded to four lanes in between ourselves as landowner, ports, transport 2007, three years ahead of schedule, courtesy of TGH. operators and infrastructure providers, tenants and While they enabled traffic to move more freely, they their customers that is the key to Ruakura achieving have been well used. the potential it is capable of. In that respect, the new Te Rapa by-pass, which will Everything will grow around the inland port and the be complete by the end of 2012, will be a major technology employed there. For export and import step forward. It will provide an alternative route for customers, visibility of their goods and access to them traffic heading north from the western side of the city, are the keys. So Ruakura will need both state-of-the-art decongesting Te Rapa Road where it passes in front of terminal management systems as well as the latest in The Base. equipment to physically move goods on and off and around the site. Total co-ordination will be required with roading authorities, Kiwirail and the logistics community. What we are now working on is the role TGH could play over time. We are clear that we will employ the same approach used at The Base, where key partnerships were established at various stages. This means there will be huge opportunities for others to join us in the Ruakura development, and that it will attract considerable external investment into the Waikato. We also know that it will have humble beginnings, and will be a carefully staged development. If Ruakura obtains all the necessary regulatory approvals, the project will start with one or two initial anchor tenants. We will establish all the necessary infrastructure and access to enable them to locate and operate as Te AWA, The Base efficiently as possible.

20 Tainui Group Holdings Annual Report 2012

The year ahead

While we have seen the company benefit this year from the work on Te AWA and the Novotel Auckland Airport hotel, we are under no illusions that 2013 will be challenging and will require a lot of dedicated work to maintain current levels of performance. Despite benefiting from fresh earnings for these two recent projects, there will be no revenue uplifts from any of our investment properties beyond them. business review And while some of our longer term leases are in the process of being renewed, we expect the outcomes will reflect the prevailing market conditions. All this means we’ll need to pay close attention to Ruakura, Hamilton improving the efficiency and effectiveness of our management of existing assets, and to constantly So with Ruakura, our efforts in 2012 focused on review our portfolio to identify and deal with any preparing for and working with local and regional poorly performing assets. We will continue to look regulatory authorities to make sure we met all of their here and overseas for best practice, in particular to requirements, and that Ruakura makes a significant keep tabs on changing trends, and look to apply these contribution to the Waikato economy to our existing and future developments. This has involved extensive investigations, looking In the year ahead our focus will be very much at all economic, environmental, social, cultural and on Ruakura, along with the auto precinct, traffic regional perspectives. In anticipation of this work, we infrastructure and forward planning at The Base. The appointed a project manager for Ruakura early on in company is working on some smaller, short to medium the financial year. term developments, notably at Rotokauri (residential) The company also invested a large amount of time and Bryce St (commercial). It is also examining a in presenting and explaining the concept to a wide range of other opportunities that will enable further variety of stakeholders in the region. diversification of its investment portfolio. In late 2012 we worked with Hamilton City Council to Having said all that, TGH will still take up opportunities undertake a first, preliminary round of consultation that come its way and which make strategic and with nearby residents. As a result, changes were made commercial sense. to the interchange solution at the southern end, more detail has been added around staging road network Thanks changes as the inland port and new expressway develop, and better methods of dealing with noise and I’d like to especially thank the other members of the amenity issues were identified. management team, all of the staff and our graduates for the speed and quality of their efforts in 2012. The draft District Plan was due to be released publicly in April 2012, and a second round of consultation, From the point of view of the staff, I would also like to with open days, was planned for May. Following place on record our sincere thanks to the outgoing submissions, Hamilton City Council are scheduled Directors for their support, especially John Spencer to consider the draft plan in September, with formal and Koro Wetere. While setting high performance notification in November. A draft new Regional Policy standards, the Board has then given my team the Statement is also due out in 2012, with a target of freedom to act to achieve the targets we’ve been set. adoption around September. This has created a team culture where people not only take responsibility, but are encouraged to add their It is our understanding that the NZTA Board will own ideas and look for opportunities. Good results determine whether to give approval for the ‘macro- inevitably follow. scope’ of the new expressway in mid 2012. This would then allow NZTA to amend the designations, start to acquire land and move to a more detailed design, with the intention of a full funding application being made for the Expressway around 2014/15. Mike Pohio, Chief Executive.

21 OPERATIONAL REVIEW

Portfolio development was broken into multiple Treasury Management Management stages, so TGH received rental revenue TGH has a similar challenge to as each stage was completed, allowing companies operating a debt to be serviced accordingly. Before Cash Flows co-operative structure, in that it is commencing each stage, a committed dependent on debt to fuel growth. TGH Managing cash flows is crucial to TGH. leasing threshold also had to be met to has not issued capital to anyone other They are reported on and managed provide surety of cash inflows. than its Shareholder. This dependence weekly. The ability to do this successfully In July 2011, TGH sold its 4.5% on debt, by necessity, requires TGH to has a cascading effect on the timing of shareholding in NZX listed company, take a pragmatic approach in managing debt draw downs, and therefore interest Ryman Healthcare Limited. The liquidity and risk exposure by: rate exposure. As a high proportion of divestment of the Ryman shares allowed income is derived from property rental, • Utilising relationships with banks, TGH to pay down a significant portion cash inflows are regular with very little business partners and advisors; of the company’s debt, and benefit from deviation. Cash outflows may spike • Building sound internal treasury subsequent savings in interest costs. according to the various development competencies; projects requiring funding, but otherwise Economic Value Added and • Employing technology to provide operating outflows also remain at Sector Reporting current market information; and consistent levels. TGH’s market is as wide and varied as • Developing and adhering to practical Sustainability and quality of cash flows the business TGH operates. However, the liquidity, debt, and hedging policies. are essential components of TGH’s nature of the core business does place Management reports each month to business. They must withstand market TGH in the investment property sector. the Board on TGH’s compliance with fluctuations, and service not only Largely based in Waikato, TGH owns policies governing hedging profiles, operating costs but also the dividend to a significant footprint in the Hamilton debt durations, and overall risk our Shareholder and debt requirements. area where competitors are commercial exposure. Any compliance deviation is landlords, retail operators and residential Through its tenancy profile, TGH is reported, explained fully, and corrective and commercial property developers. provided with stable, long-term, high action taken as necessary. quality tenants such as Genesis, Waikato TGH periodically compares its Institute of Technology, University of performance to market standards to Debt Duration Waikato, Kiwi Income Property Trust assess returns on investments. The TGH forecasts its debt monthly, on a and Crown agencies. In 2011, these balance sheet consists mostly of tangible 12 month rolling basis for operational tenants generated the bulk of investment assets that are reported at market value, purposes, but a longer term view of property cash inflow. In 2012, with the and so an Economic Value Added (EVA) capital expenditure is taken to provide completion of Te AWA, this reduced from analysis is suited to TGH’s business. future funding requirements. 39% to 29%, meaning TGH’s rental cash TGH has evolved its EVA reporting In July 2011 TGH increased its core debt flows are now predominantly from retail to allow for the review of the sectors facilities (excluding debt associated with tenants. TGH’s increased exposure to the for which it has significant investment the Novotel Auckland Airport hotel) by retail sector prompts a more hands-on in. These are: investment property $50 million to $250 million in anticipation approach to debt collection and tenant (commercial, retail, government and of longer term projects. The company relationship management. This will rural), development property, hotels, also restructured its facilities, with a focus become increasingly important as TGH agriculture and fishing. on tenor (debt duration) and balancing navigates through what is expected the associated pricing. The restructure to be a sluggish period for the New For each sector, TGH has developed provided greater security around future Zealand retail sector. risk adjusted hurdle rates using public information to access its balance sheet liquidity requirements and means A careful and considered approach is profile. These rates are used as a basis that TGH does not need to constantly applied to property development. Before to assess potential future investment in refinance its debt every year, which any property development is approved, these sectors, as well as benchmarks for usually comes at considerable cost. its feasibility is analysed to ensure that reviewing current or historic performance. With a commitment to finishing what it the project’s cash flows meet internally The nature of sector reporting allows started at The Base, TGH will continue developed risk-adjusted hurdle rates. TGH to ‘drill down’ into individual assets the development of the currently The most significant development if required to assess performance and undeveloped area of land adjacent to undertaken in TGH’s history was the therefore make decisions to either Te AWA, and existing large format retail. construction of Te AWA at The Base. The dispose of or improve the asset. This, in addition to some comparatively

22 Tainui Group Holdings Annual Report 2012

minor capital expenditure at Ruakura Margin Management which stop the rental from decreasing. will see TGH’s core debt grow to around As TGH is predominately in the property A feasibility study is undertaken where $200 million by the financial year end investment and development business it a property development or investment 2013, and $235 million by 2014, subject places significant emphasis on achieving opportunity is presented to the company. to growth in the value of total assets. commercially acceptable returns on The study assesses what resources property leases, and adopts a selective are required for the development and Interest Rate Risk approach to property investment and calculates the development margins and Utilising both bank relationships and development projects to ensure the rental returns. Property development technology, TGH monitors the interest risks TGH undertake are appropriately projects are assessed based on the business review rate market on a daily basis. This is compensated for. calculated returns and are dependent particularly important in times of global Rent reviews are another opportunity on compensation for the resources economic uncertainty, as this invariably to review and negotiate terms with utilised and risk involved. As a project impacts on the swap rates that TGH is existing tenants. Depending on the lease is progressed, constant monitoring of able to achieve. Swaps are financial agreement, rent reviews are based on a its feasibility is conducted, ensuring that instruments which are entered into number of standard mechanisms, such there are no cost over-runs. In 2012, all with banks to hedge interest rate risks. as current market rental as assessed projects were maintained within budget. Further detail on TGH’s interest rate risk by an independent valuer, inflation, and is provided in note 23.1 (b)(ii) of the an increase in tenant’s revenues. The financial statements on page 76. majority of TGH’s leases have clauses During the current financial year, TGH restructured $42 million of its interest rate swaps with Westpac. The rationale INTEREST BEARING LIABILITY (BANK DEBT TGH) was two-fold: $M % • To take advantage of pricing and 200 30 25 flatness across the yield curve to 150 187 180 20 achieve lower interest rate swap 100 15 levels; and, 10 50 88 73 75 5 • To align TGH’s swap portfolio with

Bank Debt 0 0 Assets Total to Debt policy limits to avert a breach of policy 2008 2009 2010 2011 2012 that might otherwise have occurred Maximum gearing is 30% of debt to total assets in November 2012.

Cost Effectiveness INTEREST COVER POSITION (RATIO) TGH constantly monitors overheads March 2012 Covenant 2.67 to ensure that profitability margins are not compromised. TGH provides Minimum Covenant 2.00 corporate services to the Shareholder which avoids duplication of resources 0 0.5 1 1.5 2 2.5 and enhances the depth of specialist functions. GEARING POSITION The level of overheads recognises March 2012 Covenant 66% TGH’s need to attract talented staff and to engage specialist external consultants Minimum Covenant 60% and legal advisors as needed. The long ‘gestation period’ between concept 59% 60% 61% 62% 63% 64% 65% 66% Quasi Equity as a percentage of Total Tangible Assets and completion of a project means that key overheads are often incurred ahead of Covenant: Covenants are the financial measures which TGH must abide by under the terms of the bank resultant steady-state revenue streams. debt facilities and only apply to the entities within the Group that have provided guarantees.

The staged opening of tenancies at Te Interest cover ratio covenant: Interest cover ratio calculates the number of times the profit (before interest cost) exceeds AWA has mitigated overhead costs to an interest costs. The ratio must be more than two times. Gearing percentage covenant: The gearing percentage covenant is the equity as a percentage of the total tangible assets. extent, providing revenue streams close to completion of each tenancy.

23 Investment Investment and Management Properties 71 rent reviews were completed during the financial year which resulted in Comprising 78% (2011: 71%) of TGH’s additional revenue of $0.8 million, total assets, investment property has Joris de Bres providing an uplift of 5.4% over prior had positive growth in value and cash rentals. Total occupancy for 2012 ‘Qualitative step forward’ flow in a relatively flat market over the was 98% (2011: 97%) at year end. earns special award past year. A high proportion of strong Occupancy were maintained at high In the 2011 Diversity Awards, the Human tenants with good quality covenants levels throughout the year as industrial Rights Commission gave a special provide a significant contribution to and retail vacancies were filled. award to TGH. In making the award, the both rents revenue and long term Commission recognised the design of leases. Ground leases provide further The Base Profile The Base and in particular its new mall, stability as tenants have a shared The Base is one of only a few super Te AWA, which had been embedded interest in retaining their tenancies regional shopping centres in New with cultural reference points including and renewing beyond the initial lease Zealand due to its scale of offer, high whakatauki (proverbs), niho taniwha expiry date. Our property values in presence of anchor tenants and that (tribal patterns), pou (carvings) and the the retail sector have been boosted it draws a significant proportion of its Waikato River. It also noted that Te AWA significantly by the capital investment patronage from other regions outside of was the first mall in New Zealand to in the final stages of Te AWA, The Base. Hamilton establish bi-lingual signage throughout The values of all other property sectors its public areas. have remained relatively static. The Base is now the country’s largest Only one special award per year is made. retail development comprising of Investment Property significant large format retail, food and Race Relations Commissioner Joris de Portfolio Summary hospitality, a large DIY offer, an outlet Bres made an unaccompanied visit to centre and a specialty retail shopping Te AWA to see for himself what had Property Occupancy asset value (%) mall including a cinema complex. been done. ($M) During the year a further 41 tenants “I was pretty impressed with the 2012 2011 2012 2011 signed lease agreements and integration of Te Reo and Waikato- Retail 311 248 100 98 commenced trading at The Base, Tainuitanga into the look and feel of the Rural 78 74 100 100 including 34 tenants in Te AWA with the complex, both inside and out. It’s the completion of stages 3 and 4, bringing naturalness of the bilingual signage from Public 64 61 95 98 the carpark right through to the utilities Industrial 42 40 100 93 the total number of retailers within the mall to 103. In addition to Te AWA there that’s very striking.” Office 34 35 94 98 are 77 large format tenants (including De Bres says it all feels ‘deceptively Total 528 458 98 97 outlet stores) bringing the total normal’. “Whether you’re a local or a tenancies at The Base to 180. A further visitor, it’s immediately familiar and yet 7 new tenants are planned to open by it’s unusual. That’s the sense you have.” Acquisitions and Disposals Christmas 2012. Combined with a similar approach in TGH continually reviews its property its hotels, de Bres feels TGH is breaking portfolio to ensure that all its investments key statistics new ground. are providing appropriate returns. – the base 2012 2011 While a number of acquisition “Athough there is now some bilingual Net lettable opportunities were presented in 2012, signage in some supermarkets, I can’t area (sqm) 81,171 67,332 only two (adjacent to The Base) met think of another commercial operation Number of TGH’s investment criteria. Both these tenancies 180 139 with a general customer base like it, in properties were secured to strategically terms of scale and overall integration of Occupancy 100% 98.1% Te Reo into the building.” enhance the land holdings at The Base, Car Parks 2,860 2,017 for additional access, and control of the “It’s a qualitative step forward for Pedestrian state highway frontage. There were also count 7.1m 5.5m recognition of Maaori language and minimal property disposals throughout culture in both commerce and broader Vehicle Count 3.6m 3.0m the year, so the portfolio remains New Zealand. National recognition relatively unchanged. was warranted, and we hope it will encourage others to follow suit.”

24 Tainui Group Holdings Annual Report 2012

A key strength of The Base is the Weighted average lease term (TGH) investment property significant customer car parking, Years portfolio value (TGH) 15 14.3 $M roading layout and car-parking 12 600 management system. During the year, 9 8.3 8.5 500 a further 843 customer car parks 7.1 6.7 6 were constructed, bringing capacity 400 3 2.7 to over 2,860, additional access ways 300 0 were created, and the car park system 200 continued its roll out. 100 Rural Retail business review Office Public

Portfolio 0 CBD Development Industrial 2008 2009 2010 2011 2012 TGH’s head office has outgrown its Retail Rural Public Industrial Office current premises located at 4 Bryce Street, Hamilton. To accommodate the necessary expansion, a re- Awards and Nominations development of the premises at 6 Bryce Street, Hamilton has commenced. The expanded premises will house TGH Awards/Accolades and also include Joe’s Garage Cafe, Property Council New Zealand – Waikato Branch a new cafe operator to Hamilton. This The Judges choice award for overall outstanding contribution to the Waikato Property Industry. re-development, along with TGH’s neighbouring buildings at 2 and 4 New Zealand Concrete Society Bryce Street, will form a boutique office Commendation Landscape award for Te AWA. precinct which will help enhance the Human Rights Commission CBD and reinforce TGH’s commitment to Special award for cultural references and the central city. bi-lingual signage at The Base and in particular, Te AWA. TGH is also very pleased that it has Marae Investigates secured Palate restaurant as a tenant in 2011 Maori of the year – business section. refurbished premises in its Alma Street building overlooking the Waikato River. Auckland Architecture Awards Palate continues to be one of the regions Commercial architecture and interior award for Novotel Auckland Airport Hotel. premier restaurants, and the shift to New Zealand Architecture Award this location should only enhance that Commercial Architecture for Novotel Auckland Airport Hotel. reputation. 2012 NZ Property Council Residential Development Awards Category – Retail Property Award for Te AWA.

The Callum Brae Tainui joint venture 2012 NZ Property Council Awards development at Huntington is nearing Category – Tourism and Leisure Property Award for Novotel Auckland Airport hotel. completion with only 24 of its 655 sections remaining for sale. Planning Nominations is underway for the residential New Zealand Institute of Chartered Accountants development of 40 hectares located at 2011 Best Annual Report by a Corporate Organisation (Finalist). Rotokauri, less than a kilometre west of The Base, which will ensure that TGH 2011 NZ Timber Awards Commercial Architectural Excellence Category for Te AWA. remains in the residential development sector. Added to Rotokauri and located 2011 NZ Timber Awards an easy distance from both Hamilton and Interior Fitout Category for Te AWA. Auckland, 31 sections are available for 2011 NZ Timber Awards sale in a recently developed property at Clever Wood Solution Category for Te AWA. Hartis Avenue, Huntly. 2012 International Council of Shopping Centers Asia Pacific Shopping Center Awards, Category – New Developments, Category – Expansions, Te AWA.

25 Investments Fishing to the dairy market each year. TGH TGH’s fishing interests total $33 million, employs two full-time farm staff and Hotels and comprise commercial quota and is an active manager of this farm. The two dairy farms are located on Bankier TGH’s investment in hotels totalled $75 other assets allocated to Waikato-Tainui Road, Gordonton and Tainui Road, million as at March 2012, a $9 million as a result of the Maaori commercial north of Morrinsville. Both are run on a increase on 2011 due to the completion fisheries settlement with the Crown. 50/50 sharemilker basis with the farms of the Novotel Auckland Airport hotel, Under the Maori Fisheries Act 2004, collectively producing 320,000 kgs of milk and its existing shareholder in Hamilton assets from the settlement could only be solids from approximately 1,000 cows. Riverview Hotel (HRH). transferred to those entities that met the TGH maintains a controlling interest prescribed criteria as a Mandated Iwi total dairy production (kilograms of milk solids) of 70% of the Tainui Auckland Airport Organisation (MIO), and which would be MS/Kg in thousands Hotel Limited (TAAH), whilst Auckland managed by an approved Asset Holding 330 International Airport and Accor own 20% Company (AHC). 325 320 and 10% respectively. The investment The MIO for Waikato-Tainui is Waikato- 310 in TAAH is reported at cost, of $61 Tainui Te Kauhanganui Incorporated, and 300 million, which largely represents the TGH is an AHC. 290 total development costs for the hotel. 286 284 TGH’s quota investment of $20 million Construction savings were achieved 280 provides a return of 7.3%. Snapper and due to rigorous negotiation of supply 270 266 crayfish continue to provide the highest contracts. The hotel’s occupancy and 260 257 value of quota held, whilst the volume of room rates have exceeded initial 250 hoki provides a significant contribution expectations in its first 10 months of 2008 2009 2010 2011 2012 to the total quota held. operations since opening in May 2011. TGH has an alliance with AHC’s of TGH’s investment in HRH was one of Effective farm area Ngaati Raukawa and Ngaati Maniapoto by hectares the company’s first major financial to lease out the aggregated quota held investments in 1998. TGH owns 41% Hukanui by the three iwi, having ceased to run (Dairy) of HRH whilst Hamilton City Council an active fisheries operation together in 109 Hangawera (HCC) and Accor own 41% and 18% 2008. (Drystock) respectively. HRH holds total assets of Tainui Road 650 WTF holds 5.48% of the income shares (Dairy) $46 million. HRH performed well in 250 comparison to last year’s occupancy in Aotearoa Fisheries Limited, an iwi rates and revenue despite room owned company which provided a rates being slightly lower than 2011. dividend to WTF of $0.5 million in Performance was affected due to the December 2011. Separate financial Forestry statements are presented for WTF from final stage of room refurbishment As a long-term investment in the TGH page 82 to 87. undertaken at the Novotel Tainui which portfolio, a total of 795 hectares is was completed in September 2011. currently planted in trees with a further 1,074 hectares leased out. The trees are Equities Agriculture a mix of Radiata Pine and Californian TGH invested in Ryman Healthcare Redwood. The latter is well placed for the following the signing of a strategic co- New Zealand Emissions Trading Scheme. investment agreement with Ngai Tahu Farms

Holdings Group in 2008. In July 2011, TGH owns one drystock station and Forest TGH divested its entire shareholding in two dairy farms. Today the three farms by hectares Ryman. This decision was made as part are valued at approximately $22 million Waipuna (Redwood) of a review of other investments with the (including Fonterra shares). planted 2005-2007 outcome to retire debt. A capital gain of 151 The drystock farm, also known as $21 million and $5 million in dividends Hangawera Station, is located near Whatawhata (Pine) were earned on the original purchase of planted 2001-2002 Kawhia (Pine) Morrinsville. It runs 2,000 ewes, 200 Ryman shares. 270 planted 1996-1997 cows and approximately 300 trading 374 cattle. These stock numbers include approximately 150 bulls that are sold

26 Tainui Group Holdings Annual Report 2012 financial overVIEW

Net operating profit Net operating profit movement $M movement 40 35 20.6 (9.7) The net operating profit movement 30 graph shows the change between 2011 (5.1) 25 and 2012. Novotel Auckland Airport 20.7 20 0.4 hotel transactions and increased 15 14.5 rental income from Te AWA resulted 10 in increases in both total revenue 5 and operating expenses from 2011. business review 0 Finance costs are now recognised in the operating results since major

capital projects are now completed. Income Expenses

The transactions from completed Net finance developments are now flowing through, improving the operating profit. Share of associate profit Share Net operating profit 2012 profit Net operating Net operating profit 2011 profit Net operating Revenue Revenue expenditure Income from the Novotel Auckland 2012 (outer circle): $55.3 million 2012 (outer circle): $22.1 million Airport hotel is evident in 2012, 2011 (inner circle): $34.7 million 2011 (inner circle): $12.3 million % % 2% 3 representing 26% of the total revenue. 3 % 5% 8 Rental income from Te AWA is now 7% being received for a full year on stages % 12 34% 1 and 2 tenancies, and a partial year % % %5 4 on stages 3 and 4 tenancies. Fewer 5 10% 9% 30% residential section sales were realised 13% 10% in 2012 as market conditions remained 71% 12% 17% flat and the stock on hand diminished. 26% 26% 57% With fishing, the quota market has seen a decline in catch capacity and an increase in the total allowable catch for some 31% key species. Combined, these have reduced the need for major companies Rental income Direct costs from investment properties to purchase third party quota and, as a Hotel income Employee costs Other income Cost of sales result, quota income has dipped in 2012. Quota leasing income Other expenses Other income includes dairy revenue Dividends from listed investments Consultancy fees and higher livestock values. Sale of sections Depreciation and amortisation expenses

Top Ten Suppliers Expenditure by Spend in 2012 Expenditure has been influenced Naylor Love Construction Limited Construction Services by costs associated with the Novotel Hawkins Construction Limited Construction Services Auckland Airport hotel and Te AWA. Sam Pemberton Civil Limited Construction Services Movement between 2011 and 2012 Hamilton City Council Local Government Services in employee costs, costs of sales and Greenstone Group Holdings Limited Project Management Services depreciation are a factor of the Novotel Auckland Airport hotel now being Ignite Architects Limited Architectual Services included in 2012. ISS Facility Services Limited Cleaning Services Schick Construction & Cartage Limited Construction Services Auckland City Council Local Government Services Boffa Miskell Consultancy Services

27 Sustainability

New Zealand Community Environment Emissions Trading TGH supports many community Responsible, sustainable development Scheme (NZETS) initiatives. In May 2011, TGH supported that makes sense and protects the The NZETS is a complex scheme a community initiative called the ‘At environment is how TGH operates. focused on carbon management and Heart Foundation’ for congenital heart The ethylene tetra fluoro ethylene administration. TGH is affected due to defects in children. During surgery, a (ETFE) roof at Te AWA is an illustration its fisheries, forestry, and agriculture child’s chest cavity is cooled down in of sustainable construction. Made related interests. We are fortunate an icy slush to slow their heart rate. from 100% recyclable materials, to have a forestry portfolio which To replicate this process, the ‘At Heart the product is self-cleaning and has strategically positions TGH to engage Foundation’, in conjunction with The insulating properties. It is light-weight, in the carbon credit market and aim Base, held an event on site where teams and requires minimal energy for towards a carbon neutral company. TGH could be sponsored to jump in an icy transportation and installation. ETFE also holds 4,191 units for the quota held in cold pool for five minutes and then allows natural light penetration, requiring its fisheries portfolio and expects to warm up in a spa bath afterwards. As a little need to illuminate the common receive units for the forestry portfolio. result, $10,000 was raised on the day for areas of Te AWA with additional lighting. the 12 Kiwi children born every week A car park management system (Meter Culture with a heart defect. Eye) has been installed in the basement Waikato-Tainuitanga is a fundamental ‘Shave for a Cure’ is Leukaemia and car park at Te AWA and at the large aspect of TGH’s development and Blood Cancer New Zealand’s biggest format retail area at The Base. Shoppers operations. We seek to ensure tikanga fundraising event helping the estimated can easily view where the vacant car is followed for all projects – including six Kiwis who are diagnosed with a parks are located, saving both energy appropriate karakia (spiritual protocols) blood cancer every day. The Base hosted and vehicle running time. for construction sites. the ‘Shave for a Cure’ event in March Novotel Auckland Airport has installed 2012 where individuals, businesses and Waikato-Tainui design features in our triple glazing not only to eliminate the community can seek sponsorship for developments and business. The Novotel airport noise, but also to provide added shaving their head. The event was well Auckland Airport, Te AWA and The insulation. The hotel is also committed to support by the community, including Base all embed Waikato-Tainui cultural participating in the EarthCheck standard several members of the Chiefs Rugby imagery, reinforcing our ownership which is the leading benchmarking and Team and All Blacks, pictured below, and identity, as well as creating unique certification programme for the tourism raising $2,000 for the cause. visitor experiences. The construction of and hospitality industry. It provides a the new TGH offices at Bryce Street in framework for environmental and social Hamilton will also be embedded with performance through independent third Waikato-Tainui design features. party verification. Staff are also made aware of the cultural Master planning for the Ruakura influences within the organisation development incorporates greenfield through the induction process and other design. Stormwater is proposed to be The Novotel Auckland Airport supports measures, such as the celebration of processed on site, thereby minimising the Cure Kids appeal and up until March Maaori Language Week. discharge into the public stormwater 2012 raised $9,300 by hosting a bingo systems which flow into the Waikato night, wine and cheese evening, bike-a- Social Development River. This is a deliberate and essential thon and Red Nose Day. design feature, and fits well with the Our business activities contribute to Shareholder’s aspiration to restore and positive growth for the greater Waikato Inter-iwi exchanges protect the health and well-being of the region and New Zealand economy from Iwi represent a sizable economic force Waikato River. jobs created by our projects through to in New Zealand. During the year TGH TGH promotes recycling throughout Shareholder distributions. hosted representatives from Te Arawa, all business operations with weekly The dividend we pay each year Ngai Tahu and (internationally) the paper recycling at its premises. This helps the Shareholder to meet tribal Southern Chiefs Organisation from annual report has been printed on administrative costs and to fund Manitoba, Canada. In addition, TGH environmentally friendly paper which distributions to marae, education, health and Ngai Tahu Holdings Corporation has been sourced from legally harvested and well-being initiatives, and social and representatives have attended each forests, and has been printed with cultural developments. other’s strategic planning sessions. environmentally friendly ink.

28 firm, based inSanDiegoCalifornia. of Finistere Ventures, aventure capital Kukutai, ManagingDirector andapartner A recipient from earlier years is Arama purposes, andthenumbers who apply). grants are given outforothercharitable from year toyear dependingonwhat and 800in2010(thenumber varies Approximately 700were given in2011 from educationgrants. TGH istertiary Tainui makeswithitsannual dividend One ofthesocialinvestments Waikato- Arama Kukut centre. InJuly 2011, resource consents timejobsacross1,363) fullandpart the activity andthecreation of1,528(2011: to thelocaleconomy withconstruction The Base has created a tremendous boost timestaff. part hotelemploysThe atotalof137fulland included theRugby World Cup2011. strong occupancyover which aperiod in 10fullmonthsofoperations, aresult of contributed 26%of TGH’s totalrevenue NovotelThe hotel Auckland Airport revenue andoperating cashflows. two projects ofincreased intheform change inbenefitsflowing from these we are now toseethestep- starting 2011, beingthehighestin TGH’s history, capital expenditure bill of $114 million in its Shareholder. After an unprecedented to allow long-term sustainable returns for TGH’s core focus is growing its asset base TGH’s growth in2012. the year, were significantcontributors to stages three andfouropeningduring and thecompletionof Te AWA with hotelearly inthefinancial Airport year openingoftheNovotelThe Auckland growth ai

helping grow businesses. directly andtoplay forafirm a role in to gobackprivate sector, towork company. For Arama itwas achance of thefounders ofFinistere tojointhe LA. In2005, hewas approached by one Zealand Trade &Enterprise, basedin Director, America, North forNew he madehisway totheUS asRegional businessfarming in Taranaki. In2001 Parininihi Ki Waitotara Incorporation’s banking, of hebecametheChairman spell intrade promotion andinvestment degree at UniversityVictoria anda formanyfarming years. After adouble involved inwhaanau and landtrusts inNgaaruawaahia,Born Arama hasbeen with uptoUS$5millionineach. it willhave investments in7-15companies, health sector investments. At any one time Finistere specialisesinfood, energy and Rotokauri residentialRotokauri development will at Huntingtonnears completion. The venture residential sectiondevelopment activity astheCallumBrae Tainui joint division willcontinue recent residential kilometre west of Base.The sub- This -lessthana located inRotokauri proposed fora40hectare rural site Future residential development is and, toalesserextent, retail. further hotel facility, commercial officespace an automotive precinct, healthcentre, a of landat BaseislikelyThe toinclude employment andactivity. balance The enhanceHamiltonCity will further Additional development ofthecentre on level one of Te AWA were approved. 11 hectares aswell asadditionalretail for thedevelopment oftheremaining The Base with Rotokauri (inmaize) The BasewithRotokauri make isinyour humancapital.” education. bestinvestmentThe you can been abletodevelop for itssupport kicking in, has andthatthetribe good toseetheRaupatuSettlement when hedoesn’t thinkofhome. “It’s However hesays notaday goesby receiving thebestworld hastooffer.” On the other hand, the US is very open to because it’s market. suchanenormous US tendstobequiteinward looking, “That’s anadvantage forme. The tend tohave perspective. aninternational tosurvive,needs toexport itspeople He also says that because New Zealand farmers think.” it mightwork inpractice, andknow how agriculture, you needtounderstand how you’re lookingtoapply technologyto His background isastrong asset. “If Management Team andDirectors. regularly by theSenior undertaken ofthewiderstrategicis part planning of horizons TGH. Meetingthischallenge funding thatmatchestheinvestment growth willbeaccessto longterm key challenge formaintainingbusiness flow andbanklendingfacilities. One and willcontinue tobe, fundedviacash growthAssets andearnings have been, additional retail. current smallerpremises –alongwith TGH -now toreplace necessary the accommodate thenew head office for Hamilton’s central business will district Streetproperty locatedonBryce in Base,The thedevelopment ofthe fromApart themajoractivities at for theRuakura development. these projects willprovide theplatform development atRotokauri. Together, at Base,The andtheresidential section the development oftheremaining land continue over thenext few years with growthThe trajectory for TGH will generated from Base.The also supplementtheeconomicgrowth Tainui Group 2012 HoldingsAnnual Report 29

business review partnerships

Creating effective partnerships has been an invaluable

component of TGH’s business same goals and aspirations,” he says. “We all worked strategy. Five organisations together to produce a product that would create a whom the company currently stunning first and last impression of New Zealand, and be an economic proposition as well. works with are profiled here. “Many hotels are not built that way. A lot start off with dreams of grandeur and want to build an ode to that. Then half-way through the money starts to get tight, shortcuts are taken and the original goals not achieved.” “What we’ve managed to do here is deliver a four and a half star hotel at a commercially viable price.” “For me professionally it was inspiring and very satisfying to come up with the end product that we did.” While involved from the start on the location, design and layout of the hotel, the Accor team also had the job of staffing the hotel. “We were particularly looking for interest from south Auckland and Tainui territory, and we opened with about 30-40% of staff from those areas. We also worked with the Ministry of Social Development and their Job Start programme, and about 20-30 people Paul Richardson, Accor’s Vice-President, New Zealand and Fiji came through that.” Today, between 120-150 staff work at the hotel, Owners’ relationships create depending on occupancy and use of the meeting positive workplace facilities. “So yes, we’re getting a return on our investment, but Many people will be familiar with Novotel, Ibis, we’ve achieved other goals as well. We now have one Pullman and Sofitel hotels. Fewer will know about of the best international gateway hotels in the world and the company that owns these brands, the Accor have created employment in South Auckland.” Group. It operates 4,400 hotels in 92 countries, and Since opening nearly a year ago, there have been employs some 180,000 staff. In most cases Accor has some pleasant surprises, including a large number a management contract or has franchised the brand, of Aucklanders using the hotel, as well as local and the hotels themselves are owned by local or businesses using the meeting facilities. international investors. Richardson says that the very positive relationship Accor’s association with TGH started with the Novotel the three partners in the hotel have spills through and Tainui and Ibis Tainui in Hamilton, and this year creates a positive environment in the hotel. the relationship expanded to include the Novotel Auckland Airport hotel, built in conjunction with “The feedback from staff and guests has been Auckland International Airport Limited. fantastic. If you go into the hotel there’s nothing negative, it’s all positive. It shows that the culture of a Paul Richardson, Accor’s Vice-President, New place can be impacted by the owners’ relationships. I Zealand and Fiji, was an integral part of the team that can’t emphasise that enough.” developed the Novotel Auckland Airport. “As a hotelier it was a great project to be involved in. The whole process with TGH and the Airport Making New Zealand proud was managed extraordinarily professionally, and Auckland International Airport CEO Simon Moutter the accolades we’ve received from just about every says the company already had the idea of an airport quarter have been very, very satisfying.” hotel on its books before he joined in 2008. The hotel has won both Auckland and national “We’re a hub airport, so there was plenty of demand architectural awards and is a contestant in the annual for short-stay accommodation. We’ve got main centre Property Council of New Zealand awards. traffic, and trans-Tasman flights that depart early and “What made it work is that all three partners had the arrive late, so same day connections aren’t always

30 Tainui Group Holdings Annual Report 2012

development. David trained as a valuer before joining the well-known family real estate business, where he is now the Managing Director. Since 1995, they have undertaken eight residential developments. Malcolm handles the planning, construction and contractor management. David and his team of specialist section salespeople handle the marketing side. Huntington has been one of the city’s most successful subdivisions, having outsold its competitors most years since sales started in 2001, averaging 60 Auckland International Airport CEO Simon Moutter sections per annum. In part this was down to its desirable location, with possible. There was also demand for a venue for short gully aspects. However, a key ingredient was also 1-2 day business sessions.” stringent building covenants applied to each section, When he became CEO, he formed a new which were carefully monitored. These obligated management team with a very commercial focus, and section owners to build quality, well-designed homes, the project was pushed up the priority list. with good fencing. Another was ensuring a balance TGH recommended hotel operator Accor as a partner of supply and demand, so the number of sections for on the back of their pre-existing relationship in sale at any one time was managed. Hamilton, and TGH led the development. Careful timing “TGH were good at driving to the right outcome. We While sales fell following the 2008 downturn, saw a very adept team at work,” says Moutter. “They Huntington did so by less than other subdivisions. The have a very commercial structure and leadership JV also put in infrastructure for 40 sections at the time, team, and have proven to be good co-investors.” so it was six months ahead of the market when sales “They were on the same page as us in wanting an picked up again. efficient and effective hotel. At the same time we all Careful risk management also played its part. shared a strong commitment to representing New Zealand and Waikato-Tainuitanga well in the project.” “We’ve never over-capitalised ourselves,” says Malcolm. “We could’ve done 15 subdivisions over the years Moutter says the airport company is thrilled with the instead of eight, but have always lived within our means.” end result. Through Huntington, the pair say they and TGH have “The three partners have definitely created a beautiful developed mutual trust and respect, and now have a building. The fit-out is of high quality and there is a lot valuable relationship. of New Zealand in it. We all wanted a quality outcome that New Zealanders would be proud of.” “It’s like a marriage. You go through good and bad times together, and come out all the stronger for it.” Experienced partnership delivers results The Huntington subdivision in Hamilton is nearly complete, with 630 of the 655 sections sold. Developed by a 50/50 joint venture (JV) between TGH and Callum Brae Limited, it’s been an important source of revenue for TGH, especially in its early years. Malcolm MacDonald and David Lugton have been the driving force behind Callum Brae Tainui. Malcolm grew up in a farming family, trained as a quantity surveyor, and has been farming in a significant way since that time. At the time that two Macdonald farms came into the city, the family became directly involved in residential section Malcolm MacDonald and David Lugton

31 And growth isn’t the only issue, according to Tremaine. “It costs as much to move a container from New Plymouth to Auckland as it does to ship it to China. With the rise of middle class markets in Asia, we need to get exports to port very efficiently, or we’ll lose international competiveness. So there’s a real imperative to address that.”

Ken Tremaine – consultant to Future Proof. Timely infrastructure challenge Tremaine says there are challenges to overcome. Forward thinking the key to “As a country, we struggle to get timely infrastructure managing growth in place. Unlike say Australia with its state Growth is a huge issue in the upper North Island. Just governments, central government here has preferred take these three projections: to leave it to regions and the market to sort out.” • The Waikato is already our fourth most populous “Having said that, since the Government via NZTA region. Along with Auckland and the Bay of is kicking in over $2 billion in transport projects for Plenty, it’s growing at a faster rate than the rest of the Waikato, they naturally want some certainty from the country. Only 20 years from now, the ‘golden Councils in the area about the long-term plan. triangle’ will contain over half the country’s total Tremaine sees TGH’s proposed inland port and freight population. hub at Ruakura as a vitally important step in tackling • Today, the three regions generate 45% of our GDP. both the growth and cost issues. In 15 years’ time that will be over 50%. “Opportunities like Ruakura only come along once • The rail link between Hamilton and Tauranga in every 50 years, where you’ve got a market need, carries more freight per kilometre than anywhere a willing developer and huge economic benefits that else in New Zealand. Freight generated from the can be generated from putting a high-tech intermodal Waikato will double in volume in 20 years, creating freight terminal there.” huge future pressure on rail and trucking services. “You’ve also got a large chunk of land in the hands of In an effort to grapple with these challenges, all the one organisation, which is rare. It’s normally hard to region’s Councils, Waikato-Tainui and the New Zealand get landowners to co-operate, and to think long-term, Transport Agency (NZTA) drafted a plan called ‘Future and TGH is intergenerational in its thinking. Their Proof.’ It acts as a broad blueprint for development, CEO was Container Terminal Manager for the Port of providing guidance for each Council in their own area. Tauranga and a senior manager for NZ Dairy Group, Launched in 2009, Future Proof was timely given the so there’s a heap of practical skill there.” reviews of the Waikato Regional Plan and Hamilton City’s District Plan, both underway this year. Important decisions imminent Tremaine says the key tasks with Ruakura are to get Scope widened the regulatory framework right, identify the funding, Ken Tremaine is a consultant to Future Proof. He get alignment between land uses and make it an has many years of experience in this kind of work, economic proposition to develop. The Regional Plan is including the SmartGrowth project for the Bay of the most critical component of this he says. Plenty. He says Future Proof has now widened its “Decisions like Ruakura are very important. We scope to include the whole of the upper North Island, will be competing with others, if we aren’t already. given the huge inter-dependencies between each of Singapore is already the northern Asia-Pacific hub, the three regions. and Brisbane is a contender for the southern one “The economies of Waikato and Auckland are alongside Tauranga. inextricably tied up with things like minerals, water “Not only that, but unless we get good inland facilities and freight. As Auckland grows, there are lots of and critical mass in distribution, then the southern part challenges. The Waikato needs to be seen as a of Auckland will end up pressuring the food bowls of corridor of transport and land use between Auckland the city. You only have to look at the Hutt Valley and and Hamilton. What goes where, and when, is actually large parts of Christchurch to see what happens when quite important. We have to get our heads around you put motorways over food bowls.” what life will be like in 30 years.”

32 Tainui Group Holdings Annual Report 2012

Freight solutions vital to NZ trucks, and start to run bespoke configurations. That will start to suit inland port hubbing.” economy In this area, the key aim for NZTA is efficiency. When people think of the New Zealand Transport “We’re very clear that our priority is reducing the freight Agency (NZTA), they probably associate it with cost of getting goods to market. We’re not trying to do managing state highways, providing public transport all things for all people. We’re trying to support the New subsidies, and along with the Police, helping reduce Zealand economy.” the road toll. But it’s also responsible for long-term planning of – Co-ordination vital and investment in – our major road networks. That has But while NZTA is a big investor, it’s not going to dictate implications for TGH’s proposed Ruakura development. what happens. The stakes are high. NZTA spends $8.7 billion every “We’re providing the road, but it’s the market which three years, at a rate of about $50 million a week. determines who drives over it. We’re not trying to tell the In the last three years it has spent $1.6 billion in the private sector what it can or cannot do. We’re trying to Waikato and Bay of Plenty. work out where we can add value to that conversation. My Near the epicentre of all this is Harry Wilson. He’s role is to make sure all the stakeholders in the region are NZTA’s Regional Director for the Waikato and Bay of connected, and that everyone has good information.” Plenty. He also has a national responsibility around One result is the multi-region ‘Upper North Island freight efficiency. Strategic Alliance’ which has made transport one of its “What we want to do is make sensible investment top priorities. “The playing field has become a stadium. decisions. That means we need to understand the Instead of just having regional interests, everyone is whole long-range land use story in the upper North starting to see the power to grow the New Zealand Island. It’s not just about Future Proof, though that does economy by joining together.” feed into our thinking,” he says. “We have to be careful we don’t make the wrong investment choices. Take for example the high cost of trucking goods over the Kaimai ranges. One option is to put a tunnel through, but that might cost up to $2 billion. Another is to do what Kiwirail have done. By adding just one turning loop, they’ve been able to significantly lift the carrying capacity of the East Coast rail line, and at a cost of only $9 million.” Wilson says that from a freight perspective, NZTA has Harry Wilson – NZTA Regional Director, to be agnostic about mode, and is equally interested Waikato and Bay of Plenty. in shipping, ports and rail.

“The holy grail of freight efficiency is full trucks, full Ruakura trains and full ships.” Wilson explains that these changes have had implications Need for Ruakura, as it has had to shift into a much wider political and planning environment. He says however New Zealand, especially the upper North Island, is that while the planning decisions have yet to be made, currently some way off that. Ruakura’s strategic advantage is the road and rail “The export equation we have is low value, high combination and location between the Ports of Auckland volume goods. The import equation is consumption and Hamilton. in Auckland. Between those two, there’s a whole story “Of course the NZTA can’t pick winners. The market to write. The emergence of KiwiRail as a long-haul will dictate where inland ports and hubs are located but operator will change things if it works out. If KiwiRail Hamilton is a really good location strategically, given the can get your product up and down the main trunk, shortage of business land in Auckland, capacity issues, 100% of the time, on time, you’ll get a shift from long- congestion and so on. The critical thing is to stop thinking haul road to long-haul rail.” about Auckland’s interest to grow Auckland’s economy, “And having KiwiRail as a reliable partner enables but about the North Island’s interest to grow the New long-haul transport operators to move from long-haul Zealand economy.”

33 OUR PEOPLE

Our Management

Mike Pohio Chris Joblin Tama Potaka Nathan York Mike was appointed Chief Chris was appointed Chief Tama joined TGH in Nathan was appointed General Executive Officer in 2006. Financial Officer in 2009. December 2009 as General Manager of Property in 2003. Prior to joining TGH, Mike Prior to joining TGH Chris Manager, Corporate Services Prior to joining TGH, Nathan held a number of senior held a number of senior and practising Solicitor. was a senior analyst for a management positions in financial positions in both Tama worked as a lawyer in private investment company in companies including the Port New Zealand and the United the United States and New Auckland. He has a Bachelor of Tauranga, Fonterra, New Kingdom. Chris is a member Zealand. He is a graduate of of Management Studies Zealand Dairy Group and of the New Zealand Institute Columbia University, amongst degree and an MBA from the Elders Pastoral. Mike gained of Chartered Accountants and other educational institutions. University of Waikato. Nathan an MBA from IMD, Switzerland INFINZ. Chris’s interests are He has authored numerous is an executive member of in 1999 and is a member of in Treasury Management, and articles and is a regular public the Waikato Property Council both the New Zealand Institute at TGH he is responsible for speaker on constitutional and also a trustee and advisor of Chartered Accountants finance, treasury management, and Maaori development for a number of Maaori land and Institute of Directors. He financial information systems issues. Tama is responsible incorporations and trusts. is a director of Transpower and audit. for corporate governance and Nathan oversees all property administration, legal issues, and NZL Group. He is also His achievements in 2012 investment and development people, policy, procedures, Chairman of BNZ Regional included extending TGH‘s operations for TGH. In and health and safety. Partners, Waikato; a member debt facility from $200 the last year the property of The New Zealand Initiative million to $250 million and Tama was instrumental in business units achieved solid and the Property Council of refining processes around implementing TGH’s corporate increases to portfolio returns, New Zealand. Mike has two budget, forecast and financial services and people strategies the completion of Te AWA adult sons and is married modelling. in 2012. mall at The Base, the Novotel to Karen. Married to Colleen, Chris has Tama is married to Ariana and Auckland Airport hotel, two children. has three children. substantial progress on the statutory planning for the Ruakura project and future development occurring at The Base. Nathan and his partner Briar have three children.

34 Tainui Group Holdings Annual Report 2012

Management Committees People Number of employees by LENGTH OF SERVICE Strategy LE TGH has three management committees – Callum Brae Tainui Management Committee, The Base Management

In the last 12 months, TGH E OP

Development Committee, and The Base Management <2 years has continued its people P Operations Committee – all of which meet regularly. The 19 development plan entitled <2 years purpose of these committees is to ensure that specific ‘People Strategy 2025’. The 16 O UR projects are monitored, priorities are set and operational core platforms of the strategy 5-10 years and development objectives are on target. are to foster conditions 11 5-10 years

2-4 years 10 where employees can The Callum Brae Management Committees includes 8 TGH management and joint venture partners. The two perform to their individual 2-4 years management committees for The Base include Luke potential, ensure that there 4 Bunt, the former CFO of The Warehouse Group, as an is a ‘TGH way’ of doing the independent member. All committees are required to right things, and enhance the people capacity to support report through to the TGH senior management team. 2012 2011 all strategy and service issues. ORGANISATIONAL LEVELS 2012 Over the reporting period the company facilitated Number of Employees who First Line commenced service Supervisors/Managers free medical checks and flu % 6 injections for staff, as well Graduates 11% as team-building through whitewater rafting and other

Senior % % Individual activities. TGH interacts with Managers 12 54 Contributors the sole Shareholder on a weekly basis to ensure our 17% corporate and administrative appointments Permanent Middle 11 Management support is aligned to the

Shareholder’s needs. appointments Permanent 5

ETHNICITY 2012 appointments Fixed-term appointments Fixed-term 2 2 New Zealander (born overseas) Performance % Management 2012 2011 11 New Zealander (born locally) % TGH continues to focus on % 37 Waikato-Tainui 18 performance management as a key platform for ensuring Number of employees the company’s success. The who LEFT SERVICE performance management 34% process focuses managers and Other Iwi employees on performance targets, measured over six resignations

ETHNICITY 2011 monthly and annual periods. other 4 term end of fixed resignations end of fixed term end of fixed 3 New Zealander 2 (born overseas) 1 1 9% 2012 2011

% % New Zealander Waikato-Tainui 21 40 (born locally)

30% Other Iwi

35 our team

Training and Information A valued working environment Development Technology Aubrey Te Kanawa is a Facilities Manager at The Base. The Company encourages The implementation Poonam Sharma is a Management Accountant at TGH. training and development of a human resource Aubrey joined TGH as part of and developed a strategic for all team members, with a information system (HRIS) its graduate programme and facilities management plan for significant focus on practical has optimised the people then successfully applied for The Base. engagement with our key function by improving leave a full-time job at The Base. “I’ve been given real partners and stakeholders. management, as well as Poonam landed at TGH as opportunities to grow In the past year, Bell Gully, efficiency and effectiveness an accountant in 2007, and professionally. I’m not sure McCaw Lewis and other in people support. TGH has since been promoted I would’ve got that level of partners have presented continues to assess intranet to the role of Management exposure in a larger company.” seminars on topical business and other opportunities Accountant. In 2011, she “New duties keep being and economic issues. to improve engagement successfully passed the added to my job description!” External training priorities of team members in the required exams to become a says Poonam happily. Her have also been clarified company’s business. Chartered Accountant. to better match course responsibilities cover financial selection with TGH’s skill and They come from very different management for both TGH competency requirements. Health and backgrounds but there are and the tribe, but she has also All employees are required Safety strong commonalities in their picked up work on other TGH to have a training and experiences working for the subsidiaries and tribal entities. TGH is committed to development plan focusing company. “I can see myself being here for providing a safe workplace on development and growth, The opportunities to learn a while. There’s a real variety of and has promoted a higher and this is monitored come top of the list. “I’d things to do, and you’re given a degree of health and during their performance recommend the company for lot of responsibility.” safety consciousness in the management process. anyone interested in property,” workplace. This has involved Both also value the culture. says Aubrey. “It has good monthly hazard review “It’s a very open and friendly corporate disciplines in place processes being undertaken workplace,” says Poonam. and provides a professional at key sites including The Aubrey echoes this. “We’re a work environment.” Base. really good team.” At TGH he’s worked on the Te Over the past financial year, AWA opening, investigated the company has had three the impact of the Emissions work related incidents, with Trading Scheme, co-managed no hours lost out of more than a small construction project 54,000 hours worked by all Number of employees its employees. by Age

Number of employees by gender age 30-50 age 30-50 age

24 24 Male Male 22 21 Female Female 13 12 age <30 age

7 <30 age age >50 age 5 >50 age 4 4

2012 2011 2012 2011

36 Tainui Group Holdings Annual Report 2012

Graduate Programme LE The graduate recruitment programme is designed to give two university graduates of Waikato-Tainui descent the opportunity to develop their education, knowledge, skills and work experience by working at TGH for a period of E OP two years. The programme includes secondment to one of TGH’s key partners or advisors. With the programme P now in its fourth rotation, it continues to be an attractive placement opportunity for Waikato-Tainui graduates. O UR Amy Wharakura (Waikato- Whetu Taukamo (Ngaati Marie Hurinui (Waikato- Tawa Campbell-Seymour Tainui) started at TGH as Ruanui, Ngaati Porou, Ngaati Tainui and Ngaati Tuwharetoa) (Whakatohea, Ngaai Tai the Accounting and Finance Tu-hoe) joined TGH in 2010 as is the fourth Accounting and Te Aitanga-a-Maahaki) Graduate, having completed the Property and Corporate and Finance Graduate was appointed the Property a Bachelor of Management Services Graduate. With and commenced at TGH Graduate in 2011 as the Studies degree at the Whetu working across both in 2011. Marie recently fourth graduate in-take to University of Waikato majoring property and corporate completed a Bachelor of the Property team. Tawa in accounting. During the services functions, the ‘hybrid’ Management Studies degree completed a Bachelor of reporting period, Amy graduate role was tailored to at the University of Waikato Management Studies (Hons.) successfully completed New suit his law and management with a major in accounting. majoring in Economics and Zealand Institute of Chartered background. Graduating with a Marie is currently working Finance, in conjunction with a Accountants Foundations Bachelor of Laws and Bachelor towards becoming a qualified Graduate Diploma in Te Reo Programme which is the first of Management Studies with Chartered Accountant. Maaori at The University of of two requirements necessary a major in economics in 2010 Waikato. Whilst studying, he to become a Chartered Whetu also received a Master took up a role as a Maaori Accountant. of Laws (First Class Hons.) in mentor providing academic 2011. In May 2012, Whetu was and pastoral support to first appointed Junior Property and second year Maaori Manager with one of TGH’s Management students. He key partners, Greenstone also tutored a first year Group. microeconomics paper.

37 OUR DIRECTORS

John Spencer – Chairman Mike Allen Matthew Cockram

John is an independent Director and Appointed as an independent Matthew was appointed as an was appointed Chairman in 2003 Director in 2009, Mike has independent Director in 2011. and will retire in June 2012. Prior considerable experience in Matthew is the CEO and Principal of to the formation of Fonterra Co- investment banking and general Cooper and Company NZ, a highly operative Group, he was the Chief management in New Zealand and the successful property development Executive Officer of the New Zealand United Kingdom. Previously the Head and investment company based Dairy Group. John brings a wealth of of the Westpac Institutional Bank in in Auckland. Prior to that, Matthew experience to TGH from directorships New Zealand and Head of Mergers spent 20 years at law firm Bell Gully, and senior management positions and Acquisitions at Southpac. with the last 5 years as Chairman, both in New Zealand and overseas. specialising in construction, commercial property and major projects.

Entity Position Entity Position Coats PLC Chairman DairyNZ Limited Director Environment Investments Limited Director Disputes Resolution Services Limited Director Godfrey Hirst NZ Limited Director Entity Position Kiwirail Chairman Guinness Peat Group PLC Director Auckland Arena Carpark Company Director Mitre10 NZ Limited Board Advisor NZ Windfarms Limited Director Britomart Group of companies Director Tower Limited Director Tower Limited Director Castlebrook Investments Limited Director WEL Networks Limited Chairman Watercare Services Limited Director Cooper and Company NZ Director

38 Tainui Group Holdings Annual Report 2012

Rahui Papa Rukumoana Schaafhausen Hon. Koro Wetere

Rahui was appointed in 2010 and Appointed to the board in 2009, Having been on the Waikato-Tainui has a background in education and Rukumoana has been a member Te Kauhanganui Incorporated’s tribal history. He is the Chairman of Waikato-Tainui Te Kauhanganui Board in the past, Koro has close ties of Tainui Teachers Association and Incorporated since its inception in with TGH. Koro brings knowledge the National Secondary Schools 1995. Having previously worked for a and experience from his former Kapa Haka Board. Rahui is also a large property development company Ministerial roles to the Board. Koro Kiingitanga spokesperson, linguist with a legal background specialising has been involved with community and historian. in governance, Rukumoana has a projects throughout his career.

good understanding of TGH’s primary UR d irect o rs

business: investing in and developing O properties. Rukumoana is also the Chair of the Waikato-Tainui Group Audit and Risk Committee.

Entity Position Genesis Energy Limited Director Entity Position New Zealand Centre for Social Innovation Trustee National Secondary Schools Kapa Haka Chairman Regional Facilities Auckland Limited Director Taniwha Media Limited Director Waikato-Tainui Koiora Limited Director Waikato-Tainui Executive Member Waikato-Tainui Executive Member Te Kauhanganui Incorporated (Te Arataura) Te Kauhanganui Incorporated (Te Arataura)

39 Directors’ Report

TAINUI GROUP HOLDINGS limited (TGH)

The Board of Directors have pleasure in presenting Directors Remuneration the Annual Report including the Audited Financial The remuneration received by Directors during the Statements of TGH (the Company) and its subsidiaries year is as follows: (the Group) for the year ended 31 March 2012. Consolidated & Parent 2012 2011 $’000 $’000 Principal Business Activity J L Spencer (Chairman) 80 65 TGH’s principal business activity is to manage the M N Allen 40 41 commercial interests of the Shareholder, Waikato- M Cockram (appointed 25 March 2011) 40 - Tainui Te Kauhanganui Incorporated which includes J Eriksen (resigned 31 December 2010) - 28 assets returned by the Crown through the Waikato R S Papa (appointed 3 November 2010) 40 11 Raupatu Claims Settlement Act 1995. R T M Schaafhausen 40 32 There have been no significant changes in the nature Hon. K T Wetere 40 32 of these activities during the year. J Wilson (resigned 3 November 2010) - 19 280 228 Results Use of Company Information by The results for the year are reported in the statements Directors of comprehensive income on page 51. The Group has recorded a net profit of $39 million (2011: $23 million). There were no notices from Directors of the Company requesting to use company information received in The Group’s total equity as at 31 March 2012 was $374 their capacity as Directors which would not otherwise million (2011: $332 million). Further information on the be available to them. movements in equity is provided in note 10 on pages 66 and 67. Auditors The Directors are satisfied with the results for the year. PricewaterhouseCoopers has indicated their willingness to continue in office. Audit fees paid to Directors PricewaterhouseCoopers are outlined in note 5 of the The following persons held office as Directors of the financial statements on page 65. Company as at 31 March 2012: Donations Director Appointed J L Spencer (Chairman) 30 January 2003 There were no charitable donations made by the M N Allen 1 June 2009 Company or Group during the year ended 31 March M Cockram 25 March 2011 2012. R S Papa 3 November 2010 R T M Schaafhausen 1 June 2009 Shareholder Resolution Hon. K T Wetere 9 April 2002 The Shareholder of the Company has exercised its right under section 211(3) of the Companies Act 1993 There were no appointments or resignations of and unanimously agreed that this Annual Report need Directors of the Company during the year. not comply with paragraphs (e), (g) and (h) of section The Director’s profiles are reported on pages 38 and 211(1) of the Act. 39. Signed for and on behalf of the Directors of the The Company has eleven (2011: nine) subsidiaries Company on the 22nd of June 2012. as listed in note 3 of the financial statements on page 63. M Pohio and T Potaka are the Directors of nine (2011: seven) of the subsidiaries. M Pohio and N York are Directors of one subsidiary and one subsidiary John Spencer, Chairman is a limited partnership. M Pohio, T Potaka and N York do not receive any remuneration or other benefits as Directors of subsidiaries within the Group. Mike Allen, Director

40 Tainui Group Holdings Annual Report 2012

WAIKATO-TAINUI FISHERIES LIMITED (WTF)

The Board of Directors have pleasure in presenting Donations the Annual Report including the unaudited Financial There were no charitable donations made by WTF Statements of WTF for the year ended 31 March 2012. during the year ended 31 March 2012 (2011: nil).

Principal Business Activity Shareholder Resolution UR d irect o rs

WTF’s principal business activity is to manage the O The Shareholder of WTF has exercised its right income shares held in Aotearoa Fisheries Limited under under section 211(3) of the Companies Act 1993 and the terms defined in the Maori Fisheries Act 2004. unanimously agreed that this Annual Report need not There have been no significant changes in the nature comply with paragraphs (e), (g) and (h) of section of these activities during the year. 211(1) of the Act. Signed for and on behalf of the Directors of WTF on Results the 22nd of June 2012. The results for the year are reported in the statement of comprehensive income on page 83. WTF has recorded a net profit of $0.5 million (2011: $0.4 million). John Spencer, Chairman WTF’s total equity as at 31 March 2012 is $14 million (2011: $13 million). Mike Allen, Director The Directors are satisfied with the results for the year.

Directors The following persons held office as Directors of WTF as at 31 March 2012:

Director Appointed J L Spencer (Chairman) 31 March 2008 M N Allen 1 June 2009 R S Papa 26 November 2010 R T M Schaafhausen 1 June 2009 Hon. K T Wetere 31 March 2008

There were no appointments or resignations of Directors of the Company during the year. The Director’s profiles are reported on pages 38 and 39.

Directors Remuneration There was no remuneration received by Directors during the year ended 31 March 2012 (2011: nil).

Use of Company Information by Directors There were no notices from Directors of WTF requesting to use company information received in their capacity as Directors which would not otherwise be available to them.

41 governance

Board Audit Remuneration Investment and nomination

Member Attended Possible Attended Possible Attended Possible Attended Possible

John Spencer 11 11 1 1 1 1 1 3

Mike Allen 10 11 1 1 1 1 1 3

Matthew Cockram 10 11 1 1 1 1 3 3

Rahui Papa 9 11 - 1 - - - -

Rukumoana Schaafhausen 10 11 1 1 - - - -

Hon. Koro Wetere 11 11 1 1 - - 1 3

Audit committee – all members of the tgh board are members of the tgh audit committee investment committee remuneration & nomination committee

The Board of TGH is committed to the highest The Board Charter standards of oversight, accountability and The TGH Board operates in accordance with management. It accepts this commitment by the Board Charter (‘Charter’). The Charter is an supporting the increasing emphasis on corporate important document which outlines: governance in New Zealand, regularly reviewing • Board composition and method by which members practices and making amendments where necessary. are appointed; TGH’s business practices reflect corporate • Expected behaviour of the Board and its members; governance best practice in the following manner: • Discharge of authority to Board members; External Benchmarks • Commitment to compliance with all relevant laws While TGH’s policies and Charter provide explicit and regulations; and expectations, the company has also adopted the nine • Committees that sit under the Board being: principles of corporate governance prescribed by the Audit Committee, Remuneration and Nomination Financial Markets Authority. These, as well as other Committee, and Investment Committee. prescriptive doctrines such as NZX Listing Rules, provide strong external benchmarks for developing Ethical Standards governance structures and processes. These Through robust policy, the Board collectively and benchmarks are particularly useful to the Shareholder individually promotes ethical and responsible and key stakeholders as they demonstrate TGH’s decision making and behaviour. There have been commitment to ensuring that the Board operates no instances of unethical behaviour during the year effectively and in accordance with best practice ended 31 March 2012 (2011: nil). guidelines.

The 9 principles in summary, are as follows: Board Composition and Performance Ethical Standards The Charter provides for a balance of independence, Board Composition skill, knowledge, experience and perspectives among Directors so that the Board works effectively. The Board Committees Board consists of six Directors. Of the six Directors, Reporting and Disclosure three are appointed by the Shareholder and three Remuneration are Independent Directors. The Chair is always an Independent Director. The Directors consider that the Risk Management six member Board is appropriate for both the size and Auditors business activity of TGH. Stakeholder Relations TGH is committed, through its Charter, to ensuring Stakeholder Interests Directors have the knowledge and information necessary to discharge their responsibility effectively through the provision of comprehensive information provided at monthly (excluding January) Board meetings.

42 Tainui Group Holdings Annual Report 2012

Director Induction Remuneration There were no new appointments or resignations Remuneration of Directors and senior management from the TGH Board during the year ended 31 March needs to be fair, transparent and reasonable. 2012. However, new Directors go through an induction Adequate remuneration is necessary to attract, process which includes: retain and motivate high quality directors and • Meeting the senior management team (SMT), executives. The Remuneration and Nomination followed by presentations by each member of SMT Committee oversees and recommends the process

to describe their roles and accountabilities; for performance evaluation of the CEO and other key UR d irect o rs executives. Further detail on the Remuneration and O • A tour of TGH’s major properties and investments; Nomination Committee is provided on page 45. and • Meeting with key members of the Shareholder’s Risk Management governors who sit on Te Arataura. TGH accepts that risk is an essential feature of All Directors are covered by Directors and Officers any business. TGH’s Risk Management Policy and Liability Insurance for the term of their directorship practices ensure effective analysis, management and with TGH. control of existing and potential risks. TGH maintains a programme, which is approved by the Board, Board Committees for the identification, assessment, monitoring and The Board uses Committees to enhance its effectiveness management of risk to the business. The Board has in key areas whilst retaining Board responsibility. overall responsibility for the internal controls with the These Committees allow detailed and expert Audit Committee being responsible for reviewing examination of relevant issues to facilitate decision- its effectiveness. TGH has engaged Ernst & Young as making. The Committees make recommendations to internal auditors. The Board approved programme the Board and have no decision-making ability unless they undertake focuses on providing internal audits specifically delegated by the Board. on policy, procedures, internal controls and any other areas of concern. Effective risk management provides There are three Board Committees: the Remuneration greater assurance that TGH’s vision and strategy will and Nomination Committee, the Audit Committee be achieved without surprises. New policies adopted and the Investment Committee. Further detail on in 2012 are the Health and Safety Policy and the Media each Committee is provided on pages 44 and 45. PR Policy. All Committee members must abide by the terms of reference or Charter for that particular Committee. Auditors The Audit Committee is comprised of the Board of External auditing is critical for integrity in financial TGH. All Independent Directors are members of the reporting. To properly perform their role, auditors Remuneration and Nomination Committee and the must observe the professional requirements of Investment Committee. independence, integrity, and objectivity. They need to Reporting and Disclosure have access to all relevant information and individuals within an entity that play a role in its financial reporting The Board demands integrity both in financial processes. reporting and in the timeliness and balance of disclosures on TGH’s affairs. The Board Charter The Board and the auditors are jointly responsible creates effective policies and procedures to ensure for ensuring that an entity’s audit is conducted in the the integrity of financial information, responsibility for context described above. TGH requires structures that which has been delegated to the Audit Committee. promote auditors’ independence from the Board and Independent external auditors are also appointed executives, protect auditors’ professional objectivity solely to provide statutory and other audit services. in the face of other potential pressures, and facilitate The Audit Committee ensures that the external access to information and personnel. auditor’s responsibilities are in accordance with the The Audit Committee has a crucial role in selecting and requirements of the Board Charter. recommending Board and Shareholder appointment of auditors, and in overseeing all aspects of their work. PricewaterhouseCoopers continued as external auditors of the Group in the current financial year.

43 Shareholder Relations Setting Strategy TGH has an active relationship with its sole The aspirations of Waikato-Tainui span many Shareholder, Waikato-Tainui Te Kauhanganui generations. The vision and strategy of TGH is Incorporated. A Statement of Corporate Intent (SCI) consistent with this long term view. Projects are forecast formally documents the necessary understanding well in advance of turning the first sod. This is achieved that must exist between TGH and its Shareholder and through a concerted and ongoing strategy setting is a living representation of the expectations of each process which utilises financial modeling and business party. Although some of its provisions apply for several intelligence tools. At a minimum, TGH maintains a years, the SCI is revised annually. 15 year outlook which recognises the completion of The SCI sets out TGH’s key objectives, guiding existing projects (i.e. what we know for sure), and the principle and values. It highlights the importance initiation of new ones (i.e. unchartered territory). of the company’s brand and reputation, provides This process of strategy setting culminates with an financial reporting targets and sets out the accounting annual, two day meeting with the TGH Board and policies that will be maintained in accordance with senior management. Day one is an opportunity for the relevant statutory provisions. The SCI clarifies the senior management to present the strategy, and for requirements of the dividend policy. It also requires the Board to challenge the proposed direction and Shareholder approval should any capital expenditure, offer guidance where appropriate. The second day acquisition or divestment occur that exceeds 30% incorporates the Shareholder executive, Te Arataura. of the total assets of the parent entity. Finally, the SCI This is a useful opportunity for the Shareholder outlines the necessary information that TGH must representatives to observe the alignment of TGH’s provide to the Shareholder. A full description of the aspirations, with those of the Shareholder, as stipulated SCI can be found on the TGH website. in the SCI. On an annual basis, TGH and the Shareholder conduct Stakeholder Interests a joint strategic planning session. Both the TGH Board and the Shareholder Board fundamentally agree that a Whilst the Shareholder relationship is paramount, close working relationship should be nurtured to draw TGH’s relationships with wider stakeholders, on each other’s respective commercial and social including the community, customers and suppliers expertise to progress strategic initiatives. are considered on page 28 and 30 to 33 respectively.. TGH’s Communications Policy ensures that a TGH also provides its Shareholder with corporate consistent and credible approach is applied to services through a service level agreement which communication with all stakeholders. includes treasury management, financial services, property management and people support services. Audit Committee The provision of such services by TGH to the All members of the TGH Board are members of the Shareholder creates cost efficiencies and cohesion. Audit Committee. The Audit Committee Charter The Board of TGH is committed to ensuring is incorporated in the Board Charter. The Audit that the members of Waikato-Tainui, through the Committee has continual oversight and responsibility tribal parliament, are kept abreast of the ongoing for financial reporting, audit functions, risk performance of the company. This is prescribed in the management and internal controls. More specifically, Charter. TGH’s financial results are presented to the the Audit Committee’s objectives include: Shareholder’s executive on a monthly basis and to the • Reporting of financial information; tribal parliament every quarter. This is an opportunity to increase awareness and receive feedback on TGH’s • Application of accounting policies; development projects and its operational performance. • Financial management; • Internal control systems; • Risk management systems; • Business policies and practices; • Protection of the Group’s assets; and • Compliance with applicable laws, regulations, standards and financial disclosure best practice guidelines.

44 Tainui Group Holdings Annual Report 2012

During the year, one meeting was dedicated to Audit Investment Committee Committee business for the purpose of approving the As a sub-committee of the Board, the responsibility annual financial statements. All other Audit Committee and role of the Investment Committee is to assist and business was addressed at regular Board meetings. advise the Board in relation to investment activities Remuneration and Nomination with the following objectives: Committee • To review investment policy; As a sub-committee of the Board, the responsibility • To review the appointment of investment advisors and role of the Remuneration and Nomination UR d irect o rs

and fund managers; O Committee (RNC) is the appointment and • To monitor investment and fund manager remuneration of Directors and senior management performance; and other related matters. The RNC’s objectives are to assist and advise the Board in relation to: • To monitor compliance with investment policies and mandates; • The CEO appointment and remuneration; • To recommend to the TGH Board on matters noted • Performance management and appraisal of the above; and CEO; • To monitor the investment policy, strategy and • Succession planning; framework for decision making. • Setting annual incentive targets and objectives for The Investment Committee met three times during the the CEO and the CEO’s direct reports; year. • Approving the remuneration of the CEO’s direct reports; Statement of Investment Policy and Objectives (SIPO) • The appointment and succession of the Board The SIPO underpins TGH’s primary strategic Directors, especially Independent Directors and/or objective: to maximise Shareholder wealth by Advisors to the Board; implementing a sustainable asset portfolio supported • Independent Directors’ and Advisors remuneration; by appropriate financing and distribution policies. Not and surprisingly, this is also TGH’s mission statement. The • Any other matter referred to it by the Board. SIPO responds to the choice between diversification Senior management’s annual incentives are and specialisation of TGH’s asset portfolio by determined by key performance indicators as assessing the company’s influence or control over an stipulated in their individual employment agreements. investment alternative, and the extent to which TGH Any changes in remuneration are based on has expertise. performance and market comparisons. Under certain conditions, the SIPO does permit The total remuneration paid to Directors is reported on TGH to invest in opportunities where there may not page 40. The Directors do not participate in any profit be a controlling interest, but where the investment based incentive system. No additional Directors fees is consistent with TGH’s commitment to furthering are paid for Committee members. Additional fees are economic development. These may include pooled paid to Independent Directors where their services investments, for example minority holdings in are required in excess of specified requirements. listed securities, or iwi co-owned investments by arrangement. Finally, the SIPO defines the responsibilities and delegation of the Board of Directors, the Investment Committee and the senior management.

45 Chief Executive Officer and Board Interrelationship From the start of the While the Board needs to allow the CEO to carry out the CEO’s role, this need is balanced by the 2013 Financial Year overarching obligation of the Board to supervise and there are a number scrutinise the CEO appropriately. It is the Chair’s of changes to the TGH role to lead and manage the Board so that it operates Board. They are: effectively and to facilitate interaction between the Board and the CEO. The CEO is responsible for day to Sir Henry van der Heyden – day leadership and management. A formal delegation Independent Director of authority to the CEO sets out specific authority to (from 1 July 2012) manage the day to day business and the restrictions Sir Henry is standing down as Chairman of and limitations that apply. The roles of the Chairman Fonterra. He is also a director of Auckland and the CEO are, and always have been, separate International Airport Ltd, Rabobank at TGH. The Chairman and the CEO regularly meet Australia, Rabobank NZ, Elevation Capital between Board meetings. Management Ltd, Pascaro Investments Ltd and Manuka Ltd.

Paki Rawiri – Shareholder Director (from 30 April 2012) Mr Rawiri is an Iwi and Maaori development consultant, and holds Directorships on a number of iwi commercial companies. He is a former General Manager of Waikato-Tainui commercial fishing companies and from 2002-2009 managed the transfer of fisheries assets to individual iwi at Te Ohu Kaimoana.

Hemi Rau – Shareholder Director (from 30 April 2012) Mr Rau was the CEO of the Waikato Raupatu Lands Trust from 2002-2009. He was a Te Kotahitanga Marae representative on the inaugural Te Kauhanganui in 1999, and was Deputy Chair of the inaugural Tribal Executive from 2000-2002.

Joanna Perry – Board Advisor (from 1 April 2012) Ms Perry is a Chartered Accountant and professional director. Her board appointments include Genesis Energy, Trade Me, Partners Life, The Co-operative Bank, Rowing New Zealand and Sport and Recreation New Zealand.

46 Tainui Group Holdings Annual Report 2012 Proving the worth of good governance

John Spencer

John Spencer retires “It’s been extremely rewarding,” he says. day one might only be few in number, on 30 June 2012 as an “I’m hugely satisfied with what TGH has but they grow. The key is to put them independent Director. been able to achieve, and have absolutely down in writing. A key document in the He has spent the last no regrets.” beginning was the adoption of a Board decade on the Board, TGH pretty much runs itself these days, Charter which clearly set out the duties and has been Chairman and powers of the TGH Board and its

he says. “It’s a well-oiled machine and I’ve UR d irect o rs throughout. been able to be more hands-off.” relationship with its Shareholder. O Things were a little different when he first “If you set proper standards, people started, and it was largely a full-time job want to reach those standards, and over for the first few years. time they get higher and higher. It’s important to never be satisfied. You should Before joining TGH he was working in always want to do better next time.” Dunedin, having finished up as CEO of NZ Dairy Group following the merger of NZ As Chairman, Spencer has always asked Dairy and Kiwi Co-op to form Fonterra. for honesty and contribution in the Boardroom. “Team chemistry and mutual He was approached to go onto the TGH respect is extremely important. You don’t Board, and agreed to think about it. get openness without it. Spencer’s first move was to ask to become “At TGH the senior management team a Director of a Ngai Tahu Holdings Group attends Board meetings. The lines are clear, subsidiary so he could learn what was but the question always is, ‘Where are involved in governance of an iwi-owned we going and what is the best way to get company. there?’ The only time senior management is not present is when we’re discussing Taking on a new challenge remuneration or sensitive tribal issues.” After discussions with Waikato-Tainui and There is a fifty-fifty split of independent a number of advisors, Spencer accepted and tribally appointed Directors on the the role in 2002, becoming not just an Board, but he says they’ve never had to independent Director but Chairman as well. take a vote. Decisions have always been Crucial to his acceptance was Rob McLeod unanimous. and Koro Wetere agreeing to join him. Spencer reflects that over the last ten “I took it on because I saw it as a personal years attitudes have gradually changed challenge. I wanted to prove that proper toward the company, and today he governance structures work for everyone, receives numerous calls from people regardless of race, creed or activity.” wanting to be involved with TGH. Others saw it differently, and he was initially “That’s because we’ve got the runs on taken aback by some of their reactions. the board and more people have come “Two days after the announcement, to understand the very important role iwi for example, someone said to me, “So commercial companies will play in the they finally got to the S’s I see.” (S’s as in future prosperity of the country. Spencer). “One of the things that has kept me here The future and spurred me on was those early Spencer sees TGH’s strengths today as its negative comments I got.” structure, its governance, the quality of its people and a clear vision of what it wants Keys to success to achieve. Looking back, he says the initial losses “What we’ve tried to do is set in place that the tribe suffered were in many ways enduring value for the company and the a blessing in disguise. tribe, and the thing I’m really proud of is the people. This team could do anything.” “They allowed a framework to be created. Your board and company policies on 47 financial information

Tainui Group Holdings Limited five year trend statement For the year ended 31 March 2012

2012 2011 2010 2009 2008 ($’000) ($’000) ($’000) ($’000) ($’000)

Income Statement Net operating profit after tax 20,248 14,499 15,896 11,940 18,488 Net profit/(loss) 39,353 22,659 34,069 (27,035) 38,114

Revenue 54,803 34,655 30,141 26,287 30,575 Finance cost - net (13,216) (8,168) (4,711) (5,854) (3,199) Net fair value gains/(losses) 19,105 8,160 18,173 (38,975) 19,626 Distribution 10,090 10,500 10,000 10,000 10,500

Balance Sheet Total assets 680,099 645,091 516,467 484,247 521,846 Net assets 373,883 332,018 314,787 291,351 289,037

Current assets 24,243 17,028 11,762 14,195 12,183 Non-current assets 655,856 628,063 504,705 470,052 509,663 Current liabilities - including Shareholder advance 116,321 166,666 107,402 84,684 119,459 Current liabilities - Shareholder advance 74,027 74,027 74,027 74,027 114,027 Current liabilities - excluding Shareholder advance 42,294 92,639 33,375 10,656 5,432 Non-current liabilities 189,895 146,407 94,278 108,212 113,350 Non-controlling interest 8,921 9,300 1,539 - - Bank debt 180,152 186,650 87,700 74,845 72,900 Net cash debt (173,895) (184,399) (85,042) (68,913) (70,086)

Cashflow Statement Net operating cash inflow 21,269 14,430 21,119 16,144 14,514 Net investing cash outflow (8,065) (103,287) (27,248) (7,771) (70,722) Net financing cash inflow/(outflow) (9,198) 88,450 2,855 (5,255) 54,718

Key Ratios Return on Shareholder funds 11% 7% 11% -9% 13% Return on Shareholder funds - including advance 9% 6% 9% -7% 9% Return on total assets 6% 4% 7% -6% 7% Total asset growth 5% 25% 7% -7% 38% Debt/equity ratio 48% 56% 28% 26% 25% Debt/total assets 26% 29% 17% 15% 14%

48 Tainui Group Holdings Annual Report 2012 financial statements

Tainui Group Holdings Limited

50 Directory 51 Statements of comprehensive income

52 Statements of financial position o n financial inf o rmati 53 Statements of changes in equity 54 Statements of cash flows 55 Notes to the financial statements 81 Independent auditors’ report

Waikato-Tainui Fisheries Limited

82 Directory 83 Statements of comprehensive income 83 Statements of financial position 84 Statements of changes in equity 85 Notes to the financial statements

49 Tainui Group Holdings Limited Directory For the year ended 31 March 2012

Date of establishment 10 June 1998

Mission Statement To maximise Shareholder wealth by maintaining a sustainable asset portfolio supported by appropriate financing and dividend policies.

Shareholder Waikato‑Tainui Te Kauhanganui Incorporated

Board of Directors John Spencer (Chairman) Michael Allen Matthew Cockram Rahui Papa Rukumoana Schaafhausen Hon. Koro Wetere

Chief Executive Mike Pohio

Auditor PricewaterhouseCoopers Private Bag 92162, Auckland 1142

Solicitors Bell Gully McCaw Lewis

Banks Bank of New Zealand Westpac Banking Corporation

Registered Office 4 Bryce Street, Hamilton 3204

Postal Address P O Box 19295, Hamilton 3244

Telephone +64 7 834 4880

Facsimile +64 7 834 4881

Website www.tgh.co.nz

50 Tainui Group Holdings Annual Report 2012

Tainui Group Holdings Limited Statements of comprehensive income For the year ended 31 March 2012

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Revenue 4 54,803 34,655 7,814 6,576 Expenses 5 (22,061) (12,320) (5,738) (4,366) Finance costs ‑ bank loans (13,216) (8,168) (11,754) (8,168) Finance income ‑ short term deposits 181 193 151 129

Share of net profit of associates 6 541 139 - - o n financial inf o rmati Net operating profit/(loss) for the year 20,248 14,499 (9,527) (5,829)

Other gains ‑ net 8 19,105 8,160 6,775 4,399 Net profit/(loss) for the year 39,353 22,659 (2,752) (1,430)

Other comprehensive income for the year Profit/(loss) on revaluation of farm and other properties 10 2,872 (2,689) 2,872 (2,689) Other comprehensive income for the year 2,872 (2,689) 2,872 (2,689) Total comprehensive income for the year, net of tax 42,225 19,970 120 (4,119)

Profit is attributable to: Equity holders of Tainui Group Holdings Limited 39,372 22,659 Non‑controlling interest (19) - 39,353 22,659

Total comprehensive income for the year is attributable to: Equity holders of Tainui Group Holdings Limited 42,244 19,970 Non‑controlling interest (19) - 42,225 19,970

These financial statements should be read in conjunction with the accompanying notes. 51 Tainui Group Holdings Limited Statements of financial position As at 31 March 2012

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

EQUITY Contributed equity 9 60,000 60,000 60,000 60,000 Retained earnings 10 286,589 247,217 7,308 10,060 Reserves 10 18,373 15,501 11,151 8,279 364,962 322,718 78,459 78,339 Non‑controlling interest 8,921 9,300 - - Total equity 373,883 332,018 78,459 78,339

ASSETS Current assets Cash and cash equivalents 6,257 2,251 2,054 1,023 Trade and other receivables 11 4,254 9,317 1,196 942 Inventories 12 4,202 4,617 - - Biological assets 13 1,082 843 1,082 843 Advances ‑ related parties 14 8,448 - 254,339 217,388 Total current assets 24,243 17,028 258,671 220,196 Non‑current assets Other financial assets 15 5,385 57,407 5,294 57,226 Investments in associates 6 13,485 13,151 - - Investments in subsidiaries - - 947 947 Intangible assets 16 20,488 20,672 14,617 14,792 Property, plant and equipment 17 84,895 76,411 20,365 17,493 Investment properties 18 528,412 457,728 81,033 71,778 Biological assets 13 3,191 2,694 - - Total non‑current assets 655,856 628,063 122,256 162,236 Total assets 680,099 645,091 380,927 382,432

LIABILITIES Current liabilities Trade and other payables 19 11,081 20,225 3,446 5,180 Interest bearing liabilities 20 30,300 72,000 30,300 72,000 Advances ‑ related parties 14 74,940 74,441 108,058 97,756 Total current liabilities 116,321 166,666 141,804 174,936 Non‑current liabilities Interest bearing liabilities 20 149,852 114,650 121,667 97,400 Other financial liabilities 21 40,043 31,757 38,997 31,757 Total non‑current liabilities 189,895 146,407 160,664 129,157 Total liabilities 306,216 313,073 302,468 304,093 Total net assets 373,883 332,018 78,459 78,339

John Spencer, Chairman 22 June 2012

Michael Allen, Director 22 June 2012 52 These financial statements should be read in conjunction with the accompanying notes. Tainui Group Holdings Annual Report 2012

Tainui Group Holdings Limited Statements of changes in equity For the year ended 31 March 2012

Attributable to owner of the Parent Consolidated Contributed Revaluation Retained Non‑controlling Total equity reserves earnings Total interest equity $’000 $’000 $’000 $’000 $’000 $’000

Balance as at 1 April 2010 60,000 18,190 235,058 313,248 1,539 314,787 Comprehensive income Net profit for the year - - 22,659 22,659 - 22,659 Other comprehensive income

Loss on revaluation of farm o n financial inf o rmati and other properties - (2,689) - (2,689) - (2,689) Total comprehensive income - (2,689) 22,659 19,970 - 19,970 Transactions with owner of the Parent Dividend paid - - (10,500) (10,500) - (10,500) Total transactions with owner of Parent - - (10,500) (10,500) - (10,500) Minority interest - - - - 7,761 7,761 Balance as at 31 March 2011 60,000 15,501 247,217 322,718 9,300 332,018

Balance as at 1 April 2011 60,000 15,501 247,217 322,718 9,300 332,018 Comprehensive income Net profit for the year - - 39,372 39,372 (19) 39,353 Other comprehensive income Gain on revaluation of farm and other properties - 2,872 - 2,872 - 2,872 Total comprehensive income - 2,872 39,372 42,244 (19) 42,225 Minority interest - - - - (360) (360) Balance as at 31 March 2012 60,000 18,373 286,589 364,962 8,921 373,883

Parent Balance as at 1 April 2010 60,000 10,968 21,990 92,958 - 92,958 Comprehensive income Net loss for the year - - (1,430) (1,430) - (1,430) Other comprehensive income Loss on revaluation of farm and other properties - (2,689) - (2,689) - (2,689) Total comprehensive income - (2,689) (1,430) (4,119) - (4,119) Dividend paid - - (10,500) (10,500) - (10,500) Total transactions with owner of Parent - - (10,500) (10,500) - (10,500) Balance as at 31 March 2011 60,000 8,279 10,060 78,339 - 78,339

Balance as at 1 April 2011 60,000 8,279 10,060 78,339 - 78,339 Comprehensive income Net loss for the year - - (2,752) (2,752) - (2,752) Other comprehensive income Gain on revaluation of farm and other properties - 2,872 - 2,872 - 2,872 Total comprehensive income - 2,872 (2,752) 120 - 120

Balance as at 31 March 2012 60,000 11,151 7,308 78,459 - 78,459

Michael Allen, Director 22 June 2012 These financial statements should be read in conjunction with the accompanying notes. 53 Tainui Group Holdings Limited Statements of cash flows For the year ended 31 March 2012

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Cash flows from operating activities Receipts from customers 59,497 33,051 6,967 5,355 Payments to suppliers (25,193) (10,646) (3,930) (3,972) Interest received 181 193 151 129 Interest paid (13,216) (8,168) (11,754) (8,168) Net cash generated from/(used in) operating activities 22 21,269 14,430 (8,566) (6,656)

Cash flows from investing activities Receipts from sale of investments in listed companies 57,375 - 57,375 - Payments for investments in unlisted companies (683) (546) (683) (546) Amounts received from/(paid to) related parties (7,949) 414 (26,649) (63,842) Payments for property, plant and equipment (8,230) (38,639) (287) (146) Proceeds from sale of property, plant and equipment 13 22 10 - Payments for intangible assets (36) (49) (36) (33) Payments for investment properties (48,555) (67,846) - - Proceeds from sale of investment properties - 3,357 - - Net cash generated from/(used in) investing activities (8,065) (103,287) 29,730 (64,567)

Cash flows from financing activities Proceeds from borrowings - 98,950 - 81,700 Repayment of borrowings (6,498) - (17,433) - Dividends paid to Company’s Shareholder 14 (2,700) (10,500) (2,700) (10,500) Net cash generated from/(used in) financing activities (9,198) 88,450 (20,133) 71,200

Net increase/(decrease) in cash and cash equivalents 4,006 (407) 1,031 (23) Cash and cash equivalents at the beginning of the year 2,251 2,658 1,023 1,046 Cash and cash equivalents at end of year 6,257 2,251 2,054 1,023

54 These financial statements should be read in conjunction with the accompanying notes. Tainui Group Holdings Annual Report 2012

Tainui Group Holdings Limited notes to the financial Statements For the year ended 31 March 2012

1 general information Tainui Group Holdings Limited (the ‘Company’ or ‘Parent’) and its subsidiaries (together referred to as ‘the Group’) have the following principal activities in New Zealand: ‑ property investment; ‑ property development; ‑ hotels; o n financial inf o rmati ‑ fishing, and ‑ investments. The Company is a limited liability company incorporated and domiciled in New Zealand. These consolidated financial statements have been approved for issue by the Board of Directors on the 22nd of June 2012. The Group’s Directors do not have the power to amend the financial statements once they have been issued.

2 Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (‘NZ GAAP’). They comply with the New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and other applicable financial reporting standards as appropriate for profit‑oriented entities that qualify for and apply differential reporting concessions. The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation The financial statements include separate financial statements for Tainui Group Holdings Limited as an individual entity and the consolidated Group consisting of Tainui Group Holdings Limited and its subsidiaries. The Company and Group are designated as profit‑oriented entities for financial reporting purposes. Statutory base Tainui Group Holdings Limited is a company registered under the Companies Act 1993. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993. Historical cost convention The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of farm land and buildings, investment properties, biological assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss which are carried at fair value. Differential reporting The Company and Group are qualifying entities within the Framework for Differential Reporting. The Company and Group qualify on the basis that they are not publicly accountable and there is no separation between the owners and governing body of the Company. The Company and Group have taken advantage of all differential reporting exemptions, except for the following with which they have fully complied: ‑ NZ IAS 7 ‑ cash flow statements ‑ NZ IAS 18 ‑ revenue ‑ NZ IAS 41 ‑ agriculture

2.2 Changes in accounting policy and disclosures New and amended standards adopted by the Group The Company and Group have not adopted any new standards during the year.

55 notes to the financial Statements continued

2.3 Critical accounting estimates The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The estimates and judgements are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised. The following are the critical estimates and judgements management has made in the process of applying the Group’s accounting policies and that have the most significant impact on the amounts recognised in the financial statements. (a) Fair value of assets and liabilities The Company and Group record certain assets and liabilities at fair value in the statement of financial position as follows: Investment properties (note 18), farm and other properties (note 17) have been valued by independent valuers as at 31 March 2012 and 31 March 2011 using a mixture of market evidence of transactional prices for similar properties, direct comparison, capitalisation and discounted cash flow approaches. Biological assets (note 13) comprise livestock and forests. Both are valued by independent valuers using current market prices less point of sale costs (livestock) and expectation value method less point of sale costs (forests). Other financial assets at fair value through profit or loss (note 15) include shares in unlisted companies held at fair value. The fair value of these shares, in the absence of quoted prices, has been determined using valuation techniques. Interest rate swaps (note 21) are valued using discounted cash flow techniques. The determination of fair value for each of the assets and liabilities above requires significant estimation and judgement which have a material impact on the statement of comprehensive income and statement of financial position. (b) Impairment testing Intangible assets with indefinite useful lives being quota (note 16) are required to be tested for impairment at least annually. This requires an estimation of the recoverable amount of the quota based on the higher of value in use or fair value less costs to sell. The determination of the recoverable amount of the quota requires significant estimation and judgment.

2.4 principles of consolidation (i) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one‑half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‑consolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition‑related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition‑by‑acquisition basis, the Group recognises any non‑controlling interest in the acquiree either at fair value or at the non‑controlling interest’s proportionate share of the acquiree’s net assets. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration transferred, the amount of any non‑controlling interest in the acquiree and the acquisition‑date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.

56 Tainui Group Holdings Annual Report 2012

Inter‑company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii) Transactions with non‑controlling interests The Group treats transactions with non‑controlling interests as transactions with equity owners of the Group. For purchases from non‑controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non‑controlling o n financial inf o rmati interests are also recorded in equity. When the Group ceases to have control or significant influence, any retained interest in the entity is re‑measured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. (iii) Associates Associates are all entities over which the Group has significant influence but not control, generally evidenced by holding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (refer to note 6). The Group’s share of its associates’ post‑acquisition profits or losses is recognised in the statement of comprehensive income, and the Group’s share of post‑acquisition revaluation in property, plant and equipment is recognised in reserves. The cumulative post‑acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iv) Joint ventures The proportionate interests in income of a jointly controlled operation have been incorporated in the financial statements under the appropriate headings. The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of joint ventures’ individual income and expenses, assets and liabilities on a line by line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of the profits or losses from the joint venture that result from the Group’s purchase of assets from the joint venture until it sells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss. Joint ventures’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.

57 notes to the financial Statements continued Note 2.4 continued

(v) Functional and presentation currency Items included in the financial statements of each of the subsidiaries’ operations are measured using the currency of the primary economic environment in which it operates (‘the functional currency’). The consolidated financial statements are presented in New Zealand dollars, which is the Company’s functional currency and the Group’s presentation currency.

2.5 Revenue recognition Revenue comprises the fair value of the sale of goods and services, net of Goods and Services Tax (GST), rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows: (i) Hotel income Revenue from hotels comprises amounts earned in respect of services, facilities and goods supplied. Any revenue not recognised, but received by the reporting date, is treated as deposits in advance, and shown as a liability in the Statement of Financial Position. (ii) Rental income Rental income is recognised on a straight line basis over the lease term. (iii) Sales of goods Sales of goods are recognised when the Group has transferred the significant risks and rewards of ownership of the goods sold. For sections, recognition is on the sale contract becoming unconditional and the title passing. The recorded revenue is the gross amount of the sale. (iv) Quota lease income Quota lease income is recognised when the Group has receipted income from the quota lessee. Quota is recognised on a monthly accruals basis. (v) Dairy income Dairy income is recognised when the Group has transferred the significant risks and rewards of ownership of the goods sold. (vi) Interest income Interest income is recognised on a time‑proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (vii) Dividend income Dividend income is recognised when the right to receive payment is established. (viii) Government grants Government grants are assistance provided by the Government in the form of transfers of resources to the Group in return for past or future compliance with certain conditions relating to operating activities of the Group. The Group was eligible for and has received units under the New Zealand Emission Trading Scheme as part of the fisheries allocation for quota owned. The fair value of units received is recognised in the statement of comprehensive income on allocation by the Government to the Group.

2.6 employee benefits Liabilities are recognised for benefits accruing to employees in respect of wages and salaries, annual leave, and sick leave where it is probable that settlement will be required and they are capable of being measured reliably. Liabilities in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities in respect of employee benefits which are not expected to be settled within 12 months are measured at

58 Tainui Group Holdings Annual Report 2012

the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration the achievements of agreed key performance indicators, including the achievement of financial budget targets. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

2.7 Leases o n financial inf o rmati Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight‑line basis over the period of the lease. Property interests held by a lessee under an operating lease are recognised as part of the carrying amount of the investment property with a corresponding liability at fair value through profit or loss being recorded.

2.8 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the rate associated with project related borrowings or the weighted average interest rate applicable to the Group’s outstanding borrowings during the year.

2.9 Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short‑term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the statement of financial position.

2.10 Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of 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 recognised in the statement of comprehensive income within expenses. When a trade receivable is uncollectible, it is written off. Subsequent recoveries of amounts previously written off are credited against other expenses in the statement of comprehensive income.

2.11 inventories Inventories are stated at the lower of cost and net realisable value. Cost of inventory is comprised of section costs and other direct costs using the weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.

2.12 Biological assets Biological assets are measured at fair value less estimated point of sale costs. The fair value of livestock is determined based on market prices of livestock of similar age, breed and genetic merit. The fair value of trees is determined annually by independent valuers by calculating the crop expectation and future value discounted back to the present value, based on the rotation age of the crop and the current market prices of the logs. The valuation of Redwood trees is based on the current replacement cost method used for young trees.

59 notes to the financial Statements continued

2.13 Financial assets and liabilities Recognition and measurement A financial asset or liability is recognised if the Group becomes party to the contractual provisions of the instrument. Regular purchases and sales of financial assets and liabilities are recognised on the trade date, the date on which the Group commits to purchase or sell the asset or liability. A financial asset or liability is recognised initially at its fair value and in the case of a financial asset or liability measured at amortised cost includes transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and liabilities measured at amortised cost Financial assets and liabilities measured at amortised cost are non‑derivative financial assets and liabilities which meet the following criteria: a) held within a business model whose objective is to hold an instrument in order to collect contractual cash flows; and b) the contractual terms of the instrument gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A gain or loss on a financial asset and liability that is measured at amortised cost and is not part of a hedging relationship is recognised in profit and loss when the instrument is derecognised, impaired or reclassified and through the amortisation process. Trade and other receivables are classified as financial assets measured at amortised cost. Trade and other payables and debt instruments are classified as financial liabilities measured at amortised cost. Financial assets and liabilities measured at fair value through profit or loss Financial assets and liabilities are measured at fair value unless measured at amortised cost. At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of NZ IFRS 9 ‘Financial Instruments’ that is not held for trading. If an entity makes this election, it shall recognise in profit or loss dividends from that investment when the entity’s right to receive payment of the dividend is established in accordance with NZ IAS 18 ‘Revenue’. An entity may also at initial recognition, designate an instrument as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the instruments or recognising gains and losses on them on different bases. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transaction pricing models refined to reflect the Group’s specific circumstances. A gain or loss on a financial asset or liability that is measured at fair value and is not part of a hedging relationship shall be recognised in profit and loss unless the financial asset is an investment in an equity instrument and the entity has made an irrevocable election to present gains and losses on that investment in other comprehensive income. Financial assets are de‑recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are de‑recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. Investment property liabilities are classified as financial liabilities measured at fair value through profit or loss. Derivative financial instruments are classified as either financial assets or financial liabilities measured at fair value through profit or loss.

2.14 investments in subsidiaries and associates Investments in associates, subsidiaries and joint ventures are valued at cost less impairment in the Company.

2.15 intangible assets (i) Computer software Separately acquired computer software and licenses at a cost greater than $10,000 are capitalised on the basis of the costs incurred to acquire and bring to use the specific asset. These costs are amortised on a straight line basis over their

60 Tainui Group Holdings Annual Report 2012

estimated useful lives of two years. Costs under $10,000 associated with maintaining computer software programmes are recognised as an expense as incurred. (ii) Quota Separately acquired fishing quota has an indefinite useful life and will generate economic benefits beyond one year. Fishing quota is tested annually for impairment and is carried at cost less accumulated impairment. The useful life is

assessed annually to determine whether the indefinite useful life assessment continues to be supportable. o n financial inf o rmati (iii) Carbon credits Intangible assets include carbon credits acquired by way of a Government grant and are initially recognised at fair value at the date of acquisition. Following initial recognition, these intangible assets are carried at cost less any accumulated impairment losses. Carbon credits are not consumed in the production and are therefore not amortised. They are tested for impairment annually and whenever there is an indication that impairment exists.

2.16 property, plant and equipment Farm and other properties are comprised of land, buildings and plant held on the farms as well as the building occupied by the Parent, and are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. Land at cost, hotels, development properties, vehicles, equipment, fixtures and fittings are stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Increases in the carrying amounts arising on revaluation of farm and other properties are credited to the revaluation reserve in shareholders’ equity. To the extent that the increase reverses a revaluation decrease previously recognised in the statement of comprehensive income, the increase is first recognised in statement of comprehensive income. Decreases that reverse previous increases of the same asset are first charged against revaluation reserves directly in equity to the extent of the remaining reserve attributable to the asset; all other decreases are charged to the statement of comprehensive income. Development property and land is not depreciated. Depreciation on other assets is calculated using the diminishing value method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: ‑ Farm and other properties 2.0% ‑ 11.4% ‑ Farm plant and equipment 4.8% ‑ 48.0% ‑ Hotels 1.0% ‑ 50.0% ‑ Vehicles 12.0% ‑ 31.2% ‑ Computer, office equipment, furniture and fittings 9.5% ‑ 50.0% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income. When revalued assets are sold, it is Group policy to transfer the amounts included in revaluation reserves in respect of those assets to retained earnings.

61 notes to the financial Statements continued

2.17 investment property Investment properties include properties held to earn rental income, and/or for capital appreciation as well as investment properties under construction. A property is also classified as an investment property if it does not have an operating lease in place, but is held with the intention of attaining an operating lease. Investment properties are initially recognised at cost, including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value, representing open‑market value determined annually by external valuers. Changes in fair value are recorded in the statement of comprehensive income. Where a property interest is held under an operating lease, and is classified as an investment property, the property is recognised at the lower of fair value of the property and the present value of the minimum lease payments, with an equivalent amount being recognised as a liability. Subsequent to initial recognition, the asset and liability are measured at fair value with changes in fair value recognised in profit or loss.

2.18 impairment of non‑financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised when the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Impairment losses are recognised first against the revaluation reserves in respect of the impaired asset, and second as an expense in the statement of comprehensive income. 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 comprehensive income 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. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non‑financial assets that suffered impairment, with the exception of fishing quota, are reviewed for possible reversal of the impairment at each reporting date.

2.19 Trade and other payables Trade payables and other accounts payable are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other accounts payable are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest method.

2.20 interest bearing liabilities Interest bearing liabilities are initially recognised at fair value, net of transaction costs incurred. Interest bearing liabilities are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date.

2.21 Contributed equity Ordinary shares are classified as equity. Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instrument. Transaction costs are the costs arising on the issue of equity instruments, incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

62 Tainui Group Holdings Annual Report 2012

2.22 Dividends Dividend distribution to the Company Shareholder is recognised as a liability in the Company’s and the Group’s financial statements in the period in which the dividends are approved by the Directors and notified to the Company’s Shareholder. 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.

2.23 Current income tax o n financial inf o rmati The Inland Revenue Department approved the Company as charitable for the purposes of the Income Tax Act 1994. Accordingly, no income tax is payable. See note 3 for details of entities that have charitable status. However some subsidiary and associate entities are taxable. In the instances where an entity is taxable, current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). The Group is not liable for tax on profits or losses from joint ventures as all entities within the Group that are partners of a joint venture through a joint venture agreement have charitable tax status.

2.24 Statement of cash flows The statement of cash flows are prepared exclusive of GST. For the purposes of the statement of cash flows, cash and cash equivalents include cash in banks and investments in money market instruments, net of outstanding bank overdrafts. Operating activities include all transactions and other events that are not investing or financing activities. Investing activities are those activities relating to the acquisition and disposal of current and non‑current investments and any other non‑current assets. Financing activities are those activities relating to changes in the equity and debt capital structure of the Company and Group and those activities relating to the cost of servicing the Company’s and Group’s equity capital.

2.25 goods and services tax (GST) The profit and loss component of the statement of comprehensive income has been prepared so that all components are stated exclusive of GST. All items in the statement of financial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced.

3 Consolidation Subsidiaries: Charitable Operating Ownership and voting interest Balance Status division 2012 2011 date

Raukura Moana Seafoods Limited Yes Fisheries 100% 100% 31‑Mar Ruakura Fee Simple Limited Yes Property 100% ‑ 31‑Mar Ruakura Limited Yes Property 100% ‑ 31‑Mar Tainui Auckland Airport Hotel LP No Investment 70% 70% 31‑Mar Tainui Auckland Airport Hotel GP Limited No Investment 70% 70% 31‑Mar Tainui Corporation Limited Yes Property 100% 100% 31‑Mar Tainui Development Limited Yes Property 100% 100% 31‑Mar TDL No. 1 Limited Yes Investment 100% 100% 31‑Mar Te Rapa 2002 Limited Yes Property 100% 100% 31‑Mar TGH No. 1 Limited No Investment 100% 100% 31‑Mar The Base Limited Yes Property 100% 100% 31‑Mar

63 notes to the financial Statements continued Note 3 continued

Associates: Charitable Operating Interest held Balance date status division 2012 2011

Hamilton Riverview Hotel Limited No Investment 41% 41% 31‑Dec

Unincorporated Joint Ventures: Charitable Operating Ownership and voting interest Balance Status division 2012 2011 date

Callum Brae Tainui No Property 50% 50% 31‑Mar TAG Forestry Joint Venture No Property 50% 50% 31‑Mar

The subsidiaries, interest in associates and joint ventures with reporting dates other than 31 March have been included based on their actual balances at 31 March 2012 and not the balances at their respective reporting dates. Hamilton Riverview Hotel Limited has a balance date of 31 December to align with its other shareholders operations. The country of incorporation for all subsidiaries, associates and joint ventures is New Zealand. The Group’s interest in the joint ventures had the following effect on the financial statements: Consolidated 2012 2011 $’000 $’000

Statement of financial position Current assets 2,442 3,599 Non‑current assets 210 4,195 Total assets 2,652 7,794 Current liabilities 245 567 Net assets 2,407 7,227 Statement of comprehensive income Revenues 2,413 3,550 Expenses (1,252) (2,005) Profit before income tax 1,161 1,545

4 Revenue Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Rental income 31,441 24,556 2,642 2,580 Hotel income 14,397 - - - Sale of sections 2,409 3,522 - - Other income 2,144 1,401 2,505 634 Quota leasing income 1,745 1,814 - - Dairy income 1,056 1,048 1,056 1,048 Dividends from listed investments 918 1,586 918 1,586 Other operating gains 13 693 728 693 728 54,803 34,655 7,814 6,576

64 Tainui Group Holdings Annual Report 2012

5 expenses Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Audit fees paid to Parent and Group auditors 75 71 23 28 Audit related fees 26 - - - Audit fees paid to other auditors 16 - - -

Bad debt written off 14 - - - o n financial inf o rmati Consultancy fees 592 1,252 450 675 Cost of sales 6,893 2,155 639 645 Depreciation and amortisation expense 2,541 443 489 376 Direct costs from rental income 1,442 3,375 449 265 Direct costs from investment properties (non‑income generating) 425 51 3 12 Directors fees 280 228 280 228 Doubtful debt provision 12 22 1 - Employee benefits 7,603 3,450 3,191 2,095 Operating lease expenses 52 61 45 38 Other expenses 2,090 1,212 168 4 22,061 12,320 5,738 4,366

Depreciation Amortisation of intangibles 16 220 101 211 101 Computer, office equipment, furniture and fittings 17 283 116 87 51 Farm and other properties 17 167 197 167 195 Hotel 17 1,847 - - - Motor vehicles 17 24 29 24 29 Total depreciation and amortisation 2,541 443 489 376

6 investments in associates Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Investments in associates 13,485 13,151 - -

Carrying value of associates Carrying value at beginning of year 13,151 13,012 - - Share of net profit of associates 541 139 - - Dividend received (207) - - - Carrying value at end of year 13,485 13,151 - -

The carrying value is comprised of: Cost 6,000 6,000 - - Share of associate revaluation reserves 7,222 7,222 - - Share of associate post acquisition retained earnings 263 (71) - - 13,485 13,151 - -

65 notes to the financial Statements continued

7 income tax The taxable members of the Group have sufficient losses to carry forward to meet any potential income tax liability. The taxable losses are not recorded in the financial statements due to the lack of probability that the losses will be recovered. The approximate unrecognised tax losses carried forward are $0.9m (2011: $0.9m). As at reporting date there is no current tax expense, tax payable or tax receivable (2011: nil).

8 Other gains ‑ net Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Biological assets ‑ fair value gains unrealised 13 497 789 - - Financial liabilities designated at fair value through profit or loss ‑ increase in investment property liability 21 (4,313) (2,572) (4,313) (2,572) Intangible asset settlement 16 - 105 - 93 Interest rate swaps ‑ fair value losses unrealised 21 (3,973) (4,140) (2,927) (4,140) Investment properties ‑ fair value gains unrealised 18 23,624 8,571 9,255 4,268 Investment properties ‑ loss on sale - (393) - - Property, plant & equipment ‑ impairment of land at cost 17 (1,400) (950) - - Shares in listed companies ‑ fair value gains realised 4,050 - 4,050 - Shares in listed companies ‑ fair value gains unrealised - 6,750 - 6,750 Shares in unlisted companies ‑ fair value losses realised (53) - (53) - Shares in unlisted companies ‑ fair value gains unrealised 673 - 763 - 19,105 8,160 6,775 4,399

9 Contributed equity Consolidated and Parent Consolidated and Parent 2012 2011 2012 2011 Share no. Share no. $’000 $’000

Share capital Ordinary shares Balance at beginning of year 60,000,000 60,000,000 60,000 60,000 Balance at end of year 60,000,000 60,000,000 60,000 60,000 All ordinary shares rank equally and have a par value of nil and a nominal value of $1 per share.

10 Reserves and retained earnings Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

(a) Reserves Farm and other properties 11,151 8,279 11,151 8,279 Associates 7,222 7,222 - - 18,373 15,501 11,151 8,279

Farm and other properties Balance at beginning of year 8,279 10,968 8,279 10,968 Revaluation gain/(loss) during the year 17 2,872 (2,689) 2,872 (2,689) Balance at end of year 11,151 8,279 11,151 8,279

66 Tainui Group Holdings Annual Report 2012

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Associates Balance at beginning of year 6 7,222 7,222 - - Balance at end of year 7,222 7,222 - - o n financial inf o rmati (b) Retained earnings Movements in retained earnings were as follows: Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Balance at beginning of year 247,217 235,058 10,060 21,990 Net profit/(loss) for the year 39,372 22,659 (2,752) (1,430) Dividend 14 - (10,500) - (10,500) Balance at end of year 286,589 247,217 7,308 10,060

11 Trade and other receivables Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Trade receivables 1,832 1,680 477 421 Property settlements 562 2,781 - - Less provision for impairment (68) (56) (1) - Trade receivables from related parties 14 158 377 150 377 Prepayments 1,770 454 555 141 GST - 3,955 15 3 Other receivables - 126 - - 4,254 9,317 1,196 942

12 inventories Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Land ‑ sections for sale 4,159 4,617 - - Other inventories at cost ‑ food and beverage 43 - - - 4,202 4,617 - -

The Bank of New Zealand currently holds a registered first mortgage over property situated at Huntington/Gordonton Road, Hamilton. This property is part of the Callum Brae Tainui joint venture.

13 Biological assets Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Current Balance at beginning of year 843 615 843 615 Additions 160 114 160 114 Changes in fair value 4 693 728 693 728 Decreases due to sales (614) (614) (614) (614) Balance at end of year 1,082 843 1,082 843

67 notes to the financial Statements continued Note 13 continued

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Non‑current Balance at beginning of year 2,694 1,905 - - Changes in fair value 8 497 789 - - Balance at end of year 3,191 2,694 - -

The current biological assets represent livestock consisting of mixed age sheep, cattle and cows, which are held for dairy and dry stock farming. N Lyons and C Heggie from PGG Wrightson determined the fair value of sheep, cattle and cows at 31 March 2012 (2011: N Lyons and C Heggie from PGG Wrightson). Both valuers provided valuations based on reference to market evidence of current market prices less point‑of‑sale costs. At balance date there were 2,864 sheep, 428 cattle and 161 cows (2011: 2,729 sheep, 407 cattle and 99 cows). The non‑current biological assets are comprised of a 374 hectare Pinus Radiata forest planted in 1996 and 1997 and 151 hectares Pinus Radiata forest planted in 2001 and 2002. It is expected that the rotation age for the forest crop will be 27 to 28 years, at which time the crop will be harvested. R H Webster NZIF Registered Valuer valued 374 hectares of the forest crop as at 31 March 2012 (2011: 374 hectares) using the Crop Expectation Value method at a 7.0% post‑tax discount rate to determine fair value, less point‑of‑sale costs. R H Webster also valued 270 hectares of Californian Coast Redwoods planted from 2005 to 2007 as at 31 March 2012 (2011: nil) using current replacement cost method used for young trees at a 7.0% compounded rate. Alan Bell NZIF Registered Valuer valued 151 hectares of the forest crop as at 31 March 2012 (2011: 151 hectares) using the discounted future value method at a 10% pre‑tax discount rate to determine fair value, less point‑of‑sale costs. The non‑current biological assets are held for investment. All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised and relevant professional qualifications and have recent experience in the categories of biological assets they have valued.

14 Related party transactions Amounts outstanding with related parties are: Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Advances owing by subsidiaries and related parties: Tainui Auckland Airport Hotel LP - - 20,860 21,700 Tainui Development Limited - - 42,536 42,775 Te Rapa 2002 Limited - - 37,155 35,688 The Base Limited - - 145,340 117,225 Waikato Raupatu Lands Trust 8,400 - 8,400 - Waikato Raupatu River Trust 23 - 23 - Waikato‑Tainui Distributions Limited 25 - 25 - 8,448 - 254,339 217,388

Advances owing to Shareholder, subsidiaries and related parties: Raukura Moana Seafoods Limited - - 6,306 4,965 Tainui Corporation Limited - - 45,897 37,435 TGH No. 1 Limited - - 5,780 5,780 Waikato Raupatu Lands Trust 74,027 74,027 49,162 49,162 Waikato‑Tainui Fisheries Limited 913 414 913 414 74,940 74,441 108,058 97,756

68 Tainui Group Holdings Annual Report 2012

Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Trade and other receivables owing by Shareholder: Waikato Raupatu Lands Trust 11 158 377 150 377 158 377 150 377

Trade and other payables owing to Shareholder: o n financial inf o rmati Waikato Raupatu Lands Trust 19 - 2,722 - 2,722 - 2,722 - 2,722

The Company’s Shareholder, Waikato‑Tainui Te Kauhanganui Incorporated is the Trustee of the Waikato Raupatu Lands Trust (the ‘Trust’). The Trust is the ultimate parent entity of the Group. All members of the Group are considered to be related parties of the Trust. Transactions between related entities include loans and advances to and from the Shareholder, certain subsidiaries and associates. All amounts owing by and to the Company and Group and ultimate Parent are repayable on demand and are interest free. There is no impairment of any related party balances. The amount owing by the ultimate Parent to the Group is subordinated to the Westpac and BNZ bank loans (see note 20). The Company charged its subsidiaries and Shareholder $1.9m (2011: $1.6m) for administration services and financial charges. There were no purchases of goods or services from the Group’s subsidiaries. The Company did not declare a dividend for the year ended 31 March 2012 (2011: $10.5m or $0.175 per share) to the Shareholder, Waikato‑Tainui Te Kauhanganui Incorporated, however a dividend of $10.1m was declared on 22 June 2012 (see note 27). The advance account movement between the Company and its subsidiaries represents cash received and payments made by the Company on behalf of its subsidiaries. There are operating leases in place between the Shareholder and the Company for land owned by the Shareholder where the Group has developed and leased properties at The Base and the University of Waikato respectively. The interest held under the operating lease has been accounted for as an investment property and financial liability (see notes 18 and note 21 respectively).

15 Other financial assets Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

At fair value through profit or loss: Listed companies - 53,325 - 53,325 Unlisted companies 5,385 4,082 5,294 3,901 5,385 57,407 5,294 57,226

In July 2011 the Company sold its shares in listed company Ryman Healthcare Limited for $57.4m or $2.55 per share.

16 intangible assets Consolidated Software Quota NZ Units ETS Total $’000 $’000 $’000 $’000

Balance at 31 March 2010 279 20,340 - 20,619 Additions 49 - 105 154 Amortisation (101) - - (101) Balance at 31 March 2011 227 20,340 105 20,672

69 notes to the financial Statements continued Note 16 continued

Computer software Quota NZ Units ETS Total $’000 $’000 $’000 $’000

Total intangible assets at 31 March 2011 Cost 413 20,340 105 20,858 Accumulated amortisation and impairment (186) - - (186) Net book value 227 20,340 105 20,672

Balance at 31 March 2011 227 20,340 105 20,672 Additions 36 - - 36 Amortisation and impairment (146) - (74) (220) Balance at 31 March 2012 117 20,340 31 20,488

Total intangible assets at 31 March 2012 Cost 448 20,340 105 20,893 Accumulated amortisation and impairment (331) - (74) (405) Net book value 117 20,340 31 20,488

Parent Balance 31 March 2010 Opening net book amount 275 14,492 - 14,767 Additions 33 - 93 126 Amortisation and impairment (101) - - (101) Balance 31 March 2011 207 14,492 93 14,792

Total intangible assets at 31 March 2011 Cost 391 14,492 93 14,976 Accumulated amortisation and impairment (184) - - (184) Net book amount 207 14,492 93 14,792

Balance 31 March 2011 207 14,492 93 14,792 Additions 36 - - 36 Amortisation and impairment (146) - (65) (211) Balance 31 March 2012 97 14,492 28 14,617

Total intangible assets at 31 March 2012 Cost 428 14,492 93 15,013 Accumulated amortisation and impairment (331) - (65) (396) Net book value 97 14,492 28 14,617

The Group is deemed a participant in the New Zealand Emission Trading Scheme (ETS) as it is an owner of fishing quota. The carbon credits are not consumed in the production and the Group is able to either hold the New Zealand Units (NZU) within the carbon register or alternatively trade the NZU’s in domestic and international carbon markets. The NZU’s are not amortised but are tested for impairment on an annual basis or when indications of impairment exist. NZU’s relate to 3,701 (Parent) and 490 (Group) units that were allocated by the Ministry for the Environment as part of the fisheries allocation for quota owned. The units were valued at $7.50 per unit (2011: $25.00) resulting in an impairment charge to the Group of $73,342 (2011: nil) and Parent of $64,768 (2011: nil).

70 Tainui Group Holdings Annual Report 2012

17 property, plant and equipment Computer, office equipment, Farm and Development Land Motor furniture & Consolidated other properties properties at cost Hotel vehicles fittings Total Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000

Year ended 31 March 2011

Opening net o n financial inf o rmati book value 21,694 6,313 5,590 - 120 280 33,997 Additions 70 45,683 - - - 647 46,400 Disposals - - - - - (5) (5) Net revaluation decrements 10 (2,689) - - - - - (2,689) Depreciation charge 5 (197) - - - (29) (116) (342) Impairment of land at cost 8 - - (950) - - - (950) Closing net book value 18,878 51,996 4,640 - 91 806 76,411

At 31 March 2011 Cost 19,917 51,996 4,640 - 227 1,213 77,993 Accumulated depreciation (1,039) - - - (136) (407) (1,582) Closing net book value 18,878 51,996 4,640 - 91 806 76,411

Year ended 31 March 2012 Opening net book value 18,878 51,996 4,640 - 91 806 76,411 Additions 205 7,436 - - 19 321 7,981 Disposals (1) - - - (7) - (8) Net revaluation 10 2,872 - - - - - 2,872 Depreciation charge 5 (167) - - (1,847) (24) (283) (2,321) Transfer from investment properties 18 - 1,360 - - - - 1,360 Impairment of land at cost 8 - - (1,400) - - - (1,400) Reclassification - (59,170) - 59,170 - - - Closing net book value 21,787 1,622 3,240 57,323 79 844 84,895

71 notes to the financial Statements continued Note 17 continued

Computer, office equipment, Farm and Development Land Motor furniture & Consolidated other properties properties at cost Hotel vehicles fittings Total Notes $’000 $’000 $’000 $’000 $’000 $’000 $’000

At 31 March 2012 Cost 22,993 1,622 3,240 59,170 227 1,473 88,725 Accumulated depreciation (1,206) - - (1,847) (148) (629) (3,830) Closing net book value 21,787 1,622 3,240 57,323 79 844 84,895

Computer, office equipment, Farm and Motor furniture & Parent other properties vehicles fittings Total Notes $’000 $’000 $’000 $’000

Year ended 31 March 2011 Opening net book value 20,063 120 128 20,311 Additions 77 - 74 151 Disposals - - (5) (5) Net revaluation decrements 10 (2,689) - - (2,689) Depreciation charge 5 (195) (29) (51) (275) Closing net book value 17,256 91 146 17,493

At 31 March 2011 Cost 18,278 226 430 18,934 Accumulated depreciation (1,022) (135) (284) (1,441) Closing net book value 17,256 91 146 17,493

Year ended 31 March 2012 Opening net book value 17,256 91 146 17,493 Additions 182 19 86 287 Disposals (1) (7) (1) (9) Net revaluation 10 2,872 - - 2,872 Depreciation charge 5 (167) (24) (87) (278) Closing net book value 20,142 79 144 20,365

At 31 March 2012 Cost 21,330 226 464 22,020 Accumulated depreciation (1,188) (147) (320) (1,655) Closing net book value 20,142 79 144 20,365

Development properties Development properties relating to the development of the Novotel Auckland Airport hotel, which was completed in May 2011, has been transferred to a separate hotel category within property, plant and equipment (see also note 20 for ASB Bank security agreement over the hotel assets). The transfer to development properties relates to a property previously classified as investment property. The property will be developed as the Company’s new offices, therefore owner occupied, and as such the property has been reclassified to property, plant and equipment.

72 Tainui Group Holdings Annual Report 2012

Valuations of farm and other properties Telfer Young (Waikato) Limited and Curnow Tizard were contracted as independent valuers to value farm and other properties. Fair value has been assessed as the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties in an arms length transaction. The significant methods and assumptions applied in estimating the fair value were: ‑ the direct comparison approach (based on analysis of sales of vacant property. This analysis includes determination

of land value, other improvements and residual value for principal improvements); o n financial inf o rmati ‑ the traditional capitalisation approach (focusing on the net maintainable income and the level of investment return); ‑ the discounted cash flow approach (based on establishing a cash flow budget for the property having particular regard to the length of lease term and nature of the leasehold interest and the following factors; discount rate, land inflation and rental rates); and ‑ comparing market evidence of transaction prices for similar properties. The total value of farm properties valued by Telfer Young (Waikato) Limited at 31 March 2012 is $20.1m (2011: $17.2m). The carrying amount that would have been reported for farm properties under the historical cost method is $9.2m (2011: $9.0m). The total value of other properties by Curnow Tizard Limited at 31 March 2012 is $1.7m (2011: $1.6m). The carrying amount that would have been reported for other properties under the historical cost method is $0.9m (2011: $1.2m). All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised and relevant professional qualifications and have recent experience in the locations and categories of farm and other properties they have valued.

18 investment properties Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Balance at beginning of year 457,728 385,061 71,778 67,510 Development 48,420 67,846 - - Net gain from fair value adjustment 8 23,624 8,571 9,255 4,268 Transfer to property, plant and equipment 17 (1,360) - - - Disposals - (3,750) - - Balance at end of year 528,412 457,728 81,033 71,778

Valuation basis of investment properties Investment property valuations were completed as follows: D.J. Saunders from Telfer Young (Waikato) Limited valued properties at fair value of $131m and parent $24m on 31 March 2012 (31 March 2011: $122m and Parent: $22m) using a mixture of market evidence of transaction prices for similar properties, direct comparison, capitalisation and discounted cash flow approaches. T. Arnott from CB Richard Ellis Limited valued properties at fair value of $282m and parent $57m on 31 March 2012 (31 March 2011: $114m and Parent: $50m) using a mixture of market evidence of transaction prices for similar properties, capitalisation and discounted cash flow approaches. M. J. Snelgrove from Curnow Tizard Limited valued properties at fair value of $107m on 31 March 2012 (31 March 2011: $104m) using a mixture of market evidence of transaction prices for similar properties, direct comparison, capitalisation and discounted cash flow approaches. R. H. Martin from Property Valuations Limited valued properties at fair value of $1m on 31 March 2012 (31 March 2011: $2m) using a mixture of market evidence of transaction prices for similar properties and the direct comparison approaches.

73 notes to the financial Statements continued Note 18 continued

R. Peters from Seagar & Partners valued properties at fair value of $2m on 31 March 2012 (31 March 2011: $2m) using a mixture of market evidence of transaction prices for similar properties and the direct comparison approaches. Property under construction valuations were completed as follows: T. Arnott from CB Richard Ellis Limited valued properties at fair value of nil on 31 March 2012 (2011: $112m) using a mixture of market evidence of transaction prices for similar properties, capitalisation and discounted cash flow approaches. The carrying amount that would have been reported for properties under construction under the historical cost method is nil (2011: $112m). All valuers are independent registered valuers not related to the Company or Group. All valuers hold recognised and relevant professional qualifications and have recent experience in the locations and categories of the investment property they have valued. The Group also incurred work in progress as at 31 March 2012 of $6m (2011: $2m) in relation to the property located at The Base, Parent nil (2011: nil).

19 Trade and other payables Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Trade payables 2,092 5,787 1,284 78 Dividend payable to related parties 14 - 2,700 - 2,700 Related party payables 14 - 22 - 22 Accrued expenses 8,135 11,402 1,850 2,158 Employee entitlements 468 253 272 161 GST 346 - - - Other payables 40 61 40 61 11,081 20,225 3,446 5,180

20 interest bearing liabilities Consolidated Parent 2012 2011 2012 2011 Secured $’000 $’000 $’000 $’000

Bank loans 30,300 72,000 30,300 72,000 Total current interest bearing borrowings 30,300 72,000 30,300 72,000

Bank loans 149,852 114,650 121,667 97,400 Total non‑current interest bearing liabilities 149,852 114,650 121,667 97,400 Total interest bearing liabilities 180,152 186,650 151,967 169,400

The Company holds a multi option credit line facility agreement with Westpac New Zealand Limited for $75m (2011: $50m) of which $50m matures on 15 March 2014 and $25m matures on 25 July 2015. Borrowings of $26m of the available facility had been drawn at balance date (2011: $23m). The Company holds a Wholesale Term Loan Facility with Westpac New Zealand Limited for $50m (2011: $22m) which matures on 27 July 2015. Borrowings of $50m had been drawn at balance date (2011: $22m). The Company holds a Committed Cash Advances Facility Tranche A Agreement with the Bank of New Zealand for $75m (2011: $50m) which matured on 31 July 2016. Borrowings of $46m of this facility had been drawn at balance date (2011: $50m). The Company holds a Committed Cash Advances Facility Tranche B Agreement with the Bank of New Zealand for $50m (2011: $50m) which matures on 22 November 2012. Borrowings of $30m of the available facility had been drawn at balance date (2011: $35m).

74 Tainui Group Holdings Annual Report 2012

Tainui Auckland Airport Hotel holds a Committed Cash Advance Facility with ASB Bank Limited for $33m (2011: $33m) which matures 14 May 2014. Borrowings of $28m of the available facility had been drawn at balance date (2011: $17m). The ASB Bank has a first and exclusive security agreement over the assets and undertakings of Tainui Auckland Airport Hotel LP and Tainui Auckland Airport Hotel GP Limited. The Company and guaranteeing subsidiaries (Tainui Corporation Limited, Tainui Development Limited, TGH No.1 Limited, Raukura Moana Seafoods Limited, The Base Limited and Te Rapa 2002 Limited) have granted to Westpac New Zealand Limited and Bank of New Zealand a charge in and over all present and future assets and present and future rights and interest in any asset as security for the finance facilities. o n financial inf o rmati

21 Other financial liabilities Consolidated Parent 2012 2011 2012 2011 At fair value through profit or loss $’000 $’000 $’000 $’000

Interest rate swaps 11,763 7,790 10,717 7,790 Investment property liability 28,280 23,967 28,280 23,967 40,043 31,757 38,997 31,757

The notional amount of interest rate swaps is $150m (Parent: $135m) with maturity dates that range from 1‑10 years (Parent: 1‑9 years), (2011: $139m for Parent and Group, maturing between 1‑10 years). The Base and University of Waikato land is owned by the Shareholder. There is an operating lease in place between the Shareholder and the Group. The interest held under the operating lease has been accounted for as a financial liability and investment property (see note 14 and note 18).

22 Reconciliation of profit for the year to net cash inflow/(outflow) from operating activities Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Net profit/(loss) for the year 39,353 22,659 (2,752) (1,430) Non‑cash items: Depreciation and amortisation 5 2,541 443 489 376 Bad debts written off 5 14 - - - Movement in doubtful debt provision 5 12 22 1 - Loss on sale of investment properties 8 - 393 - - Gain on revaluation of biological assets 8, 13 (1,190) (1,517) (693) (728) Gain on shares in listed companies 8, 15 (4,050) (6,750) (4,050) (6,750) Loss on shares in unlisted companies 8, 15 53 - 53 - Gain on shares in unlisted companies 8, 15 (673) - (763) - Loss on interest rate swaps 8, 21 3,973 4,140 2,927 4,140 Movement in investment property liability 8, 21 4,313 2,572 4,313 2,572 Share of total profits of associates 6 (334) (139) - - Gain on revaluation of investment properties 8, 18 (23,624) (8,571) (9,255) (4,268) Impairment of land at cost 8 1,400 950 - - Other non‑cash items in relation to investing and financing activities 3,386 577 2,883 (993) (Increase)/decrease in current assets: Trade and other receivables 5,063 (4,329) 254 3 Inventories 415 (1,109) - - Biological assets (239) (228) (239) (228) Increase/(decrease) in current liabilities: Trade and other payables (9,144) 5,317 (1,734) 650 Net cash inflow/(outflow) from operating activities 21,269 14,430 (8,566) (6,656)

75 notes to the financial Statements continued

23 Financial risk management

23.1 Financial risk factors Exposure to credit, liquidity and market (currency, interest and price) risks arise in the normal course of the Group’s business. The Company and Group have various financial instruments with off‑balance sheet risk. Senior management are required to identify and report major risks affecting the business and develop strategies to mitigate these risks. The board reviews and approves overall risk management strategies covering specific areas. (a) Credit risk Credit risk is the risk that a third party will default on its obligations to the Parent or Group, causing the Parent or Group to incur a loss. The Parent and Group do not have any significant concentrations of credit risk. The maximum exposure to credit risk at reporting date is the carrying amount of the financial assets as shown in the statement of financial position. The Group does not require any collateral or security to support financial instruments as it only deposits with, or lends to, banks and other financial institutions with high credit ratings except for funds lent to a related party and an external entity for which the Group has appropriate security and guarantees. The Group further minimises credit exposure by limiting the amount of surplus funds placed with any one financial institution. The Group does not expect non‑performance of any obligations at balance date. There are no material financial assets held by the Company and Group at balance date which are past due but not impaired. (b) Market risk (i) Currency The Group has no exposure to currency risk at balance date. There are no notional principal or forward foreign exchange contracts at 31 March 2012 (2011: nil). (ii) Interest rate risk The Group’s interest rate risk arises from long‑term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rate expose the Group to fair value interest rate risk. The Company and Group adopt a policy of ensuring that between 25 and 90 per cent of its exposure to changes in interest rates on borrowings is on a fixed rate basis. The Group manages its cash flow interest rate risk by using floating to fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under interest rate swap contracts, the Group agrees to exchange the difference between fixed contract and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows at reporting date and the credit risk inherent in the contract, and are disclosed below. The average interest rate is based on the outstanding balances at the start of the financial year. (iii) Price risk The Group and the Parent entity are exposed to equity securities price risk. This arises from investments held by the Group and Parent that are classified at fair value through profit or loss. Neither the Group nor the Parent entity are exposed to commodity price risk. (c) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty raising liquid funds to meet commitments as they fall due. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

76 Tainui Group Holdings Annual Report 2012

(d) Financial risk management strategies relating to agricultural activities The Group undertakes agricultural activities through its farm operations and forestry land. These operations are exposed to business risks, including the volatility of revenue and valuation of its assets. The Group utilises the skills of appropriately qualified and experienced farm consultants, farm managers and sharemilkers to mitigate the financial risk relating to farming activities. The Group utilises the skills of appropriately qualified and experienced forestry consultants and forestry contractors to

mitigate the financial risk relating to forestry activities. o n financial inf o rmati (e) Fair value estimation The fair value of financial instruments traded in active markets is based on quoted market prices at balance date. The quoted market price used for financial assets held by the Group is the current bid price. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (f) Financial instruments by category Assets at fair value Assets at through profit amortised or loss cost Total Financial assets as per statement of financial position $’000 $’000 $’000

Consolidated At 31 March 2012 Financial assets 5,385 - 5,385 Trade and other receivables - 2,484 2,484 Cash and cash equivalents - 6,257 6,257 5,385 8,741 14,126 At 31 March 2011 Financial assets 57,407 - 57,407 Trade and other receivables - 4,908 4,908 Cash and cash equivalents - 2,251 2,251 57,407 7,159 64,566 Parent At 31 March 2012 Advances - 254,339 254,339 Financial assets 5,294 - 5,294 Trade and other receivables - 626 626 Cash and cash equivalents - 2,054 2,054 5,294 257,019 262,313 At 31 March 2011 Advances - 217,388 217,388 Financial assets 57,226 - 57,226 Trade and other receivables - 798 798 Cash and cash equivalents - 1,023 1,023 57,226 219,209 276,435

77 notes to the financial Statements continued Note 23.1 continued

Liabilities at fair value Liabilities at through profit amortised or loss cost Total Financial liabilities as per statement of financial position $’000 $’000 $’000

Consolidated At 31 March 2012 Borrowings - 180,152 180,152 Financial liabilities 40,043 - 40,043 Trade and other payables - 10,735 10,735 Advances - 74,940 74,940 40,043 265,827 305,870

At 31 March 2011 Borrowings - 186,650 186,650 Financial liabilities 31,757 - 31,757 Trade and other payables - 20,225 20,225 Advances - 74,441 74,441 31,757 281,316 313,073

Parent At 31 March 2012 Borrowings - 151,967 151,967 Financial liabilities 38,997 - 38,997 Trade and other payables - 3,446 3,446 Advances - 108,058 108,058 38,997 263,471 302,468

At 31 March 2011 Borrowings - 169,400 169,400 Financial liabilities 31,757 - 31,757 Trade and other payables - 5,180 5,180 Advances - 97,756 97,756 31,757 272,336 304,093

23.2 Capital risk management The Group’s capital is its equity plus debt, which is comprised of contributed capital, retained earnings and other reserves. Equity is represented by net assets. The Group manages its revenues, expenses, assets and liabilities, investments and general financial dealings prudently. The Group’s equity is largely managed as a by‑product of managing revenues, expenses, assets, liabilities, investments and general financial dealings. The objective of managing the Group’s equity is to ensure the Group effectively achieves its objectives and purpose, whilst remaining a going concern in order to provide returns for the Shareholder and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend paid to the Shareholder, return capital to the Shareholder, issue new shares or sell assets to reduce debt. The Group has not breached any bank covenants as required by the Bank of New Zealand and Westpac New Zealand Ltd during the reporting period (2011: no breach). There are no externally imposed capital requirements at balance date (2011: nil).

78 Tainui Group Holdings Annual Report 2012

Consolidated Parent 2012 2011 2012 2011 Notes $’000 $’000 $’000 $’000

Total borrowings 20 180,152 186,650 151,967 169,400 Less: cash and cash equivalents (6,257) (2,251) (2,054) (1,023) Net debt 173,895 184,399 149,913 168,377 Total equity 373,883 332,018 78,459 78,339

Total capital 547,778 516,417 228,372 246,716 o n financial inf o rmati Gearing ratio 32% 36% 66% 68%

24 Leases (a) Group and Company as lessee Commitments for minimum lease payments/receipts in relation to non‑cancellable operating leases are payable/ receivable as follows: Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Within one year 91 46 29 36 Later than one year but not later than five years 81 38 23 29 Later than five years 122 32 1 28 294 116 53 93

There are no options to purchase attached to any lease agreements. The operating leases that exist between the Shareholder and the Company for land owned by the Shareholder at The Base and the University of Waikato are rent free until the first rent review date which is in 2019 and 2022 respectively. (b) Group and Company as lessor The lease amounts due from leasees are as follows: Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Within one year 31,518 30,204 2,000 2,000 Later than one year and not later than five years 104,238 108,306 8,000 8,000 Later than five years 139,239 149,847 58,942 60,948 274,995 288,357 68,942 70,948

The majority of lease agreements are renewable at the end of the lease period at market rates. There are no options to purchase attached to any lease agreements.

25 Contingent liabilities and gains The Parent and Group had contingent liabilities at 31 March 2012 in respect of: The Shareholder has first priority security of $15m over the present and future undertakings, property, assets, revenues and capital of Raukura Moana Seafoods Limited, Tainui Corporation Limited, Tainui Development Limited and Tainui Group Holdings Limited. Each company jointly and severally, unconditionally and irrevocably guarantees to the Shareholder all secured monies. The Directors believe that the expectation of a liability arising due to the guarantees and mortgages in place is remote.

79 notes to the financial Statements continued

26 Capital commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Consolidated Parent 2012 2011 2012 2011 $’000 $’000 $’000 $’000

Property, plant and equipment 5,895 42,150 1,440 2,104 Proportionate interest in joint venture commitments - 588 - - Share of associates’ commitments - 497 - - 5,895 43,235 1,440 2,104

27 events subsequent to the reporting period The Company declared a dividend of $10.1m on 22 June 2012.

80 Tainui Group Holdings Annual Report 2012

Independent Auditors’ Report to the shareholder of Tainui Group Holdings Limited

Report on the Financial Statements We have audited the financial statements of Tainui Group Holdings Limited on pages 51 to 80, which comprise the statements of financial position as at 31 March 2012, the statements of comprehensive income and statements of changes in equity and cash flow statements for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2012 or from time to time during the financial year. Directors’ Responsibility for the Financial Statements

The Directors are responsible for the preparation of these financial statements in accordance with generally accepted o n financial inf o rmati accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and Group’s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We have no relationship with, or interests in, Tainui Group Holdings Limited or any of its subsidiaries other than in our capacity as auditors and providers of other assurance services. These services have not impaired our independence as auditors of the Company and the Group. Opinion In our opinion, the financial statements on pages 51 to 80: (i) comply with generally accepted accounting practice in New Zealand; (ii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2012, and their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2012: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use This report is made solely to the Company’s shareholder, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholder those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholder, as a body, for our audit work, for this report or for the opinions we have formed.

Chartered Accountants Auckland 22 June 2012

81 Waikato-Tainui Fisheries Limited Directory for the year ended 31 March 2012

Date of establishment 31 March 2008

Objectives Waikato-Tainui Fisheries Limited is established to: Receive, hold and manage, for so long as they are to be retained, the income shares of Aotearoa Fisheries Limited.

Shareholder Waikato-Tainui Te Kauhanganui Incorporated Board of Directors John Spencer (Chairman) Michael Allen Rahui Papa Rukumoana Schaafhausen Hon. Koro Wetere

Chief Executive Officer Mike Pohio

Solicitors Bell Gully McCaw Lewis

Registered office 4 Bryce Street, Hamilton 3204

Postal address P O Box 19295, Hamilton 3244

Telephone +64 7 834 4880

Facsimile +64 7 834 4881

82 Tainui Group Holdings Annual Report 2012

Waikato-Tainui Fisheries Limited Statement of comprehensive income (u n a u d i t e d ) for the year ended 31 March 2012

2012 2011 $’000 $’000

Revenue 499 414 Net operating profit for the year 499 414 Fair value gains/(losses) - - Net profit for the year 499 414 o n financial inf o rmati Other comprehensive income for the year Other comprehensive income for the year - - Total comprehensive income for the year 499 414

Waikato-Tainui Fisheries Limited Statement of financial position (u n a u d i t e d ) as at 31 March 2012

Note 2012 2011 $’000 $’000

Equity Contributed equity 3 - - Retained earnings 4 13,848 13,349 Total equity 13,848 13,349

Assets Current assets Advances 6 913 414 Non-current assets Other financial assets 5 12,935 12,935 Total assets 13,848 13,349 Total net assets 13,848 13,349

John Spencer, Chairman 22 June 2012

Mike Allen, Director 22 June 2012

These financial statements should be read in conjunction with the accompanying notes. 83 Waikato-Tainui Fisheries Limited Statement of changes in equity (u n a u d i t e d ) for the year ended 31 March 2012

Contributed Retained Total equity earnings equity $’000 $’000 $’000

Balance as at 1 April 2010 - 12,935 12,935 Comprehesive income Net profit for the year - 414 414 Other comprehensive income for the year - 414 414 Balance as at 31 March 2011 - 13,349 13,349 Comprehesive income Net profit for the year - 499 499 Total comprehensive income for the year - 499 499 Balance as at 31 March 2012 - 13,848 13,848

84 These financial statements should be read in conjunction with the accompanying notes. Tainui Group Holdings Annual Report 2012

Waikato-Tainui Fisheries Limited Notes to the financial statements for the year ended 31 March 2012

1 general information Waikato-Tainui Fisheries Limited’s (the ‘Company’) principal activity is to receive, hold and manage, for so long as they are to be retained, the income shares of Aotearoa Fisheries Limited (AFL), as that term is defined in the Maori Fisheries Act 2004, allocated by Te Ohu Kai Moana Trustee Limited to, or otherwise acquired by the Company. The Company is a limited liability company incorporated and domiciled in New Zealand. The financial statements were authorised for issue by the Board of Directors on the 22nd of June 2012. o n financial inf o rmati 2 Summary of significant accounting policies The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (‘NZ GAAP’). They comply with the New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and other applicable financial reporting standards as appropriate for the profit-oriented entities that qualify for and apply differential reporting concessions. The principal accounting policies applied in preparation of these financial statements are set out below. These policies have been consistently applied for all years presented, unless otherwise stated.

2.1 Basis of preparation Entities reporting The financial statements are for the Company as a separate legal entity. The Company is designated as profit-oriented for financial reporting purposes. Statutory base Waikato-Tainui Fisheries Limited is a company registered under the Companies Act 1993. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993. Historical cost convention The financial statements have been prepared under the historical cost convention, as modified by the revaluation of other financial assets at fair value through the profit or loss which are carried at fair value. Differential reporting The Company is a qualifying entity within the Framework for Differential Reporting. The Company qualifies on the basis that it is not publicly accountable and there is no separation between the owner and governing body. The Company has taken advantage of all differential reporting exemptions except for NZ IAS 18 – Revenue, for which it has fully complied.

2.2 Critical accounting estimates and judgments The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The estimates and judgements are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised. The following are the critical estimates and judgements management has made in the process of applying the Company’s accounting policies and that have the most significant impact on the amounts recognised in the financial statements. Fair value of assets Financial assets at fair value through profit or loss (note 5) are comprised of shares in an unlisted company held at fair value. The fair value of these shares, in the absence of quoted prices, has been determined by using valuation techniques.

85 notes to the financial Statements continued

2.3 Financial assets and liabilities Recognition and measurement A financial asset or liability is recognised if the Company becomes party to the contractual provisions of the instrument. Regular purchases and sales of financial assets and liabilities are recognised on the trade date, the date on which the Company commits to purchase or sell the asset or liability. A financial asset or liability is recognised initially at its fair value and in the case of a financial asset or liability measured at amortised cost includes transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and liabilities measured at amortised cost Financial assets and liabilities measured at amortised cost are non-derivative financial assets and liabilities which meet the following criteria: a) held within a business model whose objective is to hold an instrument in order to collect contractual cash flows; and b) the contractual terms of the instrument gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A gain or loss on a financial asset and liability that is measured at amortised cost and is not part of a hedging relationship recognised in profit and loss when the instrument is derecognised, impaired or reclassified and through the amortisation process. Trade and other receivables are classified as financial assets measured at amortised cost. Trade and other payables and debt instruments are classified as financial liabilities measured at amortised cost. Financial assets and liabilities measured at fair value through profit or loss Financial assets and liabilities are measured at fair value unless measured at amortised cost. At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this NZ IFRS that is not held for trading. If an entity makes this election, it shall recognise in profit or loss dividends from that investment when the entity’s right to receive payment of the dividend is established in accordance with NZ IAS 18 ‘Revenue’. An entity may also at initial recognition, designate an instrument as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the instruments or recognising gains and losses on them on different bases. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transaction pricing models refined to reflect the Company’s specific circumstances. A gain or loss on a financial asset or liability that is measured at fair value and is not part of a hedging relationship shall be recognised in profit and loss unless the financial asset is an investment in an equity instrument and the entity has made an irrevocable election to present gains and losses on that investment in other comprehensive income. Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

2.4 Revenue recognition Revenue is comprised of the fair value for the sale of goods and services, net of goods and services tax (GST), rebates and discounts. Revenue is recognised as follows: (a) Financial assets are classified as revenue on initial recognition; and (b) Dividend income is recognised when the right to receive payment is established.

2.5 Current income tax The Inland Revenue Department approved the Company as a Maaori Authority for the purposes of the Income Tax Act 1994. Accordingly, income tax is payable at a rate of 19.5%.

86 Tainui Group Holdings Annual Report 2012

2.6 gST The Company is not registered for GST. Revenue and expenses are reported gross of GST (if any).

3 Contributed equity 2012 2011 No. $’000 No. $’000

Ordinary shares

Balance at beginning of year 100 - 100 - o n financial inf o rmati Balance at end of year 100 - 100 -

All fully paid ordinary shares carry one vote per share and carry the right to dividends. Ordinary shares do not have a par value.

4 Retained earnings Movement in retained earnings were as follows: 2012 2011 $’000 $’000

Balance at beginning of year 13,349 12,935 Net profit for the year 499 414 Balance at end of year 13,848 13,349

5 Other financial assets 2012 2011 $’000 $’000

At fair value through profit or loss Shares in unlisted company - AFL income shares 12,935 12,935

The shares comprise of 6,851 income shares in AFL. These income shares received on 31 March 2008 have no voting rights attached and can be traded amongst iwi. The fair value of AFL income shares are based on cash flows calculated on an annual basis from 2008 to 2017 and a terminal value, based on cash flows in 2017 with an assumed growth factor of 2.6% per annum (2011: 2.6%) and a post tax discount rate of 9.5% (2011: 9.5%). A 20% (2011: 20%) liquidity and minority interest discount has been taken into account in determining the fair value.

6 Related parties Transactions between related entities include advances to and from other entities owned by the Shareholder. All amounts are repayable upon demand and are interest free. There is no impairment of any related party balances. The advance account movement of $0.9m represents cash received and payments made on behalf of the Company by Tainui Group Holdings Limited (2011: $0.4m).

7 Contingent liabilities The Company has no contingent liabilities at balance date (2011: nil).

8 Capital commitments The Company has no capital commitment at balance date (2011: nil).

9 events subsequent to the reporting period The company declared a dividend of $0.9m on 22 June 2012.

87 notes

88 Tainui Group Holdings Annual Report 2012

This annual report has been printed on environmentally friendly paper which has been sourced from legally harvested forests, and has been printed with environmentally friendly ink.

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