Annual Report and Consolidated Financial Statements for the Year Ended 31 March 2003
Trust Particulars
The Community Trust of Mid & South Canterbury Inc. was incorporated as a charitable trust in accordance with the provisions of the Trustee Banks Restructuring Act 1988. The purpose of the community trust is to provide charitable, cultural, philanthropic and recreational benefits to the community.
Trustees: Mr P. F. McIlraith B.A. (chairperson), Mrs C. E. Brand B.COM., C.A. (retired), Ms R. A. Carruthers LL.B.,
Mr L. K. Cooney LL.B. NOT. PUB., Mr S. J. Dorman LL.B., Mr A. R. McKay, Mr T. J. McIntyre B.AGRI., DIP. TCH.,
Mrs K. Mattingley CERT.SOC.WK., DIP.GRAD (OTAGO), M.N.Z.A.S.W., Mrs M. B. Ross B.A., DIP. TCH., Mrs H. Weeks.
Bankers: WestpacTrust, 243 Stafford Street, Timaru.
Auditors: Martin Wakefield, Chartered Accountants, 26 Canon Street, Timaru.
Executive Director: B. E. C. Strathern, P.O. Box 983, Community House, Timaru.
Chairperson's Report for the Year Ended 31 March 2003
I am pleased to report on the financial accounts and the operations of the trust for the year ended 31 March 2003.
I regret to announce that the trust incurred a deficit of 7.3% in its investments.
Movement in Managed Funds
The year under review has seen a high level of volatility in the investment market place, especially in overseas equities which contributed largely to the deficit.
The trust's investment policy is a relatively conservative one and it maintains a diversified portfolio of off-shore and on-shore debt and equity investments.
Although off-shore equities were largely responsible for the loss, our manager achieved a better than index result, whereas the manager responsible for New Zealand equities failed to achieve targets related to that market. For this reason, the trust appointed Forsyth Barr Frater Williams as its new manager for the forthcoming year to manage this part of its investment portfolio.
Trustees spent considerable time and effort in grappling with its investment policy, and acting upon the advice of its investment consultant and studying past trends, they are optimistic that improved results will be achieved within the relatively near future.
It would be appropriate to refer to a recent survey which canvassed the views of a number of respected professional managers to gauge the forecast returns of each class of asset class before tax and expenses.
One of the most important factors is the improved forecast performance of both New Zealand and overseas equities.
Hopefully I can report an improved position in my next annual report.
Donations
Donations authorised during the year amounted to $723,410, including a further district secondary schools' technology grant of $248,413, compared to $1,555,856 the previous year.
Donation Assessment Process
Last year I referred to the district socio-economic survey which was to be carried out this year.
The purpose of the survey was to assist trustees in deciding where best to channel its donations for the wider community to benefit. At the time of writing this report, the final draft copy of the survey has now been received.
Trustee Appointment
During the year, Mr Laurance Cooney, of Ashburton, retired from the office of trustee. Mr Cooney was a long-standing trustee whose experience and wise counsel made a most important contribution of the affairs of the trust.
Mrs Heather Sim of Methven was appointed to replace him, and her knowledge of the Methven and Ashburton districts will prove to be valuable.
Appointment of Auditor
The trust appointed Martin Wakefield, Chartered Accountants of Timaru to act as auditors to the trust.
Trustees' Training Day
On 26 August 2002, trustees spent a complete training day under the leadership of a professional advisor.
Some of the subjects covered were:
? Legal responsibilities of trustees
? Strategic planning
? Alternative ways of improving the donation process
? Understanding of legal obligations
Appreciation
Trustees spent a challenging and frustrating year in struggling with the complexities of the investment sector. They all have diverse experience and knowledge, and make worthwhile contributions to the affairs of the trust, and I know that they would prefer to be involved in deciding where best to channel donations in the district, as distinct from spending the majority of their time on investment issues.
However, these functions go hand in hand, and I express my sincere thanks to them for working together to achieve their main objective - making the district a better place to live in.
In all its activities, the trust relies on the co-operation and experience of its administrative staff, and the way they have diligently carried out their responsibilities during the year has been particularly commendable.
P. F. MCILRAITH, Chairperson.
Date: 12 August 2003.
Consolidated Statement of Financial Performance for the Year Ended 31 March 2003
2003 2002
$ $
Income:
Interest: Managed funds 881,073 1,065,700
Interest: Other 416 44,701
Dividends: Managed funds 142,209 219,911
Total income 1,023,698 1,330,312

Less expenses-
Direct investment expenditure:
Management fees 78,554 182,782
Consultancy fees 42,431 21,316
Total direct investment expenditure 120,985 204,098
902,713 1,126,214
Less operating expenditure:
Advertising 7,834 9,855
Auditors' fees 4,050 4,050
Interest 184 3
Legal fees 546 1,163
Postage, tolls and fax 1,668 1,511
Printing and stationery 7,944 8,717
Salary and wages 87,860 87,082
Professional fees:
- Accountancy and advisory 10,401 12,932
- Socio-economic study 16,740 -
- Taxation 11,643 19,287
Sundry administration expenses 20,876 16,206
Conference expenses 7,342 4,644
Internal Affairs Department costs 6,625 4,388
Trustees:
- Meeting expenses 45,018 41,070
- Travel 6,115 7,195
- Honoraria 18,968 12,000
Trustees' insurance 3,847 3,391
Trustees' training 2,105 -
Staff recruitment 7,945 -
Total operating expenditure 267,711 233,494
Net income before movement in managed funds 635,002 892,720
Movement in Managed Funds
Offshore debt 669,981 94,065
Offshore equity (3,958,844) (1,520,680)
New Zealand debt 397,939 (162,627)
New Zealand equity (639,577) 145,060
(3,530,501) (1,444,182)
Net deficit transferred to trust fund (2,895,499) (551,462)
Consolidated Statement of Movements in Equity for the Year Ended 31 March 2003
2003 2002
$ $
Opening equity: 34,729,876 36,821,154
Net surplus/(loss) for year (2,895,499) (551,462)
Plus donations lapsed 26,000 16,040
Less donations approved (723,410) (1,555,856)
Closing equity 31,136,967 34,729,876
Consolidated Statement of Financial Position as at 31 March 2003
Note 2003 2002
$ $
Trust capital:
Capital base 3 31,136,967 32,087,148
Inflation reserve 4 - 2,539,687
General reserves 5 - 103,041
31,136,967 34,729,876
Represented by-
Current assets:
Provision for tax 6 11,232 7,501
WestpacTrust:
- Subsidiary company account 3,141 9,395
- Current account 74,401 15,038
- Ready access - 100
Sundry debtors 31,652 58,799
Advances 11 40,000 80,000
Interest accrued - 154,973
160,426 325,806
Less current liabilities:
Sundry creditors 96,612 64,124
Donations approved not yet paid 8 461,904 649,211
Total current liabilities 558,516 713,335
Working capital (398,090) (387,529)
Add non current assets-
Managed Funds Investments:
- New Zealand debt 2 14,470,443 12,915,261
- New Zealand equity 2 2,916,785 6,237,789
- Offshore debt 6,021,337 5,334,884
- Offshore equity 8,126,492 10,629,471
31,535,057 35,117,405
Net assets 31,136,967 34,729,876
Signed on behalf of the board of trustees.
P. F. MCILRAITH C. E. BRAND
Chairperson. Trustee.
Dated: 25 August 2003.
Consolidated Statement of Cash Flows for the Year Ended 31 March 2003
2003 2002
$ $
Cash flows from operating activities-
Cash was provided from:
Interest on deposits 417 75,821
Taxation refund 589 -
1,006 75,821
Cash was applied to:
Suppliers of goods and services (320,421) (236,236)
Donations paid (844,717) (2,081,045)
(1,165,138) (2,317,281)
Net cash flows from operating activities (1,164,133) (2,241,460)
Cash flows from investing activities-
Cash was provided from:
Withdrawal of managed funds (GT) 1,217,141 17,390,187
1,217,141 17,390,187
Cash was applied to:
Managed funds (SSgA) - 16,000,000
1,217,141 16,000,000
Net cash flows from investing activities 1,217,141 1,390,187
Increase/(decrease) in cash held 53,009 (851,272)
Add opening cash 1 April 2002 24,533 875,805
Cash as at 31 March 2003 77,542 24,533
Comprised of-
WestpacTrust:
Subsidiary company account 3,141 9,395
Current account 74,401 15,038
Ready access account - 100
77,542 24,533
Reconciliation of Net Surplus and Net Cash Flows From Operating Activities
2003 2002
$ $
Net surplus transferred to equity (2,899,679) (551,462)
Plus donations returned 26,000 16,040
Less donations approved (723,410) (1,555,856)
(3,597,089) (2,091,278)
Plus/(less) non cash items:
Managed funds gains/losses 2,369,387 341,353
Transfer from Aorangi Park Trust 40,000 40,000
2,409,387 381,353
(1,187,702) (1,709,925)
Movements in working capital:
Increase/(decrease) in donations approved not yet paid (187,308) (581,229)
Increase/(decrease) in creditors 32,488 21,598
(Increase)/decrease in accrued interest 154,973 31,120
(Increase)/decrease in tax refund due (3,731) -
(Increase)/decrease in sundry debtors 27,147 (3,024)
Movements in working capital 23,569 (531,535)
Net cashflow from operating activities (1,164,133) (2,241,460)
Notes to the Consolidated Financial Statements for the Year Ended 31 March 2003
1. Statement of Accounting Policies
Reporting Entity
The Community Trust of Mid & South Canterbury Inc. is a charitable trust incorporated under the Trustee Banks Restructuring Act 1988. The financial statements have been prepared in accordance with the Financial Reporting Act 1993 and generally accepted accounting policies.
General Accounting Policies
The general accounting policies adopted in the preparation of these financial statements are:
? The measurement base adopted is that of historical cost, except for the revaluation of investments. Reliance is placed on the fact that the trust is a going concern.
? The matching of revenues earned and expenses incurred using accrual accounting.
Particular Accounting Policies
The following are the particular accounting policies which have a material effect on the measurement of results and financial position:
(a) Dividend Income
Dividend income is included in the consolidated statement of financial performance when it is received.
(b) Donations
Donations, special projects and community loans are accounted for when they are approved for payment.
(c) Investments
Investments held as managed funds are shown at market value. Net income including unrealised gains or losses from holding such investments are recorded in the consolidated statement of financial performance.
(d) Trust Capital
Trust capital is made up of:
(i) Capital fund - which records initial capital fund (being the realised value of trust bank shares).
(ii) Inflation reserve - it is intended to increase the inflation reserve each year by applying the consumer price index to the sum of the initial capital fund and opening inflation reserve. The amount is to be allocated from trust profit on an annual basis.
(iii) Uncommitted surplus represents the balance of any profit remaining.
(e) Basis of Consolidation
The Community Trust of Mid & South Canterbury Inc. and its subsidiary the Trust Bank South Canterbury Community Trust Charities Limited have been consolidated using the purchase method of consolidation.
Changes in Accounting Policies
(a) While the trust has not changed its policy with respect to the capital and reserves of the trust, unfortunately the current financial result has depleted the capital and reserves:
(i) Capital fund - The initial capital fund (being the realised value of trust bank shares) was $32,087,148. The fund has been depleted with the current year's financial result to $31,136,967. It is the intention of the trustees to restore the initial capital fund to $32,087,148.
(ii) Inflation reserve - The inflation reserve has been extinguished with the current year's financial result. It is intended to increase the inflation reserve each year by applying the consumer price index to the sum of the initial capital fund and opening inflation reserve. The nominal inflation reserve required under this policy at 31 March 2003 is $4,328,167 and it is the trustees' intention to restore the inflation reserve accordingly.
(b) The trustees have not distinguished between realised and unrealised losses or between fund managers as was the case in previous years. Rather, the trustees have considered that it is more informative to analyse the gain/loss which results from the following four categories:
? Offshore debt
? Offshore equity
? New Zealand debt
? New Zealand equity
(c) The trustees have not identified accrued interest on managed funds as a separate line item this year but rather it is included in the managed fund investment balance. The trustees consider that this more accurately reflects the total balance invested in managed funds.
(d) There have been no other changes in accounting policy.
2. Managed Funds 2003 2002
$ $
New Zealand - debt 14,470,443 12,915,261
New Zealand - equity 2,916,785 6,237,789
Offshore - debt 6,021,337 5,334,884
Offshore - equity 8,126,492 10,629,471
31,535,057 35,117,405
3. Capital Fund
Initial capital fund 32,087,148 32,087,148
Transfer to general reserves (950,181) -
Balance at end of the year 31,136,967 32,087,148
4. Inflation Reserve
Balance at beginning of the year 2,539,687 2,539,687
Transfer from general reserves (2,539,687) -
Balance at end of the year - 2,539,687
5. General Reserves
Balance at beginning of the year 103,041 2,194,319
Transfer from capital 950,181 -
Transfer from inflation reserve 2,539,687 -
Add: Donations returned 26,000 16,040
3,618,909 2,210,359
Deduct Donations approved (723,410) (1,555,856)
Deduct Deficit for the year (2,895,499) (551,462)
Balance at end of the year - 103,041
6. Taxation
Net income before movement in managed funds 635,002 892,720
Add: Taxation credits 46,693 80,885
Taxable gain on debt instruments 397,939 -
Reversal of 2002 unrealised SSgA FX loss 33,751 -
SSgA dividends reinvested 737,841 -
Gain on SSgA FX contracts 1,481,424 -
Non deductible expenses 93,699 81,722
Taxable foreign exchange gains 3,055 111,047
2,794,402 273,654
3,429,404 1,166,374
Deduct: Unrealised loss on debt instruments - 85,041
Tax deductible loss on managed funds 117,448 514,225
Charitable company transactions 3,259,444 624,315
2003 dividends not yet received 18,951 -
Unrealised loss on black list equities - 130,005
Unrealised loss on SSgA FX contracts 33,561 33,751
3,429,404 1,387,337
Taxable income/(loss) - (220,963)
Tax at 33% - -
Less: Tax credits 4,320 -
4,320 -
Prior year refund due 6,912 7,501
Tax refund due 11,232 7,501
7. Goods and Services Tax
The trust is not registered for goods and services tax purposes. Accordingly, these financial statements are stated on a G.S.T. inclusive basis.
8. Donations Approved Not Yet Paid
Approved donations not yet paid out include:
2003 2002
$ $
Ashburton Youth Steering Committee - 5,000
Temuka High School (Millennium Grant) - 58,021
Waihi School - 1,125
SC Aviation Heritage Centre - 2,000
Sound Shell Roof Cover Project - 10,000
Ashburton College STAR Programme - 7,500
Fairlie Beautifying Society 10,000 10,000
Lake Tekapo Promotion Association 5,000 5,000
Caroline House Inc. 10,000 10,000
IHC South Canterbury 1,500 1,500
Kodiak Wrestling Club - 1,000
SC Car Club 5,000 5,000
SC Cricket Development Trust 75,000 75,000
SC Sports Stadium Trust 100,000 100,000
St. Augustines Anglican Church - 25,000
Ashburton Area Equestrian Federation 1,000 1,000
Ashburton Sports Hall - 15,000
Ashburton Eastern United Soccer Club 450 450
Ashburton Hockey Assn 900 900
Ashburton Musical Parenting 165 165
Ashburton Sports Turf Trust - 4,000
Mania-o-roto Rover Scout Crew 20,000 20,000
Methven Soccer Club - 300
Mid Canterbury Soccer 500 500
Mt Somers/Mayfield Order of St. John - 8,000
Geraldine Amateur Swimming Club - 30,000
Fairlie Museum Inc. 500 500
Mackenzie Junior Netball 500 500
Twizel Community Board - Project 2000 - 100,000
S C Aviation Heritage Centre - 2,000
Temuka Community Care Trust - 5,000
Air Training Corp 15th Squadron 200 200
Athletics S C All Weather Track Trust 100,000 100,000
Caroline House Inc. 36,000 36,000
Parenting With Confidence - 2,500
S C Victim Support - 750
Project Waimate 5,000 5,000
Waimate Community Youth Groups - 300
SC Conservation Trust 500 -
Aoraki Polytechnic 7,000 -
Caroline House Inc. 5,000 -
Studholme District History Committee 1,000 -
Geraldine Amateur Swim Club 30,000 -
Ashburton College Technology 46,689 -
461,904 649,211
9. Capital Commitments
There were no capital commitments (2002 - $Nil).
10. Contingent Liabilities
There were no contingent liabilities at 31 March 2003 (2002 - $297,384).
11. Advances
The trust made an advance to the Aorangi Park Trust. The balance outstanding at balance date was $40,000 (2001- $80,000). The advance is reduced each year by a donation from the trust of $40,000. The final donation will be made during the year ended 31 March 2004.
12. Financial Instruments
Fair Values
Investments are stated at estimated market value at balance date. Interest accrued, sundry debtors, sundry creditors, term loans and donations approved, not yet paid, are stated at the amounts expected to be received or paid.
Accordingly, the trustees consider that the fair value of each class of financial assets and financial liabilities is the same as the carrying value in the statement of financial position.
Credit Risk
Sixty-six per cent of the assets of the trust are represented by debt investments and current account balances with WestpacTrust and through managed fund. The trustees consider the risk of non-recovery of these investments at balance date to be within satisfactory guidelines.
The maximum exposure to credit risk of other financial instruments are:
2003 2002
$ $
Debtors 31,652 58,799
Advances 40,000 80,000
Interest accrued - 154,973
Managed fund equities 11,043,277 16,448,081
11,114,929 16,741,853
Currency Risk
The trust is party, through its managed funds, to financial instruments with off balance sheet risk to reduce exposure to fluctuations in foreign currency exchange rates. Forward exchange contracts are entered into to hedge foreign currency transactions.
The trust is also party, through its managed funds, to financial instruments with off balance sheet risk to reduce exposure to fluctuations in foreign currency interest rates. Futures contracts are entered into to hedge foreign currency fixed interest transactions.
Interest Rate Risk
The following investments of the trust are sensitive to changes in interest rate: Bank call accounts and term deposits, and various managed fund investments.
Audit Report
To the Readers of the Financial Report of The Community Trust of Mid & South Canterbury Inc.
We have audited the financial report. The financial report provides information about the past financial performance of the trust and its financial position as at 31 March 2003. The information is stated in accordance with the accounting policies.
Trustees' Responsibilities
The trustees are responsible for the preparation of a financial report which gives a true and fair view of the financial position of the trust as at 31 March 2003 and of the results of operations for the year ended 31 March 2003.
Auditors' Responsibilities
It is our responsibility to express an independent opinion on the financial report presented by the trustees and report our opinion to you.
Basis of Opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial report. It also includes assessing:
? the significant estimates and judgements made by the trustees in the preparation of the financial report; and
? whether the accounting policies are appropriate to the trust circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial report is free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated to overall adequacy of the presentation of information in the financial report.
Other than in the normal course of business and in our capacity as auditors, we have no relationship with or interest in the trust.
In forming our unqualified audit opinion, we have placed reliance upon values supplied by the New Zealand Guardian Trust Company Limited, State Street Global Advisors Australia Limited, Forsyth Barr Limited and Michael Chamberlain
& Associates, in respect of The Community Trust of Mid & South Canterbury's investment portfolio.
Unqualified Opinion
We have obtained all the information and explanations we have required.
In our opinion:
? proper accounting records have been kept by the trust as far as appears from our examination of those records: and
? the financial report
- complies with generally accepted accounting practice; and
- gives a true and fair view of the financial position of trust as at 31 March 2003 and the results of its operations for the year ended on that date.
Our audit was completed on 6 August 2003 and our unqualified opinion is expressed as at that date.
MARTIN WAKEFIELD, Auditor, Timaru.
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(A full list of all distributions of income by way of donations for the year ended 31 March 2003 is available from the trust's office on request.)