MWRC Holdings Limited. Annual Report Including Financial Statements. For the year to 30 June 2016

Transcription

1 MWRC Holdings Limited Annual Report Including Financial Statements For the year to 30 June 2016

2 Contents Page Directors Report 2 Statement of Comprehensive Revenue and Expense 5 Statement of Financial Position 6 Statement of Changes in Equity/Net Assets 7 Statement of Cash Flows 8 Notes to the Financial Statements 9 1

3 MWRC Holdings Limited Directors' Report for the year to 30 June 2016 Chairman's Report Overall MWRCH is showing a surplus of $2.035M, $674k above budget of $1.361M for the year ended 30 June Key drivers for this result are: A revaluation gain for the 28 North Street property of $575k; A saving on tax budgeted of $531k due to being able to utilise losses from Horizons Regional Council (HRC) to offset profits; These favourable variances are offset by $341k of unfavourable variance in other revenue, the new investments highlighted below were purchased in the name of HRC and as a result any profits are showing in HRC not MWRCH. Funds from the balance of the Port of Napier sale proceeds have been invested in two new assets during the financial year. The first was the purchase of the 23 Victoria Avenue property. This will not generate returns in the short term however it is a strategic asset which has the potential to provide excellent returns to HRC in the future. It was purchased by HRC not MWRCH Ltd. The second asset is the $2 million Macquaries investment in shares. This is being managed by MWRCH although it has been purchased in the name of HRC. This is showing a gain of $146k or 7.3% at 30 June Because this investment has been purchased in the name of HRC the returns will not show in MWRCH. This will impact the returns MWRCH achieves, however returns to Horizons Regional Council will not be impacted with any revenue and growth for the equities being shown directly in HRC financial performance. Financial Statements The financial statements required by section 66 of the Local Government Act 2002 (LGA(2002)), are attached. E B Gordon I A Wilson Date: 29 August 2016 Date: 29 August 2016 Registered Office C/o Horizons Regional Council Victoria Avenue Palmerston North 2

4 Auditors Audit New Zealand on behalf of the Controller and Auditor General. Interest Register All Directors listed their interests in the register on being appointed to the company. The following interests were registered at balance date: Director Organisation Interest IA Wilson Electra Ltd & Subsidiaries: DataCol Group Pty Ltd DataCol NZ Ltd Sky Communications Ltd Electra Finance Ltd Electra Monitoring Ltd Electra Energy Ltd Electra Ltd Non-trading: Electra Generation Ltd DeFrost Ltd Horowhenua Wind Energy Ltd Other entities: Corporate Involvements Ltd HG Leach & Co Ltd Smart Solutions Ltd Wilson Trusts partnership Director Director Director Director Director Director Director Director Director Director/ Shareholder Director Advisory Board Trustee/ Beneficiary EB Gordon Bruce Gordon Contracting Ltd E.B. Gordon Ltd Dudding Lake Ltd Director Director & 100% Shareholder 25% Shareholder The Companies Act 1993 requires disclosure of the amount of donations, audit fees, fees for other services from the auditor, and the number of employees of the company who received remuneration and other benefits above $100,000 per annum, in brackets of $10,000. For this financial year, no staff were employed by MWRCH. The audit fee was $5,301 GST exclusive paid to Audit New Zealand. 3

5 Directors' Insurance The company has arranged Directors' and Officers' liability insurance cover for $2 million with QEB Insurance (International) Limited and IAG NZ Limited to indemnify the Directors' against loss as a result of actions undertaken by them as Directors and employees provided they operate within the law. This disclosure is made in terms of Section 162 of the Companies Act Directors' use of Company Information The Board received no notices during the year from Directors requesting use of company information received in their capacity as Directors which would not have been otherwise available to them. Statement of Responsibility In terms of the Local Government Act 2002, the Board of Directors is responsible for the preparation of MWRC Holdings Limited's financial statements and to assist the company meet its objectives and any other requirements in its Statement of Intent (SOI). The Board of Directors of MWRC Holdings Limited has the responsibility for establishing, and has established, a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting. In the Board of Director s opinion, these financial statements fairly reflect the financial position and operations of MWRC Holdings Limited for the year ended 30 June Signed on behalf of the Board of Directors: E B Gordon I A Wilson Date: 29 August 2016 Date: 29 August

6 MWRC Holdings Limited Statement of Comprehensive Revenue and Expense for the year ended 30 June 2016 Revenue Note 2016 Actual $000s 2016 Budget (SOI) 2015 Actual Dividend 1,569 1,474 1,581 Interest Revenue Rent Revenue Gain on investment property revaluation Other Revenue Total Revenue 2,482 2,105 1,674 Expenses Administration costs Company expenses 0-1 Directors fees Finance costs Investigations Rental expenses Subvention payment to council Total Expenses Surplus/(deficit) before tax 2,034 1,892 1,181 Income tax expense 4 (1) 531 (7) Surplus/(deficit) after tax 2,035 1,361 1,188 Surplus/(deficit attributable to: MWRC Holdings Ltd 2,035 1,361 1,188 Surplus/(deficit) after distributions 2,035 1,361 1,188 Other comprehensive revenue and expense Financial assets at fair value through other comprehensive revenue and expense 12-1,508 1,900 Total comprehensive revenue and expense 2,035 2,869 3,088 Surplus/(deficit attributable to: MWRC Holdings Ltd 2,035 2,869 3,088 The accompanying notes form part of these Financial Statements Explanations of major variances against budget are provided in Note 15 5

7 MWRC Holdings Limited Statement Of Financial Position as at 30 June 2016 Assets Note 2016 Actual $000s 2016 Budget (SOI) 2015 Actual Current Assets Cash and cash equivalents 5 1,748 2,104 2,337 Accounts Receivable and Accruals Income tax receivable Other current assets Total Current Assets 1,769 2,447 2,665 Non Current Assets CentrePort Shares 7 31,181 32,000 31,181 Investment Property 8 2,900 8,544 2,310 Total Non Current Assets 34,081 40,544 33,491 Total Assets 35,850 42,991 36,156 Liabilities Current Liabilities Payables and accruals Provisions Borrowings and other financial liabilities ,300 Total Current Liabilities ,162 Non-current Liabilities Deferred Tax liability Borrowings and other financial liabilities 11 1,000-1,000 Total Non-current Liabilities 1,005-1,005 Total Liabilities 1, ,167 Net Assets 34,274 42,405 32,989 The accompanying notes form part of these Financial Statements Explanations of major variances against budget are provided in Note 15 6

8 MWRC Holdings Limited Statement Of Financial Position as at 30 June 2016 (CONTD) Represented By: Note 2016 Actual $000s 2016 Budget (SOI) 2015 Actual Equity 12 Contributed Capital 25,400 34,500 25,400 Accumulated Funds 3,075 1,970 1,790 Reserves 5,799 5,935 5,799 Total Equity 34,274 42,405 32,989 7

9 MWRC Holdings Limited Statement of changes in equity/net assets for the year ended 30 June 2016 Note June 2016 Actual $000s June 2016 Budget (SOI) June 2015 Actual Balance at 1 July 32,989 33,865 30,712 Total comprehensive revenue and expense for the year 2,035 2,869 3,088 New capital introduced - 6,800 - Dividends paid (750) (1,129) (812) Balance at 30 June 12 34,274 42,405 32,989 Total comprehensive revenue and expense attributable to: MWRC Holdings Ltd 2,035 2,869 3,088 The accompanying notes form part of these Financial Statements 8

10 MWRC Holdings Limited Statement of cash flows for the year ended 30 June 2016 Note 2016 Actual $000s 2016 Budget (SOI) 2015 Actual Cashflows from Operating Activities Dividends 1,569 2,120 1,581 Interest received Other Income Income tax received / (paid) 204 (714) (135) GST 81 - (75) Interest paid (124) - (48) Payments to Suppliers (138) (201) (116) Net cash from operating 1,945 1,837 1,291 Cashflow from Investing Activities Receipts from term deposits greater than 90 days maturing 2,900 1,500 Purchase of Term Deposits greater than 90 days (3,700) - Purchase of Investments (31) (6,800) (2,294) Net cash from investing (31) (7,600) (794) Cashflow from Financing Activities Proceeds from borrowings - 2,300 Repayment of borrowings (1,300) - Investment from shareholder - 6,800 - Subvention payments (298) - (76) Dividends paid (906) (1,129) (812) Net cash from financing (2,504) 5,671 1,412 Net increase/(decrease) in cashflow for the year (590) (92) 1,910 Cash and cash equivalents at the beginning of the year 2, Cash and cash equivalents at the end of the year 1, ,337 Made up of: Current and on call accounts ,337 Term Deposits less than 90 days 1, Cash and cash equivalents at the end of the year 5 1, ,337 The accompanying notes form part of these Financial Statements 9

11 MWRC Holdings Limited Notes to the Financial Statement for the year ended 30 June Statement of accounting policies MWRC Holdings Limited (MWRCH) is a Council Controlled Trading Organisation (CCTO), owned 100% by the Horizons Regional Council (HRC). MWRCH was incorporated on 14 December 2009, and commenced trading on 15 December MWRCH was primarily incorporated for the purposes of managing the investments of HRC, and has designated itself a Public Benefit Entity (PBE) for Financial Reporting purposes, in keeping with the designation of the shareholder. The financial statements are those of MWRCH, for the year ended 30 June 2016, and were authorised for issue by the Board of Directors on 29 August Basis of Preparation The financial statements have been prepared on the going concern basis, and the accounting policies have been applied consistently throughout the period. 1.2 Statement of Compliance The financial statements of MWRCH have been prepared in accordance with the requirements of the Local Government Act 2002, which include the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZGAAP). The financial statements have been prepared to comply with Public Benefit Entity Standards (PBE Standards) for a Tier 2 entity. MWRCH is not publicly accountable and our expenditure is not higher than $30 million. These financial statements comply with PBE standards. 1.3 Presentation currency and rounding The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). There will be rounding in numbers in the financial statements as the financial model used calculates to the cent but the annual report is rounded to the nearest thousand dollars. Summary of significant Accounting Policies 1.4 Revenue Revenue is measured at the fair value of consideration received or receivable. 10

12 Specific accounting policies for major categories of revenue are outlined below: Other Revenue Other forms of revenue including fees, charges, and other revenues are recognised on an accrual basis. Dividends received are recognised when the right to the payment is established. Interest revenue is recognised using the effective interest method. Interest revenue on an impaired financial asset is recognised using the original effective interest rate. ent properties is accounted for on a straight-line basis over the term of the lease. Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the term of the lease. 1.5 Expenditure Expenditure is recognised on an accrual basis when the service was provided, or the goods received. 1.6 Income Tax Income tax expense may comprise both current and deferred tax, and is calculated using tax rates that were enacted or substantively enacted by balance date. Current tax is the amount of income tax payable based on the taxable profit for the current year, plus any adjustments to income tax payable in respect of prior years. Deferred tax is the amount of income tax payable or recoverable in future periods in respect of temporary differences and unused tax losses. Temporary differences are differences between the carrying amount of assets and liabilities in the financial statements, and the corresponding tax bases used in the computation of taxable profit. Deferred tax is measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects to recover or settle the carrying amount of its assets and liabilities. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which MWRCH expects to recover or settle the carrying amount of its assets and liabilities. Deferred tax liabilities are generally recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences or tax losses can be utilised. 11

13 Deferred tax is not recognised if the temporary difference arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is recognised on taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the company can control the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. Current and deferred tax is recognised against the surplus or deficit for the period, except to the extent that it relates to a business combination or transactions recognised in other comprehensive revenue and expense, or directly in equity. 1.7 Cash and Cash Equivalents include cash on hand, on demand or call deposits, other short-term deposits with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities, in the statement of financial position. 1.8 Trade and Other Receivables are initially stated at their face value, less any provision for impairment. 1.9 Other financial assets Financial assets are initially recognised at fair value plus transaction costs unless they are carried at fair value through surplus or deficit in which case the transaction costs are recognised in the surplus or deficit. Purchases and sales of financial assets are recognised on trade-date, the date on which MWRCH commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and MWRCH has transferred substantially all the risks and rewards of ownership. Financial assets are classified into the following categories for the purpose of measurement: fair value through surplus or deficit; loans and receivables; held-to-maturity investments; and fair value through other comprehensive revenue and expense. The classification of a financial asset depends on the purpose for which the instrument was acquired. Financial assets at fair value through surplus or deficit Financial assets at fair value through surplus or deficit include financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of short-term profit-taking. Derivatives are also categorised as held for trading unless they are designated into a hedge accounting relationship for which hedge accounting is applied. 12

14 Financial assets acquired principally for the purpose of selling in the short-term or part of a portfolio classified as held for trading are classified as a current asset. The current/noncurrent classification of derivatives is explained in the derivatives accounting policy above. After initial recognition, financial assets in this category are measured at their fair values with gains or losses on remeasurement recognised in the surplus or deficit. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance date, which are included in non-current assets. After initial recognition, they are measured at amortised cost, using the effective interest method, less impairment. Gains and losses when the asset is impaired or derecognised are recognised in the surplus or deficit. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities and there is the positive intention and ability to hold to maturity. They are included in current assets, except for maturities greater than 12 months after balance date, which are included in non-current assets. After initial recognition they are measured at amortised cost, using the effective interest method, less impairment. Gains and losses when the asset is impaired or derecognised are recognised in the surplus or deficit. Fair value through other comprehensive revenue and expense Financial assets at fair value through other comprehensive revenue and expense are those that are designated into the category at initial recognition or are not classified in any of the other categories above. They are included in non-current assets unless management intends to dispose of, or realise, the investment within 12 months of balance date. MWRCH includes in this category: investments that it intends to hold long-term but which may be realised before maturity; and shareholdings that it holds for strategic purposes. These investments are measured at their fair value, with gains and losses recognised in other comprehensive revenue and expense. On de-recognition, the cumulative gain or loss previously recognised in other comprehensive revenue and expense. 13

15 1.10 Impairment of financial assets Financial assets are assessed for evidence of impairment at each balance date. Impairment losses are recognised in the surplus or deficit. Loans and receivables, and held-to-maturity investments Impairment is established when there is evidence that the Council and group will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, receivership, or liquidation and default in payments are indicators that the asset is impaired. The amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. For debtors and other receivables, the carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the surplus or deficit. When the receivable is uncollectible, it is written-off against the allowance account. Overdue receivables that have been renegotiated are reclassified as current (that is, not past due). Impairment in term deposits, local authority stock, government bonds, and community loans, are recognised directly against the instrument s carrying amount. Financial assets at fair value through other comprehensive revenue and expense For equity investments, a significant or prolonged decline in the fair value of the investment below its cost is considered objective evidence of impairment. For debt investments, significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are objective indicators that the asset is impaired. If impairment evidence exists for investments at fair value through other comprehensive revenue and expense, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the surplus or deficit) recognised in other comprehensive revenue and expense is reclassified from equity to the surplus or deficit. Equity instrument impairment losses recognised in the surplus or deficit are not reversed through the surplus or deficit. If in a subsequent period the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed in the surplus or deficit Investment property Properties leased to third parties under operating leases are classified as investment property unless the property is held to meet service delivery objectives, rather than to earn rentals or for capital appreciation. Investment property is measured initially at its cost, including transaction costs. After initial recognition, all investment property is measured at fair value at each reporting date. Gains or losses arising from a change in the fair value of investment property are recognised in the surplus or deficit. 14

16 1.12 Payables Short-term creditors and other payables are recorded at their face value Borrowings Borrowings are initially recognised at their fair value plus transaction costs. After initial recognition, all borrowings are measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless MWRCH has an unconditional right to defer settlement of the liability for at least 12 months after balance date Borrowing Costs All borrowing costs are recognised as an expense in the period in which they are incurred Provisions A provision is recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense and is included in finance costs Equity Equity is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified into a number of reserves. The components of equity are: Investment revaluation reserves; Accumulated funds Contributed capital. Investment Revaluation Reserves These reserves relate to the revaluation of MWRCH s investment in CentrePort Limited. This reserve comprises the cumulative net change in the fair value through other comprehensive revenue and expense. 15

17 1.17 Goods and Services Tax (GST) These financial statements are presented net of GST, except for receivables and payables which are inclusive of GST. Where GST paid is not recoverable, due to it relating to exempt items, the GST inclusive amount is recognised as part of the related asset or expense including the GST relating to investing and financing activities. The net amount of GST recoverable from, or payable to, the IRD is included as part of receivables or payables in the statement of financial position. The net GST paid to, or recovered from, the Inland Revenue Department is recognised as an item in operating cash flow in the statement of cash flows. Commitments and contingencies are disclosed exclusive of GST. 2. Interest Revenue and Finance Costs ($000) Interest revenue from term deposits, call accounts and use of money interest Finance costs: Interest on borrowings from parent (Horizons Regional Council) Use of money interest - 48 Total finance costs Net finance costs 17 (11) 3. Administration expenses ($000) Consulting and accounting fees Insurance 9 7 Audit 5 5 Other administration 6 8 Total administration expense Tax Components of tax expense Current Tax - - Adjustments to current tax in prior years - (12) Deferred tax (1) 5 Tax Expense (1) (7) Relationship between tax expense and accounting surplus Net surplus/(deficit) before tax 2,034 1,181 Tax at 28% Plus/(Less) tax effect of: Non-deductible expenditure 0 6 Non-assessable income (161) (30) 16

18 Gross up effect of imputation credits Tax credit arising from imputation credits (568) (435) Tax Expense (1) (7) The proposed subvention payments to council are $279,771 ( $304,000). During the year the company made a subvention payment of $297,938 of tax losses in relation to the 2015 year. The company has provided for a subvention payment of $279,771 to eliminate its estimated tax liability for the current year. P, P & E Financial instruments Other provisions Total Deferred tax assets/(liabilities) Balance at 1 July Charged to surplus or deficit - - (6) (6) Charged to other comprehensive revenue and expense Balance at 30 June (6) (6) Charged to surplus or deficit (7) Charged to other comprehensive revenue and expense Balance at 30 June 2016 (7) - 2 (5) 5. Cash and cash equivalents ($000) Cash at bank and on hand 148 2,337 Term Deposits with maturities of three months or less at acquisition 1,600 - Total cash and cash equivalents 1,748 2, Receivables and accruals ($000) Rental income - 22 GST refund due - 85 Other receivables 4 - Total receivables and accruals All receivables are from Exchange transactions. 17

19 7. Other financial assets ($000) Unlisted shares in CentrePort Ltd (23.08% shareholding) 31,181 31,181 Unlisted shares in CentrePort are recognised at fair value. The fair value was determined last year using a discounted cash flow methodology with a cross check on observed market multiples. Because of MWRCH minority shareholding having little or no control over CentrePorts operations and because the other shareholder Greater Wellington has a majority shareholding of greater than 75% the valuation has been further discounted by 40% to reflect the lower value this shareholding has since it has no ability to influence strategy setting, dividend policy and the right to refuse the transfer of shares. This valuation including calculating the discount rate has also been carried out by an independent third party with experience in valuing investments of this type. Revaluations by an independent third party will be happening on a three year cycle in the future. The Directors have reviewed the investment as at 30 June with a specific focus on assessing whether there is any need to impair the investment. They have confirmed that they consider the investment to reflect fair value and have made no provision for impairment as at 30 June Investment Property ($000) Balance at 1 July 2,310 - Property purchased - 1,791 Renovations Revaluation as at 30 June to reflect fair value Total Investment Property - North Street 2,900 2,310 The property applies the fair value model for valuing the property. In determining the fair value the valuers have utilised an income capitalisation approach referred to the lease of the property. Yields are derived from analysis of comparable sales in the market. The property was valued by an independent registered valuer Blackmores Group who has the relevant professional qualifications and recent experience. There are no known restrictions to the realisability of the investment property. Rental Information ($000) Rental revenue Direct Operating expenses - property generates rental revenue 13 8 Operating leases as lessor ($000) The North Street property is leased under an operating lease. It is for a noncancellable term of nine years from 1 June The future lease payments to be collected are as follows: Operating leases Not later than one year Later than one year and not later than five years Later than five years Total non-cancellable operating leases 1,849 2,082 18

20 9. Payables and accruals ($000) Accounts Payable 2 91 Accrued Dividends Accrued Retentions - 16 Directors Fees Payable 3 3 GST Payable 5 - Sundry Accruals Total payables and accruals All payables are from exchange transactions 10. Provisions ($000) Opening Balance Additional provisions made during the year Payments made during the year (298) (76) Closing Balance Made up of: Subvention payment provision Total provisions Borrowings and other financial liabilities ($000) Current portion - 1,300 Non-current portion 1,000 1,000 Total loan from Horizons 1,000 2,300 This loan is unsecured and is expected to be paid over the next two financial years. Interest is being charged to MWRCH at the same rate as what Horizons pays for its own long term borrowing. This rate was 3.27% at 30 June Equity ($000) Accumulated Funds Balance at 1 July 1,790 1,413 Surplus/(deficit) for the year 2,035 1,189 Less Dividend paid (750) (812) Balance at 30 June 3,075 1,790 Authorised Capital (50,000,000 shares issued and fully paid) Balance at 1 July 25,400 25,400 Movement for 2014/ Balance at 30 June 25,400 25,400 Revaluation Reserve CentrePort Shares Balance at 1 July 5,799 3,899 Gain/(loss) on revaluation - 1,900 Balance at 30 June 5,799 5,799 Total Reserves 34,274 32,989 19

21 13. Contingencies There are no known contingent liabilities at 30 June Last year Horizons Regional Council had an outstanding dispute with Inland Revenue regarding deductions in the 2010 to 2014 years relating to the establishment of MWRC Holdings Limited. This dispute has been resolved and there is no contingent liability for this issue at 30 June Related party transactions Related party disclosures have not been made for transactions with related parties that are within a normal supplier or client/recipient relationship on terms and condition no more or less favourable than those that it is reasonable to expect the council and Group would have adopted in dealing with the party at arm's length in the same circumstances. Related party disclosures have also not been made for transactions with entities within the group (such as dividends paid and received), where the transactions are consistent with the normal operating relationships between the entities and are on normal terms and conditions for such group transactions. Related party transactions required to be disclosed Horizons Regional Council lent funds to MWRCH of $2.3 million to fund the purchase of the 28 North Street rental property during the financial year. A loan agreement has been drawn up which details the key terms of this loan arrangement. $1.3 million was repaid on 30 June 2016 and the balance of $1.0 million is due to be repaid during the financial year. Interest is being charged to MWRCH at the same rate as what Horizons pays for its own long term borrowing. An interest payment of $88k was made on 30 June 2016 to reflect interest accrued to 30 June Key management personnel There are no employees employed by MWRCH. All functions are performed by Horizons staff with their costs invoiced to MWRCH. Similarly Bruce Gordon is not paid a salary by MWRCH with his Horizons salary deemed to cover his responsibilities as Chairman of MWRCH. Ian Wilson the independent director is paid $10,000 per year. 15. Explanations of major variances against budget Explanations for major variations (+/- 10%) from MWRCH's SOI for 2015/16 are as follows: Statement of comprehensive revenue and expense Interest revenue is 86.6% above budget for the period with the refund of use of money interest on tax pooling funds purchased in 2014/15 resulting in unbudgeted UOMI of $48k. Gain on investment property revaluation is based on a revaluation provided by an independent valuer. Renovations and the lease on the 28 North Street property have resulted in an increase in value for the investment property. Other revenue is nil for the year due to investments during the 2015/16 financial year being made in HRC. Administration costs are below budget with lower consulting costs as a result of 20

22 the tax dispute being resolved. Finance costs are below budget due to continued low interest rates for the period. No investments being made in the name of MWRCH, resulted in no investigations costs for the year. The subvention payment is unbudgeted, details have been provided under dividends paid below. With no revaluation of the CentrePort investment this year there is no revaluation gain on MWRCH s key asset. Revaluation will now occur on a three year cycle. See note 7 for more details. Statement of Financial Position Current assets are below budget as a result of decreased investment. This has resulted in less revenue from investments and lower cash balances. Non current assets are below budget, as highlighted above, we have had no additional investments for MWRCH this year, meaning lower investments on the balance sheet than budgeted. Contributed capital is below budget, as highlighted above, no investment in MWRCH this year. Tax savings and unexpected investment property revaluation gains have resulted in higher profits and therefore higher accumulated funds at 30 June New capital introduced is below budget; as highlighted there has been no investment in MWRCH this year. Combining both subvention payments and dividends as a total, MWRCH paid out $1,024k this year, a variance of 9.3% to budget. An error in the forecast of the subvention payment resulted in the dividends for 2015/16 being declared at less than budget for year end. 16. Performance Targets The targets are to: provide a minimum cash return on investment to Council of 65% NPAT Actual 2016 $000 SOI 2016 $000 Actual 2015 $000 Net Profit After Tax (NPAT) 2,035 1,361 1,427 Dividend/ subvention payment (1,024) (1,129) (1,051) Dividend as percentage of NPAT (50%) (83%) (74%) A miscalculation on the forecasted subvention payment resulted in the final dividend being lower than budgeted. In addition unexpected gains on the property at 28 North Street which flow through the profit and loss and no tax for the period mean NPAT is much higher than budgeted. This results in a lower percentage of dividends (50%) than budgeted (83%). operate within agreed budgets Overall expenditure is below budget with savings in some areas offsetting overspends in other areas. Revenue is above budget due to the revaluation on 28 North Street. At the same time Other Revenue is below budget due to decisions to make direct investment by Horizons rather than through MWRCH during the financial year. 21

23 maintain positive cash flow Cash flow for the financial year is negative. The key driver is the repayment of the loan to HRC for 28 North Street of $1.3 million. maintain the following financial performance targets. Actual 2016 $000 SOI 2016 $000 Actual 2015 $000 Net Profit Before Tax 2,308 1,892 1,420 Income Return on Total Assets % 4.96% 4.21% Dividend and subvention payment (1,024) (1,129) (1,051) Capital Growth on Investments 1.69% 5.14% 6.49% Net profit before tax is above budget due to a revaluation gain of $575k for the 28 North Street property. This is also driving the increased Income Return on Total Assets. As highlighted previously a miscalculation on the forecasted subvention payment resulted in the final dividend being lower than budgeted. A change in the revaluation cycle for the CentrePort investment means there is no revaluation adjustment for that investment during The target was calculated assuming an annual revaluation cycle however this revaluation is now happening on a three year cycle with the next revaluation due This adversely impacts the capital growth on investments achieved and means we have not achieved this measure for Return on Total Assets is the net profit before interest, tax, depreciation (EBITDA) divided by the average total assets. 22

24 Independent Auditor s Report To the readers of MWRC Holdings Limited s financial statements and performance information for the year ended 30 June 2016 The Auditor-General is the auditor of MWRC Holdings Limited (the company). The Auditor-General has appointed me, Debbie Perera, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements and performance information of the company on her behalf. Opinion on the financial statements and the performance information We have audited: the financial statements of the company on pages 5 to 21, that comprise the statement of financial position as at 30 June 2016, the statement of comprehensive revenue and expense, statement of changes in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information; and the performance information of the company on pages 21 to 22. In our opinion: the financial statements of the company: present fairly, in all material respects: its financial position as at 30 June 2016; and its financial performance and cash flows for the year then ended; and comply with generally accepted accounting practice in New Zealand in accordance with Public Benefit Entity Standards Reduced Disclosure Regime. the performance information of the company presents fairly, in all material respects, the company s actual performance compared against the performance targets and other measures by which performance was judged in relation to the company s objectives for the year ended 30 June Our audit was completed on 29 August This is the date at which our opinion is expressed. The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence. Basis of opinion We carried out our audit in accordance with the Auditor-General s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and the performance information are free from material misstatement. 23

25 Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers overall understanding of the financial statements and the performance information. If we had found material misstatements that were not corrected, we would have referred to them in our opinion. An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and in the performance information. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and the performance information, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the company s financial statements and performance information 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 s internal control. An audit also involves evaluating: the appropriateness of accounting policies used and whether they have been consistently applied; the reasonableness of the significant accounting estimates and judgements made by the Board of Directors; the appropriateness of the reported performance information within the company s framework for reporting performance; the adequacy of the disclosures in the financial statements and in the performance information; and the overall presentation of the financial statements and the performance information. We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and the performance information. Also, we did not evaluate the security and controls over the electronic publication of the financial statements and the performance information. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. Responsibilities of the Board of Directors The Board of Directors is responsible for the preparation and fair presentation of financial statements for the company that comply with generally accepted accounting practice in New Zealand. The Board of Directors is also responsible for preparation of the performance information for the company. The Board of Directors responsibilities arise from the Local Government Act The Board of Directors is responsible for such internal control as it determines is necessary to enable the preparation of financial statements and performance information that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial statements and the performance information, whether in printed or electronic form. Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and the performance information and reporting that opinion to you based on our audit. Our responsibility arises from the Public Audit Act

26 Independence When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board. Other than the audit, we have no relationship with or interests in the company. Debbie Perera Audit New Zealand On behalf of the Auditor-General Palmerston North, New Zealand 25