Report of the Armed Forces Canteen Council

Transcription

1 Report of the Armed Forces Canteen Council Presented to the House of Representatives Pursuant to Section 13 of the Armed Forces Canteens Act 1948 For the year ended 31 March 2012

2 Contents Directory 2 Introduction 3 Highlights of the Year 4 Five year Performance Comparisons 4 Key Indicators 4 Report on Operations 5 Financial Review 7 Strategic Initiatives 7 Human Resources and Training 8 Distribution of Surplus 8 Outlook 9 Statement of Responsibility 10 Financial Statements Statement of Accounting Policies 11 Statement of Comprehensive Income 13 Statement of Changes in Equity 13 Statement of Financial Position 14 Statement of Cash Flows 15 Notes to the Financial Statements 16 Auditor s Report 21

3 Directory Council Minister of Defence (Chair) Hon Dr Jonathan Coleman MBA Vice Chief of Defence Force (Deputy Chair) Rear Admiral J R Steer, ONZM Deputy Chief of Navy Commodore W R E Burroughs, MNZM, RNZN Deputy Chief of Army Brigadier C A S Lott, MNZM Deputy Chief of Air Force Air Commodore K R Short Financial and Commercial Adviser Mr. P Nankivell, BCA, CA Chief Executive Mr A Jina, BCA, CA Head Office Level 11, 79 Boulcott Street PO Box Wellington Telephone: (04) Fax: (04) info@afcc.mil.nz Solicitors Tripe Matthews & Feist, Wellington Auditors Audit New Zealand, Wellington Bankers Bank of New Zealand, 50 Manners Street, Wellington - 2 -

4 Introduction Mission The mission of the Armed Forces Canteen Council (AFCC) is: To provide a first class Canteen Service to meet the needs of the people of the New Zealand Defence Force Vision To be the first choice provider of Quality Canteen Services to the New Zealand Defence Force History Following the outbreak of the Second World War, it became apparent some form of canteen service was required to cater for the large intake of troops. The Canteen Board was set up under the Defence Canteen Emergency Regulations on 15 November After the war, the Government decided the Defence Canteen Emergency Regulations should remain in force and on 26 November 1948, Parliament passed the Armed Forces Canteens Act Initial funding was 106,833, an 11.6 percent share of the assets of the Canteen Board. Equity and the distribution of profits to the Services have increased over the years, reflecting the expansion of canteen and shop facilities at New Zealand Defence Force establishments and sound financial management. AFCC equity is currently $9.7m. Over the years, the AFCC has provided a full range of commercial services to keep pace with new demands, or to anticipate them. Trading outlets include grocery supermarkets, variety and duty free stores, cafeterias, canteens for field exercises and a wholesale service for military groups. The AFCC has maintained services at some military establishments, even though not profitable, to continue to provide a service to the members of the NZDF. The AFCC has outlets at camps and bases throughout New Zealand operating under the trading name of Hot Shots. The AFCC continues to provide canteen services to personnel of the New Zealand Defence Force (NZDF) and, for part of the year, at Scott Base in Antarctica (where the AFCC operates New Zealand s southernmost retail outlet). Governance The functions of the Council are to provide amenities on service establishments for the benefit of members of the armed forces and of other persons employed or residing on those establishments. The AFCC, being a body corporate, is governed by a Council. The Council is chaired by the Minister of Defence with other members being the Vice Chief of Defence Force (Deputy Chair), the three Service Deputy Chiefs, and a Financial and Commercial Adviser. Trading Locations The Council has trading outlets at all major NZDF camps and bases from Auckland to Burnham and, seasonally, at Scott Base. The AFCC also supports field exercises and provides services on the frigates and international flights of service personnel that depart or land at NZDF airfields

5 Highlights of the Year Completed the successful introduction of the Infinity RMS Point of Sale software and hardware across all locations, within budget. Sales decreased by 13.6% from last year, to $13.2m. This was caused by a combination of fierce competition for larger ticket items, lower product value because of the strong NZ dollar, the restructuring of the NZDF causing uncertainty in the customer base and the loss of the Christchurch prison business. Maintained last year s record gross profit percentage of sales at 24.9%. The AFCC was again awarded the Appliance Network Society, non-identified, Member of the Year for Five Year Performance Comparisons Turnover (Sales) $13.19m $15.26m $18.04m $18.21m $16.06m Cash $8.26m $8.83m $9.47m $9.59m $8.35m Pay Plan $3.88m $4.56m $5.34m $5.24m $4.48m Wholesale $1.05m $1.87m $3.23m $3.38m $3.23m Gross Profit $3.29m $3.81m $4.41m $4.42m $3.88m Other Income $0.65m $0.73m $0.70m $0.76m $0.71m Staff Remuneration $2.70m $2.82m $2.86m $2.73m $2.66m Property Charges $0.39m $0.38m $0.48m $0.41m $0.41m Other Overheads $0.43m $0.42m $0.49m $0.52m $0.50m Total Overheads $3.53m $3.62m $3.83m $3.66m $3.57m Net Surplus $0.41m $0.92m $1.28m $1.52m $1.02m Distribution $0.25m $0.55m $0.77m $0.97m $0.71m Key Indicators Equity $9.69m $9.52m $9.16m $8.65m $8.11m Total Assets $10.70m $10.83m $10.77m $10.62m $9.76m Working Capital Ratio Quick Assets Ratio Gross Profit to sales % Net Surplus to sales % Return on Equity - % Value of Pay Plan Accounts $2.38m $2.70m $3.20m $3.26m $2.93m Distribution of Surplus $0.25m $0.55m $0.77m $0.97m $0.71m - 4 -

6 Report on Operations Business Objectives 2012 The objectives for financial performance for the year were: Sales of $14.6m A gross profit percentage of 24.3 percent on sales Expenses and overheads to be less than 25.1% of sales The containment of wage costs to 19.1% of sales Interest income of $530k A net surplus of $0.52m Invest $196k improving operations and services Sales As expected, the 2012 year has been particularly difficult with tight economic conditions in New Zealand and abroad. In addition, the ongoing restructure of the NZDF has had a marked affect on the AFCC. Uncertainty has reduced confidence of personnel when contemplating purchases of larger ticket items, particularly when those purchases are being financed. Annual sales decreased by $2.1m (13.6%) to $13.2m, compared with last year s figure of $15.3m. This was 9.6% below the 2012 Business Plan objective of $14.6m. The decrease in sales can be attributed to a number of factors, including: Very strong competition in the market place. Some of the interest-free and loss leader deals offered by High Street retailers have been difficult to match. It is widely acknowledged that some retailers are trading at unsustainably low profit margins. This is reflected in their published results. Consolidation in the civilian retail sector is likely, as Dick Smith and Noel Leeming/Bond and Bond NZ operations are for sale. NZDF personnel business has been targeted particularly by Noel Leeming, which has an NZDF contract for small appliances and is allowed to advertise on DIXS. NZDF restructuring combined with limited external employment opportunities has made personnel cautious in their purchasing decisions. Increasing use of external contractors to provide services on camps and bases that do not use AFCC services such as drinks and liquor for the messes and clubs. Housing area population contraction as personnel are increasingly encouraged to live off-base. Reduced numbers of recruits, who have traditionally been the core of the AFCC s customer base. A series of extended local off-base deployments with disasters, e.g., Canterbury earthquakes and the Rena oil spill The loss of the prison business out of the Burnham location, which accounted for $552k in lost sales. Cash sales were down $563k (6.4%) compared with last year. These convenience sales are a staple part of the business. A major influence on cash sales is the size of camp/base resident populations, which fluctuate depending on deployments and recruitment. Pay-Plan sales were also down by $684k (15.0%). This reflects increasing High Street competition, and the reluctance to make purchases by personnel given their uncertain future. The number of recruits and the proportion of personnel on deployments are also significant sales volume factors. The most significant reduction in sales was in wholesale sales, down by $830k (44.2%). This is mainly because of the loss of the sales to Christchurch prison inmates ($522k), but the decline is - 5 -

7 also the result of the AFCC being displaced by local service contractors, e.g., supplies to bars are now provided by mess contractors, whereas previously these were provided by AFCC at wholesale rates. The AFCC s function catering via the cafes has also been affected. Duty free sales reduced by 15% to $377k ($443k in 2011). Navy duty free sales reduced by 3% to $246k ($254k in 2011). Ohakea Air Force duty free sales reduced by 39% to $55k ($91k 2011) and Whenuapai duty free volume also reduced by $22k (22%) to $76k. Navy sales were down overall by 8.3%. Philomel sales were down by 9.2% as there were fewer younger sailors on the base. The cafe recorded a 12.7% reduction in sales compared with The total reduction in Army sales was $1,569k (16.8% less than 2011). The total reduction in Burnham sales was $688k (21.1% less than 2011). Of this reduction, the loss of prison sales accounted for $522k. Trentham sales volume reduced by $159k (a 17.0% decrease) reflecting low camp population and the local availability of competitive services. Waiouru sales also reduced by 15.9% to$2,411k. Linton sales reduced by 11.7% to $1,998k. Air sales decreased by $281k (9.7%). Ohakea sales reduced by $122k (12.8%), although the 75 th Anniversary celebration event generated $45k in additional sales. Whenuapai sales reduced by $76k (5.8%). Woodbourne sales reduced by $83k (13.4%). A new manager commenced in Woodbourne in February Woodbourne staffing is now at the minimum that can sustain the operation there. Scott Base sales reduced 3% to $338k (last year $349k). Gross Profit Because of the reduced sales volume, gross profit reduced by $515k. Gross profit percentage, however, has actually remained constant at 24.9%. This is higher than the business objective of 24.3%. The AFCC sales mix has shifted to a larger proportion of convenience items for which price erosion is less likely. Expenses and Overheads (Total Expenses) Total expenditure for the year decreased by $94k (2.6 percent) to $3,527k, compared with last year s figure of $3,621k. This is 26.7 percent of total sales with the business objective being 25.1 percent. Although some savings have been made, with total expenditure reduced overall, the reduction in sales has frustrated the achievement of the business objective. The major component of total expenditure is wage and salary costs. These decreased by $118k (4.2%) to $2,704k, compared with last year s figure of $2,821k. This cost is 20.5% of sales and is higher than last year s 18.5% and the business objective of 19.1%. With declining sales, appropriate staffing levels at each location and at the head office are continually being evaluated. At the same time, minimum staffing levels, below which operations must be closed, must also be considered. Head office functions the payment of suppliers, debt collection, the performance of all accounting functions, the production of promotional flyers, the payment of wages, adherence to Council policy and the provision of IT services to all canteens are delivered in as cost-effective a way as is possible with a minimum of staff. Expenses include insurance excess costs of $17k in respect of Burnham Four Square burglaries. Property charges increased by $11k (2.8%) to $388k compared with last year s figure of $377k. Last year, the AFCC benefited from reduced head office rent with a four month rent holiday. Interest Income (Other Income) Income derived from interest on Pay Plan sales and bank term deposits totalled $572k. This was $30k (5.0 percent) less than last year, but above the business objective of $530k. As inventory holdings have been reduced and Pay Plan loans turned into cash, bank deposits have - 6 -

8 increased by $408k. However, bank deposit interest rates have reduced and the lower level of Pay Plan loans in the mix of interest bearing assets, reduces the overall effective interest rate earned. Pay Plan interest earned reduced to $348k (last year $392k). This reflects the increasing number of interest free deals required to attract business and the reduced volume and price of goods sold. Net Surplus The net surplus for 2012 was $414k 3.1% of sales (last year $916k 6.0% sales). The $502k reduction in the net surplus resulted from lower sales, only partly offset by the lower expenditure. Financial Review As at 31 March 2012, the equity of the Council was $9,689k, an increase of $165k from The equity was comprised of total assets of $10,702k, less total liabilities of $1,013k. Assets were cash and cash equivalents, short-term bank deposits, accounts receivable, inventory, fixed and intangible assets. Cash and bank deposits totalling $5,027k covered accounts payable and distributions of surplus when they became due. Accounts receivable totalled $2,542k. Of this total, $2,377k represented balances in Pay Plan accounts. Inventory decreased by $83k from last year, to $2,402k. Fixed assets had a book value of $452k, which is $52k lower than last year. The balance of the acquisition of the new POS software was completed this year, reflected in the increase in intangible assets by $16k, to $142k. Investments (shares and deposits in grocery and appliance-buying groups) decreased from $145k to $136k as redeemable preference shares were redeemed by Foodstuffs. Total liabilities were comprised of accounts payable and the outstanding distribution of surplus payable. Accounts payable decreased by $199k, and totalled $919k at the end of the financial year. Cash Flow The cash flow from operating activities resulted in a net inflow of $578k. The cash balance improved because accounts receivable have reduced. The net cash outflow from investing activities totalled $731k. The balance of cash and cash equivalents held at 31 March 2012 was $198k and short-term deposits (deposits longer than three months) totalled $4,829k (last year $4,267k) The AFCC was in a good cash position throughout the year and was able to meet its debts as they fell due Strategic Initiatives The point of sale and back office administration software together with new hardware has now been deployed across all canteens and the primary objective of securing more robust interchange of data has been achieved. Portable data terminals for stocktakes have yet to be purchased and the efficiency gains realised. Proactive management of the poorer performing locations is ongoing. A new manager has been appointed in Woodbourne and staffing is at the minimum level possible without reducing services

9 Ohakea has improved its profitability significantly in the last three months of the financial year following the restructure of the cafe. Even so, trading is still extremely difficult on the base and with the expected movement of a significant proportion of the base to the new hangar and maintenance facilities this is likely to worsen. There have been expressions of interest in having facilities near the new buildings but there is no location from which the AFCC could operate. In the meantime, vending machines and a Jo run are being considered. The proposed merger of the Waiouru cafe and the shop was planned for June 2012, but has now been postponed to December Internal audits to test for canteen compliance with Council policy were conducted at Whenuapai, Tamaki and Whenuapai. Internal controls were operating as required and all facilities inspected were well run by managers. The employee code of conduct policy has been updated and promulgated to all staff. Full stock checks have been undertaken by staff independent of managers at Philomel, Tamaki, Burnham 4 Square, Waiouru, Linton, Trentham and Woodbourne. Only minimal variances were reported. Human Resources and Training One of the AFCC s strengths is its experienced and motivated management team and workforce. The AFCC assists the development of staff by supporting training through the Retailers Association and the Retail Industry Training Organisation, so helping staff to gain recognised NZQA qualifications. There were two manager appointments at Hot Shots locations during the year. Barbara Van Jaarsveld was appointed manager at Trentham in October Juliana Pauer was appointed manager at Woodbourne in February As at 31 March 2012, the AFCC had 77 employees: 56 full-time and 21 part-time. The Manager of the Year Award was presented to Corin Shaw, who is responsible for the Shops and Café at Burnham and also Scott Base. Together with his team, he ensured service was provided to NZDF and civil defence teams and volunteers throughout the difficult periods following the Canterbury earthquakes. Distribution of Surplus An interim distribution of surplus of $155k was paid after the first six months of trading. Provision has been made for a final distribution of $94k making the total distribution of surplus for the year $249k. This is a reduction of $301k from The AFCC has retained $165k to maintain working capital, upgrade trading facilities, undertake a programme of capital investment and sustain its ability to take advantage of business opportunities. Distributions are made to Service Welfare Funds to provide amenities and benefits which facilitate Service recruitment, retention and morale. The payment of distributions of surplus is in keeping with the role of the AFCC and is a tangible reward for NZDF personnel who shop with the organisation

10 Outlook With much of the NZDF restructuring completed, job security and morale is expected to improve and with it a more consistent and predictable demand for AFCC services. The new structure and staffing will determine the scale of the operations required at each base and the AFCC must adapt to meet the new levels of demand. Sale of durable items is not expected to become any easier and the AFCC s focus must be on core convenience services and cafe facilities, albeit taking opportunities to sell durable items where possible. The aim for 2013 is to continue with a conservative approach to business and to entice customers to some larger ticket sales even at the expense of some profit margin. Acknowledgement I congratulate the management and staff of the AFCC on producing a net surplus during difficult economic times. The service provided to the members of the NZDF is paramount and valued by all. I also acknowledge the effective governance provided by the Council. Rear Admiral JR Steer ONZM Deputy Chair, Armed Forces Canteen Council - 9 -

11 STATEMENT OF RESPONSIBILITY The Council is responsible for ensuring that the financial statements give a true and fair view of the financial position of the Armed Forces Canteen Council as at 31 March 2012 and its financial performance and cash flows for the year ended on that date. The Council considers that the financial statements as presented have been prepared using the appropriate accounting policies, consistently applied and supported by reasonable judgments and estimates, and that all relevant financial reporting and accounting standards have been followed. The Council believes that proper accounting records have been kept which enable, with reasonable accuracy, the determination of the financial position of the Council and facilitate compliance of the financial statements with generally accepted accounting practice. The Council considers they have taken adequate steps to safeguard the assets of the Council and to prevent and detect fraud and other irregularities. The Council is pleased to present the financial statements for the financial year ended 31 March For and on behalf of the Council Rear Admiral JR Steer ONZM Deputy Chair, Armed Forces Canteen Council Chair, Armed Forces Canteen Council Mr P Nankivell BCA CA Financial and Commercial Adviser Armed Forces Canteen Council 11 th June

12 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2012 REPORTING ENTITY : The reporting entity is the Armed Forces Canteen Council (AFCC). The AFCC is a Public Benefit Entity established under the Armed Forces Canteens Act 1948 (The Act). The principle activity is to provide canteen services to the Armed Forces. These financial statements have been prepared to comply with Section 13 of The Act, Generally Accepted Accounting Practice (NZ GAAP) and the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). These financial statements were approved by the Council on 7th June 2012 MEASUREMENT BASE : The measurement base adopted is historical cost. The financial statements are presented in New Zealand currency. The functional currency of the AFCC is New Zealand Dollars. ACCOUNTING POLICIES : The following particular accounting policies, which materially affect the measurement of financial results and financial position have been applied. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Financial Instruments : The Council is party to financial instruments as part of its normal operations. These financial instruments include cash and cash equivalents, accounts receivable, held to maturity investments, and accounts payable. All financial instruments are recognised in the Balance Sheet and all revenues and expenses in relation to financial instruments are recognised in the Income Statement. Cash and Cash Equivalents : Cash and cash equivalents include cash on hand, bank accounts and deposits with a maturity of no more than three months from the date of acquisition. Accounts Receivable : Accounts receivable are designated as loans and receivables. They are initially measured at fair value and subsequently measured at their estimated realisable value after providing for impairment. Impairment is established when there is objective evidence, on a case by case basis, that the Council will not be able to collect amounts due according to the original terms of the agreement. Held to Maturity Investments : Held to maturity investments are assets with fixed or determinable payments and fixed maturities that the AFCC has a positive intention and ability to hold to maturity. After initial recognition at fair value they are measured at amortised cost. Gains and losses when the asset is impaired or derecognised are recognised in the Statement of Comprehensive Income. Investments in this category include short term bank deposits maturing after three months and deposits in Grocery and Appliance Buying Groups. Inventories : Inventories consist of goods held for resale and are valued at the lower of cost or net realisable value, on a weighted average basis. The amount of any write down from cost to net realisable value is recongnised in the Statement of Compreshensive Income. Financial Assets at Fair Value Through Equity : Financial assets at fair value through equity are those that are not classified in any of the other categories above. This category encompasses shareholdings that the AFCC holds for strategic purposes in Grocery and Appliance Buying Groups. These investments are subsequently measured at their fair value. As there is no quoted market price or other method to determine their market value, cost is used to approximate their market value. Fixed Assets (Property, Plant and Equipment) : Fixed assets costing more than $200 are capitalised and recorded at cost less accumulated depreciation. All groups of assets forming part of a network which are material in aggregate are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the Statement of Comprehensive Income

13 STATEMENT OF ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2012 Depreciation : Depreciation is provided on a straight line basis on all fixed assets including leasehold improvements at a rate which will write off the cost of the assets over their estimated useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows: Buildings 40 Years 2.5% - 10% Computer Equipment 3 to 8 Years 12.5% - 30% Leasehold Improvements 5 to 10 Years 10% - 20% Motor Vehicles 5 to 7 Years 15% - 20% Plant and Equipment 5 to 8 Years 12.5% - 20% Video and DVD tapes 2 Years 50% Intangible Assets : Acquired computer software licenses are capitalised on the basis of costs incurred to acquire and bring to use the specific software. Amortisation : The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. The useful life and associated amortisation rate is as follows: Computer Software 3 to 8 Years 12.5% - 30% Statement of Cash Flows. : Cash means cash and cash equivalents and bank accounts. Operating activities include cash and interest received from customers and records the cash payments for goods and services to suppliers and employees, net goods and service tax, interest paid to the bank and distribution of surpluses. Investing activities are those activities relating to the acquisition and disposal of non current assets. Sales Revenue : The AFCC derives revenue through the sale of goods and services. Such revenue is recognised and recorded when the sale takes place. Interest Income : Interest earned on hire purchase agreements is calculated on the daily balances and charged to the agreements monthly. Employee Entitlements : Provision is made for annual leave liability which is calculated on an actual entitlement basis at current rates of pay. Creditors and Other Payables : Creditors and Other Payables are stated at cost. Operating Leases : Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease expenses are recognised on a systematic basis over the period of the lease. Income Tax : Income tax is not payable pursuant to Section 16 (1) of the Armed Forces Canteens Act Goods and Service Tax (GST) : The financial statements have been prepared so that all components are stated exclusive of GST with the exception of receivables and payables which are stated with GST included. The amount of GST owing to the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in Accounts Payable. CHANGES IN ACCOUNTING POLICIES : There have been no changes in accounting policies since the date of the last financial statements. All policies have been applied on a basis consistent with previous years

14 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2012 NOTE $ $ Sales revenue 13,186,364 15,264,388 Cost of sales 9,894,995 11,458,135 Gross profit 3,291,369 3,806,253 Other income 1 650, ,291 Less expenses: Employee remuneration. 2,704,321 2,821,931 Property charges 2 388, ,433 Interest Other expenses 3 434, ,849 Total expenses 3,527,253 3,621,002 Net surplus 414, ,542 Less distributions 4 249, ,000 Net surplus after distributions 165, ,542 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH $ $ Net Surplus 165, ,542 Equity at beginning of year 9,524,035 9,158,493 Equity at end of period 9,689,271 9,524,035 The Statement of Accounting Policies and accompanying Notes form part of these financial statements

15 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2012 NOTE $ $ EQUITY 9,689,271 9,524,035 Represented by: CURRENT ASSETS Cash and cash equivalents 5 198, ,207 Short term bank deposits 6 4,828,782 4,267,474 Accounts receivable 7 2,359,766 2,728,530 Inventory 2,402,347 2,485,688 Investments 8 14,585 12,390 TOTAL CURRENT ASSETS 9,804,185 9,846,289 NON-CURRENT ASSETS Accounts receivable 7 182, ,772 Investments 8 121, ,207 Fixed assets 9 452, ,892 Intangible assets , ,853 TOTAL ASSETS 10,702,060 10,828,013 CURRENT LIABILITIES Creditors and other payables ,789 1,117,978 Surplus payable 4 94, ,000 TOTAL LIABILITIES 1,012,789 1,303,978 NET ASSETS 9,689,271 9,524,035 The Statement of Accounting Policies and accompanying Notes form part of these financial statements

16 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2012 Cash flows from operating activities NOTE $ $ Cash was provided from: Receipts from customers 13,671,552 16,006,307 Interest received 571, ,600 14,243,090 16,607,907 Cash was disbursed to: Payments to suppliers (10,612,099) (12,096,476) Payments to employees (2,711,286) (2,873,766) Distribution of surplus (341,000) (660,900) Net goods and service tax (114) (11,694) Interest paid (606) (789) (13,665,105) (15,643,625) Net cash inflow from operating activities , ,282 Cash flows from investing activities Cash was provided from: Proceeds from sale of fixed assets 51,839 57,015 Proceeds on redemption of investments 19,890 Proceeds from term deposit maturities 7,528,692 7,117,893 7,600,421 7,174,908 Cash was disbursed to: Purchases of term deposits (8,090,000) (8,375,000) Purchase of fixed assets (153,716) (125,261) Purchase of intangible assets (76,438) (124,485) Purchase of investments (11,754) (19,941) (8,331,908) (8,644,687) Net cash (outflow) from investing activities (731,487) (1,469,779) Net (decrease) in cash held (153,502) (505,497) Opening cash brought forward 352, ,704 Ending cash carried forward 198, ,207 This is represented by: Cash and cash equivalents 5 198, ,207 The Net goods and services tax component of operating activities reflects the net GST paid to and received from the Inland Revenue Department. The Statement of Accounting Policies and accompanying Notes form part of these financial statements

17 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH Other Income $ $ Interest income 571, ,600 Commission 20,043 25,361 Rental from houses 8,584 32,651 Pay plan fees 45,559 62,432 Dividend received 4,396 8, , , Property Charges Depreciation and amortisation 214, ,886 Rental, concession fees and power 89,135 63,620 Repairs and maintenance 43,862 58,571 Motor vehicle expenses 40,997 39, , , Other Expenses Audit fees 26,737 32,870 Bad debts written off 5,667 23,408 Change in provision for impairment 12,000 (5,645) Operating leases 49,208 49,965 Sundry 340, , , , Distribution of Surplus Distributions to the NZDF Single Services Welfare Funds pursuant to section 14 of the Armed Forces Canteens Act Interim distributions paid: Army Central Welfare Fund 107, ,995 RNZ Navy Central Fund 47, ,838 RNZ Airforce Central Fund 13, , ,000 Final distributions proposed: Army Central Welfare Fund 64, ,138 RNZ Navy Central Fund 29,285 56,862 94, ,000 Total Distribution 249, , Cash and Cash Equivalents Cash 135,259 70,319 Bank 30,447 90,416 Deposits with Grocery Groups 2, Deposit with the Bank 30, , , , Short Term Bank Deposits Deposits placed with the Bank of New Zealand on short term 4,828,782 4,267,474 periods of greater than three months pending working capital and capital expenditure. Interest earned on these deposits are at the prevailing market rates

18 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH Accounts Receivable $ $ Trade receivables 2,541,809 2,937,259 Other receivables 0 11,043 2,541,809 2,948,302 This is made up of: Current portion 2,487,369 2,895,687 Overdue 288, ,991 Less Impaired (233,569) (212,376) 2,541,809 2,948,302 Accounts receivable due within one year 2,359,766 2,728,530 Accounts receivable due after one year 182, ,772 2,541,809 2,948,302 Provision for impairment of receivables Opening Balance 212, ,978 Additional provisions made during the year 26,860 9,216 Receivables written off during the period (5,667) (3,818) Closing Balance 233, ,376 Collateral over impaired receivables is held to the extent that a fixed charge is retained over any goods sold on hire purchase until the final payment is made. 8. Investments Shares and Deposits in Grocery and Appliance Buying Groups - Redeemable shares maturing within one year 14,585 12,390 - Trading Shares fully paid 121, ,207 Total Investments 136, , Fixed Assets Current year Opening Closing Cost Cost Additions Disposals Cost $ $ $ $ Buildings 103, ,503 Leasehold Improvements 477, , ,302 Computer equipment 300,885 59, , ,185 Motor Vehicles 500,753 72,412 63, ,300 Plant and equipment 1,318,081 21,137 81,063 1,258,155 Video and DVD tapes 68, ,406 68,440 2,769, , ,420 2,628,885 Accumulated depreciation Opening Depreciation Depn on Closing Accum Depn Disposals Accum Depn $ $ $ $ Buildings 90,523 2, ,596 Leasehold Improvements 462,270 11,681 30, ,866 Computer equipment 261,902 29, , ,010 Motor Vehicles 322,038 76,256 60, ,370 Plant and equipment 1,061,309 68,882 80,834 1,049,357 Video and DVD tapes 67,655 1,373 1,400 67,628 2,265, , ,001 2,176,

19 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH Fixed Assets ~ continued Current year Book value Opening Closing Book Value Book Value $ $ Buildings 12,980 10,907 Leasehold Improvements 15,117 3,436 Computer equipment 38,983 56,175 Motor Vehicles 178, ,930 Plant and equipment 256, ,798 Video and DVD tapes 1, , ,058 Previous year Opening Closing Cost Cost Additions Disposals Cost $ $ $ $ Buildings 103, ,503 Leasehold Improvements 642, , ,387 Computer equipment 317,722 14,174 31, ,885 Motor Vehicles 507,987 69,084 76, ,753 Plant and equipment 1,332,395 40,288 54,602 1,318,081 Video and DVD tapes 77,990 1,715 10,725 68,980 2,982, , ,720 2,769,589 Accumulated depreciation Opening Depreciation Depn on Closing Accum Depn Disposals Accum Depn $ $ $ $ Buildings 89,301 1, ,523 Leasehold Improvements 549,672 77, , ,270 Computer equipment 278,499 18,815 35, ,902 Motor Vehicles 308,210 78,737 64, ,038 Plant and equipment 1,031,272 72,523 42,486 1,061,309 Video and DVD tapes 74,588 3,324 10,257 67,655 2,331, , ,129 2,265,697 Book value Opening Closing Book Value Book Value $ $ Buildings 14,202 12,980 Leasehold Improvements 92,779 15,117 Computer equipment 39,223 38,983 Motor Vehicles 199, ,715 Plant and equipment 301, ,772 Video and DVD tapes 3,402 1, , ,

20 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH Intangible Assets Current year Opening Closing Cost Cost Additions Disposals Cost $ $ $ $ Computer software 319,455 76, , ,380 Accumulated amortisation Opening Amortisation Amort on Closing Accum Amort Disposals Accum Amort $ $ $ $ Computer software 193,602 60, , ,481 Carrying value Opening Closing Carry Value Carry Value $ $ Computer software 125, ,899 Previous year Opening Closing Cost Cost Additions Disposals Cost $ $ $ $ Computer software 194, , ,455 Accumulated amortisation Opening Amortisation Amort on Closing Accum Amort Disposals Accum Amort $ $ $ $ Computer software 192,576 1, ,602 Carrying value Opening Closing Carry Value Carry Value $ $ Computer software 2, , Creditors and Other Payables $ $ Trade creditors 604, ,750 Accrued liabilities 48,153 48,028 Employee entitlements 266, , ,789 1,117, Reconciliation of reported net surplus with cash flows from operating activities Net surplus 414, ,542 Add non cash items: Depreciation and amortisation 214, ,886 Add / (less) movements in working capital items: Decrease in receivables 406, ,534 Decrease in inventory 83,342 92,356 (Decrease) in payables (199,189) (200,136) Net working capital movements 290, ,754 Distribution of surplus (341,000) (660,900) Net cash inflow from operating activities 577, ,

21 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH Operating Lease Commitments $ $ Commitments relating to Head Office and Scott Base premises and Trading Locations for equipment rentals: Not later than one year 77, ,988 Later than one year and not later than five years 50, ,518 Total Commitment 128, , Capital Commitments Not later than one year - 57,222 Last year's commitment relates to the new Point of Sale System. 15. Key Management Personnel Compensation and Remuneration of Employees Key management comprises members of the Council, Chief Executive and Finance Manager. Members of the Council are not paid any remuneration Salary and other short term employee benefits 278, ,007 Number of Employees $110,000 - $120, $150,000 - $160,000 1 $160,000 - $170, Contingent Liabilities The Council has no material contingent liabilities (Nil in 2011). 17. Financial Instruments (a) Fair values Fair values of financial instruments is equivalent to the amount disclosed in the Balance Sheet. This includes instruments such as cash and cash equivalents, short term deposits, investments, accounts receivable and accounts payable. (b) Credit risk Credit risk is the risk that an third party will not be able to meet its obligations to the Council. In the normal course of its business the Council incurs credit risk from cash and short term deposits with the bank, investments and accounts receivable. The Council places its cash and deposits with its authorised bank which has a high credit rating. Accounts receivable are subject to credit evaluations and collateral where possible. There is no significant concentration of credit risk. (c) Interest rate risk. Interest rate risk is the risk that interest rates will change, increasing or decreasing the cost of borrowing or lending. The interest rate risk on the Councils borrowings is limited to the corporate rate set by the bank on its overdraft. The interest rate risk on investments and accounts receivable will fluctuate, due to the changes in market interest rates. The Council does not consider there is any significant interest exposure on its borrowing or lending. 18. Related Party Transactions The New Zealand Defence Force (NZDF) is considered a related party to the AFCC. Senior members of the NZDF serve on the Council as defined under s4 of the Armed Forces Canteens Act The NZDF provides facilities to the AFCC to conduct its operations in accordance with Defence Force Order 03/2007 During the year members of Council and key management, as part of normal customer relationship, were involved in minor purchases from the AFCC

22 - 21 -

23 - 22 -

24