Statement of Financial Performance for the Year Ended 31 March 2008
Note 2008 2007
$000 $000
Revenue received from:
Investments 2 16,873 89,060
Other income 2,412 2,804
Total revenue for the year 19,285 91,864
Less expenditure incurred:
Fund management, custodian and advisory fees (2,426) (2,703)
Other expenditure 7 (3,661) (2,715)
Grants committed during year 5.1 (60,603) (67,872)
Grants written back during year 5,646 237
Net (deficit)/surplus for the year (41,759) 18,811
Statement of Movement in Trust Funds for the Year Ended 31 March 2008 – Refer to Note 6
Opening Balance1 April 2007 Transfers Closing Balance 31 March 2008
Trust capital:
Original capital 579,106 – 579,106
Capital maintenance reserve 188,483 26,098 214,581
Trust capital 6.1 767,589 793,687
Reserves:
General reserve 200,000 25,000 225,000
Community innovation reserve 51,679 (51,679) –
Retained surplus 6.4 43,486 (41,178) 2,308
Reserves 296,165 227,308
Trust funds 1,062,754 1,020,995
The notes to these financial statements form part of and should be read in conjunction with this statement of financial performance and statement of movement in trust funds.
Statement of Financial Position as at 31 March 2008
Note 2008 2007
$000 $000
Assets:
Cash at bank 1,466 15,717
Sundry accounts receivable 380 355
Managed Funds 4 1,098,679 1,114,340
Fixed assets 3 1,991 2,011
Total assets 1,102,516 1,132,423
Less liabilities:
Sundry accounts payable 841 1,035
Outstanding grants payable 5.2 80,680 68,634
Total liabilities 81,521 69,669
Net assets at 31 March 1,020,995 1,062,754
Represented by—
Trust funds:
Original capital 6.1 579,106 579,106
Capital maintenance reserve 6.1 214,581 188,483
General reserve 6.2 22,500 200,000
Community innovation reserve 6.3 – 51,679
Retained surplus 6.4 2,308 43,486
Trust funds at 31 March 1,020,995 1,062,754
Approved on behalf of the board:
S. K. PRIME, Chairman.
P. N. SNEDDEN, Finance Committee Chair.
Date: 26 May 2008.
The notes to these financial statements form part of and should be read in conjunction with this statement of financial position.
Statement of Cash Flows for the Year Ended 31 March 2008
Note 2008 2007
$000 $000
Cash flows from operating activities—
Cash was provided from:
Revenue received from other activities and investments 2,403 2,470
Cash was disbursed on:
Payment to suppliers, trustees and staff (3,517) (2,558)
Fund management and advisory fees (2,,664) (2,542)
Grants to community organisations (42,911) (46,535)
(49,092) (51,635)
Net cash outflow from operating activities 10 (46,689) (49,165)
Cash flows from investing activities—
Cash was provided from:
Receipts from fund managers 75,534 88,952
Cash was disbursed on:
Transfers to fund managers (43,000) (25,189)
Purchase of fixed assets (96) (123)
Net cash inflow from investing activities 32,438 63,640
Net cash (outflow)/inflow from activities (14,251) 14,475
Add: Cash at bank 1 April 15,717 1,242
Cash at bank at 31 March 1,466 15,717
Cash at bank at 31 March comprises:
Cash at bank (overdrawn) (67) 55
Call deposits 1,533 15,662
1,466 15,717
The notes to these financial statements form part of and should be read in conjunction with this statement of cash flows.
Notes to the Financial Statements for the Year Ended 31 March 2008
1. Statement of Accounting Policies
The ASB Community Trust (“the trust”) is the reporting entity. The trust was formed on 30 May 1988 through the creation of a trust deed in compliance with the Trustee Banks Restructuring Act 1988. Under the terms of the trust deed, the trust was settled with 60 million $1 fully paid ordinary shares in ASB Bank Limited representing 100% of the issued capital. As at 31 March 1988, the net tangible asset backing of those 60 million shares was $147,655,000. In 1989, 45 million shares were sold to the Commonwealth Bank of Australia for $252,000,000 which was then donated to the ASB Charitable Trust. In October 2000, the remaining 15 million shares were sold to the Commonwealth Bank of Australia for $545,000,000.
On 27 February 2006, the trustees of the ASB Charitable Trust resolved to distribute, on or before 31 March 2006, the capital of that trust (including all accumulations of income and capital to that date less accrued liabilities) in specie to the ASB Bank Community Trust. Subsequent to this distribution, the ASB Charitable Trust was wound up.
The ASB Bank Community Trust formally changed its name to the ASB Community Trust by way of deed dated 17 July 2006.
The trust is a public benefit entity which makes grants to qualifying not for profit entities in the Auckland and Northland regions.
Accounting Policies
The measurement basis adopted is that of historical cost except for financial assets and liabilities which are designated at fair value through profit or loss.
Reliance is placed on the fact that the trust is a going concern. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993.
In December 2002, the New Zealand Accounting Standards Review Board announced that New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) will apply to all New Zealand entities for financial reporting periods commencing on or after 1 January 2007. These are the first statements of the trust prepared in accordance with the NZ IFRS. NZ IFRS 1: First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements.
The financial statements of the trust until 31 March 2007 have been prepared in accordance with New Zealand Financial Reporting Standards (NZ FRS). NZ FRS differs in certain respects from NZ IFRS. The trust has assessed the differences in accounting policies arising from the adoption of NZ IFRS. The differences upon the transition to NZ IFRS are detailed in the note “Adoption of New Zealand Equivalents to International Financial Reporting Standards”.
These financial statements have been prepared in accordance with, and comply with, the requirements of NZ IFRS and other applicable financial reporting standards as appropriate for public benefit entities.
NZ IAS 1 Revised has been issued but is not yet effective. The trust has assessed the effect of this statement and concluded that there will be no material impact.
The trust’s functional currency is New Zealand dollars.
Basis of Preparation
The preparation of financial statements in conformity with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements are made by management in the application of NZ IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 9: Financial Assets and Liabilities.
Consolidated Financial Statements
Consolidated financial statements have not been prepared as the subsidiary companies have not traded since incorporation.
Statement of Cash Flows
Cash comprises cash at bank and call deposits but does not include cash or deposits held by the fund managers. Therefore, the statement of cash flows does not reflect the cash flows within the fund managers’ portfolios.
Revenue – Dividends, Pooled Funds and Interest
Dividends are recognised as income on declaration date, and are recorded net of any imputation tax credits. Income from pooled funds is recognised on declaration date. Interest is recognised on an accrual basis.
Grants
Grants are accounted for as they are committed to be distributed to eligible organisations approved by the trustees. Committed grants are payable on the satisfaction of any conditions placed on the recipients. Grants no longer required or not fully utilised by grant recipients are shown separately in the statement of financial performance.
Fixed and Intangible Assets
Fixed assets
Fixed assets are valued at cost, less accumulated depreciation and accumulated impairment losses.
Intangible assets
Intangible assets are valued at the lower of cost or fair value, less accumulated depreciation and accumulated impairment losses.
Fixed assets and intangible assets are reviewed annually to determine any impairment losses. Impairment losses are recognised in the statement of financial performance.
Depreciation, Amortisation and Impairment Losses
Depreciation is provided over the useful life of the assets. Buildings are depreciated on a straight line basis. Other fixed assets are depreciated on a diminishing value basis. The rates used are those approved by trustees as follows:.
Land Nil
Buildings 2.5% – 3.0%
Office equipment and furniture 9.5% – 6.0%
Foreign Currency Transactions and Balances
Foreign currency transactions are recorded in New Zealand dollars at the spot exchange rate applying at the date of the transaction.
All amounts denominated in foreign currencies at balance date are translated to New Zealand dollars at the balance date closing exchange rate.
All realised and unrealised gains and losses on foreign currency transactions are recognised in the statement of financial performance.
Financial Assets
All assets that are financial instruments are recognised in the statement of financial position.
All investments are initially recognised at fair value, being the fair value of consideration paid. After initial recognition, financial assets designated at fair value through profit or loss are revalued to fair value at each reporting date.
For investments that are actively traded in organised financial markets, fair value is determined by reference to exchange quoted market bid prices at the close of business on the statement of financial position date.
All realised and unrealised gains or losses on investments are recognised in the statement of financial performance.
Investments in pooled funds are valued at the unit exit price determined by the fund manager at the close of business on the statement of financial position date.
Investment transactions are recorded by fund managers on a transaction date basis.
Financial assets are managed and have their performance evaluated on a fair value basis in accordance with risk management and investment strategies of the trust, as disclosed in Note 9.
The trust uses financial instruments to reduce exposure to fluctuations in foreign currency denominated assets. Forward exchange contracts are entered into to hedge foreign currency denominated assets. These are converted to the New Zealand dollar rate at balance date with all realised and unrealised gains and losses being recognised in the statement of financial performance.
The trust derecognises a financial asset when and only when the contractual rights to cash flows from the financial asset expire.
Reserves
Transfers to the capital maintenance reserve are based on the annual movement in the consumer price index as described in Note 6.
Transfers to all other reserves from the retained surplus are made at the discretion of the trustees.
Taxation
The Income Tax Act 1994 provides exemption from income tax for community trusts established under the Trustee Banks Restructuring Act 1988. The amendment applied from the 2005 income year, and consequently no taxation has been provided for in these financial statements.
Adoption of New Zealand Equivalents to International Reporting Standards
In accordance with NZ IFRS, the trust now recognises grants committed as an expense in the trust’s statement of financial performance. Previously grants committed were recognised as a distribution of reserves in the statement of movement in trust funds.
In addition, grants that are no longer required by recipients are now separately disclosed in the statement of financial performance. Previously, grants written back were recognised in the statement of movements in trust funds prior to the date of transition.
Grants to community organisations previously classified as cash flows from funding activities are now classified as cash flows from operating activities.
These changes have no impact on the trust funds as at the date of transition or as at the previous statement of financial position date, these being reclassification adjustments only, which are summarised as follows:
2007
$000
Net surplus for the year as previously reported 86,446
Grants written back 237
Grants committed during the year (67,872)
Re-stated net surplus for the year ended 31 March 2007 18,811
2. Revenue
2008 2007
$000 $000
Investments:
Pooled funds (37,922) (13,017)
Dividends 4,595 8,257
Interest 17,842 16,934
Realised gains 13,202 72,983
Unrealised gains/(losses) (28,943) (46,105)
Realised foreign exchange gains 62,255 19,062
Unrealised foreign exchange gains/(losses) (14,156) 30,946
16,873 89,060
3. Fixed Assets
2008 2007
Cost AccumulatedDepreciation Book Value Cost AccumulatedDepreciation Book Value
$000 $000 $000 $000 $000 $000
Land and buildings 2,079 321 1,758 2,079 300 1,779
Office equipment and furniture 925 692 233 837 605 232
Total fixed assets 3,004 1,013 1,991 2,916 905 2,011
Reconciliation of carrying value of fixed assets 2008 2007
$000 $000
Book value at 1 April 2,011 1,983
Plus Additions 96 123
Cost of assets sold (8) –
Less Depreciation and amortisation (116) (95)
Depreciation on assets sold 8 –
Book value at 31 March 1,991 2,011
4. Investments
2008 2007
$000 $000
Managed by external managers:
Balance as at 1 April 1,114,340 1,089,043
Movement in market value and investment income 16,873 89,060
Net withdrawals (32,534) (63,763)
1,098,679 1,114,340
Investments managed by external managers comprise:
Cash, deposits and miscellaneous 59,550 80,373
Bonds 469,016 494,027
Equities 474,919 481,913
Collateralised commodity futures 71,720 58,027
Global property 23,474 –
Portfolio total 1,098,679 1,114,340
5. Grants
2008 2007
$000 $000
5.1 For This Year
Committed and disbursed 16,571 19,954
Committed but unpaid 44,032 47,918
Total grants approved and committed this year 60,603 67,872
5.2
Committed in previous years 36,648 20,732
Committed but unpaid this year 44,032 47,902
80,680 68,634
6. Trust Funds and Reserves
2008 2007
$000 $000
6.1 Original Capital and Capital Maintenance Reserve
Trust capital:
Original capital 579,106 579,106
Capital maintenance reserve:
Balance at 1 April 188,483 169,761
Transfer from retained earnings 26,098 18,722
Total original capital and capital maintenance reserve 793,687 767,589
The original capital of the trust arose from the sale of shares in the ASB Bank Limited. The original capital and the capital maintenance reserve form the trust capital. Trustees are required to preserve the trust capital for the benefit of present and future generations. This is achieved by setting aside each year sufficient sums from reserves to increase the trust capital by the annual rate of inflation as measured by the consumer price index.
6.2 General Reserve
Balance at 1 April 200,000 200,000
Transfer from community innovation reserve 25,000 –
Total general reserve 225,000 200,000
The general reserve forms part of the trust fund and is used to provide a stable flow of grants to the community during times of adverse investment earnings.
6.3 Community Innovation Reserve
2008 2007
$000 $000
Balance at 1 April 51,679 65,000
Committed this year – (13,321)
Transfer to retained earnings (26,679) –
Transfer to general reserve (25,000) –
Total community innovation reserve – 51,679
As a result of the exceptional investment returns achieved in the 2005/2006 year, the trustees resolved to establish a community innovation reserve of $65 million. This reserve was dis-established on 31 March 2008, with allocations to the general reserve and retained surplus, in order to strengthen the general reserve and recognise the specific grants made by the trust during the year.
6.4 Retained Surplus
Net (deficit)/surplus for year (41,759) 18,811
Total recognised income and expenditure for year (41,759) 18,811
Opening balance 43,488 30,076
Transfer from community innovation reserve 26,679 13,321
Transfer to capital maintenance reserve (26,098) (18,722)
Total surplus 31 March 2,308 43,486
The retained surplus represents funds unallocated to the general reserve and as such forms part of the trust fund. Like the general reserve, balances in retained surplus are used to provide a stable flow of grants to the community during times of adverse investment earnings.
The trust capital and reserves form the trust fund and maintain the capital base of the trust.
7. Other Expenditure
2008 2007
$000 $000
Other expenditure:
Audit fees 53 40
Depreciation 116 95
Legal fees 40 112
Occupancy costs 72 153
Other operating costs 952 452
Public and statutory reporting 177 123
Staff expenses 1,871 1,400
Trustees’ fees 256 233
Trustees’ expenses 123 106
Tax advise (paid to KPMG – Auditors) 1 1
3,661 2,715
8. Related Party Information
The following companies have been established by the trust:
Name Interest Held Balance Date Principal Activity
ASB Trusts Amateur Public Sports Promotion Limited 100% 31 March Grants to amateur sport bodies
ASB Community Trust Charitable Purposes Limited 100% 31 March Grants for specific charitable purposes
These subsidiaries were incorporated on 29 March 2001. They have not traded since incorporation.
During the year, the ASB Trusts Public Amenities Development Limited changed its name to ASB Community Trust Charitable Purposes Limited, and amended its constitution to meet the requirements of the Charities Act 2005. On 31 March 2008, the trust committed, but has not paid, a grant to the ASB Community Trust Charitable Purposes Limited to further the objectives of the company.
The trustees are the key management personnel of the trust as defined by NZ IAS 24: Related Party Disclosures. As the trustees are not employees of the trust, they do not receive short-term employee benefits, post employment benefits, other
long-term benefits, or termination benefits. Trustees are appointed by the New Zealand Government and remunerated at rates set by the Government. These rates were last set in June 2002. During the year, trustees received honoraria and meeting fees as follows:
C. Craven 19,345 16,375
M. Foy 18,000 14,955
A. Green 14,150 13,695
P. Greenbank 20,450 17,965
L. Howard-Smith – 2,066
W. Jensen 12,645 13,800
J. Kirk 17,020 14,115
K. Kohere-Soutar 16,939 14,710
Yoon Boo Lee 14,815 12,645
B. Lythe 19,695 18,540
M. Maka – 2,066
S. Pamaka 13,800 10,960
W. Petera 11,700 11,065
K. Prime 29,100 26,595
P. Rowe 14,150 12,095
P. Sneddon 16,255 15,235
L. Wilson 17,530 16,180
9. Financial Assets and Liabilities
The trust has the following financial assets and liabilities:
Financial Assets
2008 2007
$000 $000
Cash at bank 1,466 15,717
Sundry accounts receivable 380 355
Managed funds consisting of:
Global equities 366,867 367,665
Gobal bonds 254,368 254,887
Collateralised commodities futures (CCF) 71,720 58,026
Global property 23,474 –
New Zealand equities 108,052 114,251
New Zealand bonds 214,648 239,138
Cash 59,550 80,373
Financial Liabilities
Sundry accounts payable 841 1,035
Outstanding grants payable 80,680 68,634
Risks arising from the trust’s financial assets and liabilities are inherent in the nature of the trust’s activities, and are managed through an ongoing process of identification, measurement and monitoring. The trust is exposed to credit risk, liquidity risk, and market risk (including currency, interest rate and pricing risks).
The trust’s income is generated from its financial assets. Liabilities which arise from its operations are met from cash flows provided by these assets.
Information regarding the fair value of assets and liabilities exposed to risk is regularly reported to the trust’s management, the trust’s finance and administration and investment committees and ultimately to the board of trustees. The investment portfolio is regularly rebalanced to ensure that asset classes remain within the strategic asset allocation set out in the trust’s statement of investment policy and objectives (SIPO).
The SIPO sets out the trust’s investment objectives. These can be summarised as to:
? maintain the real value of the trust’s capital with regard to inflation
? maintain equity between present and future generations in terms of the amounts available for grants
? ensure a stable level of grants over time by maximising the total return that can be provided by the investments of the trust, subject to a prudent level of portfolio risk.
As a responsible member of the world community, the trust aims to demonstrate leadership by advancing universal principles and responsible corporate citizenship to make the global economy more sustainable and inclusive. The trust supports the United Nations Global Compact and is a signatory to the United Nations Principles for Responsible Investment. The investment portfolio is screened against the principles set out in the United Nations Global Compact and the trust contracts an external service provider to engage with companies where there have been allegations of practices contrary to the global compact principles. The trust encourages dialogue and discussion in this process of engagement.
The Investment Portfolio
The trust manages its investment portfolio in terms of its SIPO. The SIPO is monitored on a regular basis by the board of trustees and, as required, amended to reflect international best investment practice. The portfolio’s strategic asset allocation is reviewed at three-yearly intervals. The strategic asset allocation was last reviewed in 2005, and was under review at this year’s balance date. Russell Investment Group Limited assists both management and trustees with international strategic best investment advice and portfolio monitoring. The pricing of financial assets is undertaken by JP Morgan Chase Inc, the trust’s custodian.
Portfolio Characteristics
The trust is not directly involved with the analysis, sale or purchase of individual asset securities. Investments are made into either pooled funds or segregated accounts with fund managers. The performance of each asset class is measured against an appropriate internationally accepted standard or index for each asset class.
Global Equities
The global equities portfolio is made up of three pooled funds with eight underlying product fund managers. This spread of fund managers enables the trust to access a wide range of segments within the global equity markets. This portfolio is measured against the MSCI World Index, and is fully hedged back to New Zealand dollars.
Global Bonds
The global bond portfolio is managed by one fund of fund manager, with four underlying product mangers. This spread of fund managers enables the trust to access a wide range of segments within the global bond markets. The portfolio is measured against the Lehman Brothers Global Aggregate Index, and is fully hedged back to New Zealand dollars.
Collateralised Commodity Futures (CCF)
The CCF portfolio is an index fund, managed by one fund manager. It invests in and is measured against the S&P GSCI Commodity Index, and is fully hedged back to the New Zealand dollar.
Global Property
The global property portfolio is managed by one fund of fund manager, with four underlying product fund managers. This spread of fund managers enables the trust to access a wide range of segments with the global property markets. The portfolio is measured against the FTSE EPRA/NAREIT index, and is fully hedged back to New Zealand dollars.
New Zealand Equities
The New Zealand equity portfolio is a segregated account with one fund manager. The investment mandate allows the fund manager to invest up to 20% of the portfolio in companies listed on the Australian Stock Exchange. This portfolio is measured against the NZX 50 index.
New Zealand Bonds
The New Zealand bond portfolio is managed by two fund managers. The investment guidelines provide strict limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX Government Stock Index.
Cash
The cash portfolio is managed by one fund manager. The mandate places limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX 90 day bank bill index.
Credit Risk
Credit risk represents the risk that a counterparty to a financial asset fails to discharge an obligation which will cause the trust to incur a financial loss.
With regard to the credit risk arising from financial assets, the trust’s credit risk arises from any default by a counterparty. The current exposure at balance date is the fair value of these assets as disclosed in the statement of financial position.
Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty or where a number of counterparties are engaged in similar business activities, geographic regions, or similar economic features that would influence their ability to meet their contractual obligations by reason of changes in economic, political or other conditions.
The trust manages credit concentration risks through:
? a diversified and non-correlated basket of investments across traditional and alternative classes
? through the use of a multi-fund manager approach to investments in its portfolio
? and by ensuring compliance with the individual mandate requirements of each investment.
The trust’s custodian reviews the portfolio for compliance against each investment mandate on a regular basis and reports findings to the trust’s management and board of trustees. Fund of fund managers ensure that underlying product fund managers comply with fund mandates.
The credit quality of trust’s New Zealand bond portfolio is managed by the trust using Standard & Poor’s rating categories.
2008 2007
$000 $000
AAA to AA A+ to A– BBB
NZ bonds:
Interest bearing securities 15.4% 33,056 36,827
Corporate bonds 30.0% 5.2% 0.9% 77,488 86,328
Government bonds 40.2% 86,289 96,135
Local authority 3.7% 1.0% 10,088 11,239
SOE 2.4% 1.2% 7,727 8,609
Global bonds: AAA to AA A+ to A–
Corporate bonds 3.0% – 3,608
Government bonds 42.0% – 50,516
Swaps 41.0% – 49,314
Municipal bonds 1.0% – 1,203
MBS 10.0% 3.0% – 15,636
Cash portfolio: AAA to AA A+ to A–
Promissory notes 24.7% 14,708 19,852
Bank bills 64.1% 38,172 51,519
Cash 11.2% 6,670 9,002
This segmented global bond fund was liquidated during the year.
Hedging
Hedging is split evenly between the following counterparties:
S&P Rating
ANZ Banking Group Limited AA
Bank of New Zealand Limited AA
Westpac New Zealand Limited AA
Liquidity Risk
Liquidity risk is the risk that the trust will encounter difficulties in meeting the obligations associated with its financial liabilities. This risk is managed through the trust’s investment in a diversified portfolio of financial assets.
The trust’s investment portfolio during the year under review consisted of only listed securities which under normal market conditions are readily convertible to cash. In addition, the trust maintains sufficient cash and cash equivalents to meet normal operating requirements.
The trust’s financial liabilities comprise trade and other payables, and committed but unpaid grants.
At balance date, all trade and other payables were current, and are normally settled on the 20th of the month following invoice date.
Committed but unpaid grants are held as current liabilities pending the satisfaction of conditions under which the grant was made. At balance date, committed but unpaid grants totalled $80.68 million. These committed but unpaid grants had the following profile:
Financial Year Approved Number of Grants Outstanding Value$000
2002 1 12
2005 2 92
2006 15 16,004
2007 89 20,667
2008 455 43,905
Committed but unpaid grants at 31 March 2007 had the following profile:
Financial Year Approved Number of Grants Outstanding Value$000
2002 1 12
2004 1 64
2005 19 1,628
2006 111 19,027
2007 495 47,903
Market Risk
Market risk is the risk that the fair value of future cash flows from financial assets will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and market prices. Market risk is managed and monitored using sensitivity analysis and minimised by ensuring that all investment activities are undertaken in accordance with established mandate limits and the investment strategies set out in the trust’s SIPO.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial assets. The trust’s investment in global bonds is held in a pooled fund. As such, movements in interest rates will be reflected in each pooled fund’s fair value asset pricing. New Zealand bonds are held in segregated accounts. The exposure to movement in the fair value of the trust’s bond portfolios is discussed in the commentary on price risk.
The trust’s cheque and call accounts are interest bearing. Any movement in interest rates on these accounts is minimal and is not considered to be material.
Currency Risk
Currency risk is the risk that the fair value of, or future cash flows from, financial assets will fluctuate due to changes in foreign currency exchange rates. All investments denominated in foreign currencies are fully hedged back to the New Zealand dollar on a monthly basis for 30-day periods. This effectively removes the exposure to currency risk.
The timing of the implementation of hedging contracts at month end may result in small parcels of securities being unhedged. These unhedged securities, when they occur, are not considered material, and will have minimal impact on the fair value of or future cash flows from the trust’s financial assets.
At balance date the trust’s exposure to currency risk was as follows:
2008 2007
$000 $000
Foreign currency denominated financial assets 716,429 680,576
Less foreign currency contracts 707,842 680,576
Unhedged currency exposure at 31 March 8,587 –
USA and Canada 4,551 –
United Kingdom and Europe 2,883 –
Japan and Far East 1,153 –
Total unhedged currency exposure at 31 March 8,587 –
Pricing Risk
Pricing risk is the risk that the fair value of financial assets will increase or decrease as a result of changes in market prices, whether these changes are caused by factors specific to individual stocks or factors affecting all financial assets in the market. Price risks arise from the trust’s investment portfolio.
The trust’s financial assets are priced at fair value by the trust’s custodian. The effect on the trust’s statement of financial performance and statement of financial position at 31 March 2008, due to a reasonably possible change in market factors is represented in the following table:
Sensitivity Range(–1 to +1 standard deviation) Sensitivity Impact$000
NZ equities –7.9% to +26.1% –8,536 to +28,201
Global equities –6.3% to +23.4% –23,113 to +85,486
NZ bonds +2.9% to +9.4% +6,224 to +20,176
Global bonds +2.9% to +9.4% +7,376 to +23,190
NZ cash +4.1% to +7.1% +2,441 to +4,228
CCF’s –10.3% to +25.7% –7,387 to +18,432
Global property –4.0% to +20.0% –938 to +4,694
Total portfolio +1.1% to +13.6% +12,085 to +149,421
There is a 68% probability that the return in any one year will be within the range of 1.1% to 13.6%.
The effect on the trust’s statement of financial performance and statement of financial position as at 31 March 2007, due to a possible change in market factors, is represented in the following table:
Sensitivity Range(–1 to +1 standard deviation) Sensitivity Impact$000
NZ equities –8.1% to +25.9% –9,254 to +29,591
Global equities –6.5% to +23.3% –23,897 to +85,665
NZ bonds +2.7% to +9.3% +6,546 to +22,240
Global bonds +2.7% to +9.3% +6,882 to +23,704
NZ cash +3.9% to +6.9 +3,135 to +5,546
CCF’s –10.5% to +25.5% –6,092 to +14, 796
Total portfolio 1.0% to 13.3% +11,143 to +148,207
There is a 68% probability that the return in any one year will be within the range of 1.0% to 13.3%.
These sensitivity analyses are based on the volatility of each asset class and the portfolio as a whole, as measured by plus or minus one standard deviation.
The overall effect of the trust’s diversified portfolio of uncorrelated financial assets is to reduce volatility and stabilise investment returns over time.
10. Reconciliation of Reported Surplus to Net Cash Flow From Operating Activities
2008 2007
$000 $000
Reported/(deficit) surplus (41,759) 18,811
Add Non-cash items:
Depreciation 116 95
Movements in working capital items:
Increase/(decrease) in accounts payable (194) 242
Decrease/(increase) in accounts receivable (25) (353)
Increase/(decrease) in outstanding grants payable 12,046 21,100
11,827 20,989
Fund managers’ income reinvested (16,873) (89,060)
Net cash outflow from operating activities (46,689) (49,165)
11. Capital Commitments and Contingent Liabilities
Other than committed grants, the trust has no other capital commitments or contingent liabilities.
12. Conflicts of Interest
During the year, trustees and staff were required to declare either a direct or indirect conflict of interest in a matter being considered by the trust. A register of interests is maintained by the trust.
At the commencement of a meeting, trustees are asked to disclose any interest in the upcoming business. A trustee who has an interest in any matter before the meeting must not be counted in the quorum present at the meeting, not vote in respect of the matter, and absent him/herself from discussion or consideration of the matter. If, because of the number of trustees who have an interest in the matter, the meeting would fail for want of a quorum and it is a meeting of a committee of trustees, the matter is referred to a meeting of the board of trustees. If a meeting of the board of trustees would fail for want of a quorum because of the number of trustees with an interest in the matter under consideration, then those trustees who have the interest must a sign a certificate for entry in the minutes certifying that the matter is in the best interest of the trust and cause details of the matter and the nature of the trustee’s interest to be included in the next financial statements of the trust.
At their meeting on 27 August 2007, the trustees resolved to effect trustee liability insurance for the sum of $2 million at a premium cost of $12,738.00. Trustees individually contributed 10% of the premium cost. All of the trustees signed the resolution approving the purchase of the trustee liability insurance along with a certificate certifying that transaction was in the best interests of the trust as the terms of the insurance and the cost were recommended by the trust’s brokers as being appropriate and reasonable.
13. Material Events After Balance Date
There were no material events after balance date which required adjustment to the financial statements for the year ended
31 March 2008.
Audit Report
To the Trustees of ASB Community Trust:
We have audited the financial statements. The financial statements provide information about the past financial performance of the trust and its financial position as at 31 March 2008. This information is stated in accordance with the accounting policies.
Trustees’ Responsibilities
The trustees are responsible for the preparation of financial statements which give a true and fair view of the financial position of the trust as at 31 March 2008 and the results of its operations and cash flows for the year ended on that date.
Auditors’ Responsibilities
It is our responsibility to express an independent opinion on the financial statements 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 statements.
It also includes assessing:
? the significant estimates and judgements made by the trustees in the preparation of the financial statements;
? whether the accounting policies are appropriate to the trust’s circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards. 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 obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.
Our firm has also provided tax advisory services to the trust in respect of the year ended 31 March 2008. These services have not impaired our independence as auditors of the trust. The firm has no other relationship with, or interest in, the trust.
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;
? the financial statements:
– comply with New Zealand generally accepted accounting practice; and
– give a true and fair view of the financial position of trust as at 31 March 2008 and the results of its operations for the year ended on that date.
Our audit was completed on 26 May 2008 and our unqualified opinion is expressed as at that date.
KPMG, Auckland.
A copy of the list of all distributions of income and capital approved by the ASB Community Trust is available on request from ASB Community Trust, PO Box 68048, Newton, Auckland.